Metro Manila office rental prices decline despite improved vacancy rate

Vacancy rate in Metro Manila’s office market improved in the second quarter of 2024, yet rental prices for office spaces have continued to decline since 2023, according to real estate services and investment firm CBRE Philippines.

“This may look good on the upper hand, but zooming into the prices of each sub-district, we have been noting a trend of declines or reductions in rates as well,” CBRE Philippines Research Head Samantha Laureola said during a briefing last week. 

Metro Manila’s fair market rents (FMR), which represent the typical rental prices for office spaces, have decreased by 2% to 19% across various sub-districts from the first quarter of 2023 to the present. 

The Bay Area’s FMR fell 19% from the first quarter of 2023, followed by a 13% decrease in Makati A&B premium office buildings. Alabang also went down 10%, North Bonifacio declined 3%, and Makati Prime went down 2%.

Meanwhile, Quezon City rose 9% and McKinley inched up by 6%. Ortigas also increased by 2%, and Bonifacio Global City (BGC) rose by 0.4%.

“So lower rates, potentially more attractive lease structures for clients, higher demand, and lower vacancy overall,” she added.

The vacancy rate went down to 17.8% in the second quarter of 2024 from 19.7% in the same period last year.

CBRE also revised its initial forecasted vacancy rate from 18.8% to 22.6% by the end of the year due to the Philippine Offshore Gaming Operators (POGO) ban. 

Makati Prime had the highest FMR in the second quarter of this year at P1,289.01, followed by BGC at P1,170.88, while North Bonifacio and the Bay Area logged P1,076.88 and P702.64, respectively. 

Makati A&B recorded an FMR of P789.40, McKinley at P834.06, Ortigas at P764.39, Alabang at P671.40, and Quezon City at P735.35.

“Lower FMR for most of the major Metro Manila markets as developers continue to provide aggressive rates to spur transactions,” the firm said.

On a quarter-on-quarter basis, CBRE Philippines Director of Advisory and Transactions Services Garri Amiel Guarnes said the Bay Area had the highest reduction of 7.3% in FMR in the second quarter of 2024.

“That’s a lot to do with the transactions, government take-ups within the Bay Area, and the high number of square meters being taken by the government offices,” he said.

The office market logged 257,200 square meters (sq.m.) of office leases for the second quarter, driven by government take-ups that accounted for a 26% share. 

Some of the biggest government leases during the first half went to Filinvest, including the National Bureau of Investigation in Cyberzone Bay City Towers and the Department of Trade and Industry in Filinvest Buendia. 

Despite CBRE’s expectation that the vacancy rate by year-end will hit 43% due to the POGO ban, the Bay Area was the top district for the second quarter of 2024 with 83,400 sq.m. of leases in the country.

SERVICED OFFICE VACANCY RATE HIT 20.6%

Meanwhile, the vacancy rate of Metro Manila’s flexible market — comprising coworking spaces, serviced offices, and short-term leases — surged 20.6% to 7,000 vacant seats in the second quarter due to the opening of new sites across the area, CBRE Philippines said.

This figure was 6.75% lower than the 14% vacancy rate in the same period last year, and lower than the 17% recorded last quarter.

CBRE Senior Research Analyst Angela Joyce Sumalinog said the increase in vacancy was driven by the opening of new sites in Metro Manila, where Fort Bonifacio recorded the lowest vacancy rate at 11%.

North Bonifacio’s vacancy rate fell to 10% in the second quarter, while BGC also decreased to 10%. McKinley’s vacancy rate rose to 18%.

The vacancy rate in Makati increased to 19%, Ortigas doubled to 24%, and Quezon City reached 22%. Meanwhile, the Bay Area and Alabang saw increases to 25% and 52%, respectively.

“Another factor that we’re seeing that can affect the flex market would be comparing serviced offices versus vacated spaces with quality fit-outs. The former would often have a premium on rates of 50% to 80% over three to five years,” Ms. Sumalinog said.

CBRE reported that Metro Manila rates range from P5,000 to P36,000 per seat per month.

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Source: Business World

Direct liability of sublessor to lessor

In the Philippines, even though the sublessee is not a direct party to the contract between the lessor and the lessee, the sublessee still bears direct liability to the lessor for actions related to the use and preservation of the leased property. Specifically:

• Use and Preservation: The sublessee must adhere to the terms stipulated between the lessor and the lessee regarding the use and maintenance of the property. If the sublessee fails to do so, the lessor can take legal action directly against them.

• Exception to the Rule: While the general rule in contracts states that the sublessee can only be held liable directly to the sublessor, Article 1651 of the Civil Code provides an exception. The lessor may bring an action directly against the sublessee if they do not use and preserve the leased property in accordance with the agreement or the nature of the property.

• Rent Obligations: Additionally, the sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, this liability is limited to the amount of rent owed by the sublessee according to the terms of the sublease at the time of the lessor’s extra-judicial demand.

