Key trends shaping the 2025 office market

The Metro Manila office market navigated a challenging landscape in 2024, marked by high vacancy rates, shifting occupier strategies, and global economic uncertainties. As 2025 begins, key trends are emerging that could redefine demand dynamics, presenting both challenges and opportunities for occupiers and landlords alike.

US ELECTION SLOWS DOWN OFFICE LEASING IN Q4 2024

Metro Manila’s office market experienced a decline in transaction activity in the fourth quarter (Q4) of 2024, with total demand dropping to 143,000 square meters (sq.m.) from 192,000 sq.m. in the previous quarter. Colliers’ historical data show that demand typically dips by 30% during US election periods as occupiers delay leasing decisions, but rebounds by 40% in the following months as market confidence stabilizes.

Despite the temporary dip, expansions remained strong, signaling businesses’ confidence in the country. In 2024, expansions accounted for 56% of known transaction motivations, while 44% were relocations — primarily driven by cost-efficiency strategies and flight-to-quality movements. Traditional firms continued to be the primary demand driver, followed by third-party outsourcing (3PO) firms and shared services providers. Government agencies played a key role in traditional office space demand, accounting for 27% of total take-up.

The submarket dynamics in Metro Manila highlight the resilience of key business districts. Among Metro Manila’s submarkets, the Bay Area remained the most active, capturing 23% of total transactions, followed by Fort Bonifacio (18%) and Quezon City (17%). Key leasing transactions in the Bay Area were from government offices, while major sign-ups from multinational firms were seen in Fort Bonifacio, and expansions of IT-BPM firms were recorded in Quezon City.

POGO EXODUS’ IMPACT TO LINGER IN 2025

The lingering effects of the Philippine Offshore Gaming Operator (POGO) exodus weighed on the market, pushing Metro Manila into its first negative net take-up territory since 2021. In 2024, POGOs vacated 260,000 sq.m., and without the ban, net take-up could have remained positive at 215,000 sq.m.

The impact is most pronounced in POGO-exposed submarkets, particularly the Bay Area, Alabang, and Makati Fringe, where vacancy rates remain elevated. With the government’s continued crackdown on illegal POGOs, surrenders from these spaces will likely drive further increases in vacancy rates.

Despite these challenges, demand from other sectors has helped cushion the impact, with traditional firms, 3POs, and government agencies absorbing space. While the effects of the POGO exit will linger, ongoing transactions have prevented a worst-case scenario.

PROVINCIAL DEMAND REMAINS STRONG, DIVERSIFYING MARKET OPPORTUNITIES

Beyond Metro Manila, provincial office markets saw sustained demand, particularly from outsourcing firms. Cebu and Pampanga remained the top locations for provincial transactions, though Cebu recorded a year-on-year drop in volume — signaling possible market saturation of third-party outsourcing firms.

However, emerging office destinations such as Davao, Bacolod, Batangas, and Bohol saw a surge in demand, averaging a threefold increase in year-on-year transaction volume. Notably, some BPO players adapted to supply gaps by securing non-traditional spaces, such as Sagility’s lease within the redeveloped Tagbilaran Airport project. Additionally, newly built office buildings accounted for 60% of leasing activity, highlighting the need for high-quality, BPO-grade office spaces.

To capitalize on this trend, developers are encouraged to