In summary, the sublessee has both direct liability to the lessor for property-related matters and subsidiary liability for rent obligations.

Source: Ziggurat Real Estate Corp.

Vacation rental sales upend guests’ plans

A few days before flying to Bali, Indonesia, I received an unexpected email from Airbnb: My host had sold my vacation home. h “We’re reaching out with the unfortunate news that your reservation was canceled,” it said. “Your refund is on its way.” But wait – I didn’t want my money back. I needed a place to stay while I was in Indonesia. Airbnb assured me I had nothing to worry about. It would find a new rental and cover my extra expenses. But, as always, some restrictions applied.

'Know your rights if you’re faced with abruptly having to find different accommodations'

Sales cancellations are on the rise

Selling a vacation rental out from under a guest is becoming a big problem, insiders said. There are no statistics on the number of vacation rentals with active reservations that are for sale. But Justin Gordon, who runs the rental price comparison site HiChee, says more hosts are putting their rentals on platforms like Airbnb and Vrbo while they wait to sell their properties. He has seen the disruption it causes guests who are about to leave for vacation. “I felt so sorry for the guests,” he said. Did I mention the Indonesia rental? That wasn’t my first cancellation. I rented a condo in Oahu, Hawaii, a few years ago through Vrbo. A week before I checked in, I got an email saying my stay had been canceled because the property was sold. “Many homeowners are investors, buying properties low and selling high or holding them for a set number of years as a part of their financial strategy,” said Matthew Deal, managing director of Element Vacation Homes, a central Florida vacation rental company.

A cancellation can have consequences for the seller. For example, if you list your home on Vrbo, you might have to pay the platform a cancellation fee, which gets higher as your arrival day approaches. “In addition to financial penalties, repeat offenders may see limited search visibility on the Vrbo app and site, temporary suspension or revocation of their Premier Host status,” said spokesperson Nola Lu. Airbnb has similar restrictions. “We expect Hosts to honor accepted reservations,” said spokesperson Aaron Swor.

What are your rights when your vacation rental is sold?

 If your vacation rental is sold before you arrive, you have some rights – though not as many as you’d assume.

• For rentals booked directly through the owner, your rental contract will outline your right to a refund. If you’re dealing with a host who has only one rental or can’t accommodate you at a different property, you’ll get a full refund, but you’ll have to start over and find a new vacation rental. Pro tip: Use a credit card to book. If the owner flakes out and tries to keep your money, you can always dispute dispute the charges.

• For rentals booked through a popular vacation rental platform like Airbnb or Vrbo, the platform will offer a full refund or accommodate you at a different rental property. If there’s a price difference – and there usually is – then the platform may offer to cover the extra cost.

• If you booked through a property management company, your rights may not be spelled out in your contract, but chances are the company will have a plan “B” ready. For example, Element Vacation Rentals has a policy to promptly present multiple options to displaced guests, including comparable properties from its portfolio and those of its competitors. Ask about the policy before you make a reservation. At least, that is what’s supposed to happen if there’s a cancellation. But let’s talk about what actually does happen.

What if an owner sells a vacation rental?

 When an owner sells your vacation rental from under you, you’ll probably feel confused and upset. And even as you’re processing the loss of your rental, your host may ask you for a favor. When the owners of Gerri Detweiler’s Airbnb rental sold their place, her host asked her to cancel the rental. The reason? The host didn’t want to incur a fee from Airbnb. So Detweiler, a personal finance expert from Sarasota, Florida, canceled the stay. “I didn’t bother booking another rental with Airbnb,” she said. For both of my cancellations, I had no choice. I was only days away from checking in. To their credit, both Airbnb and Vrbo helped me. Vrbo found a new rental in Hawaii and covered the price difference. Airbnb offered a coupon and sent me a few options for a replacement rental in Bali. The only one available on such short notice was thousands of dollars more than my original rental, so Airbnb increased the amount of the coupon to cover the extra cost.

The difference between the platforms was in their approach to the situation. Vrbo transferred me to a special team that took care of everything quickly. With Airbnb, it felt like more of a negotiation. But in the end, I was grateful to have the protection of both vacation rental platforms.

This could happen to you

This isn’t an abstract issue. Two of this year’s hottest housing markets – Orlando and Tampa, Florida – are popular with vacation renters and are likely to have lots of homes that are also on the market. But that’s not the real problem. It’s that most vacation rental customers don’t know their rights when they rent. They either assume that they have no choice but to take the refund and that they’re on their own. Or they believe the vacation rental company must find them a comparable rental and cover any price difference. But you’re not on your own unless you rented directly through an individual – and even then, the previous owner may be able to refer you to another rental. And your vacation rental platform won’t automatically find you a new place and pay for it. You may have to negotiate. The best solution is disclosure. Vacation rental owners should tell you if their property is for sale. Then you can make an informed decision about whether you still want to rent the place – and take your chances.

Source: USA Today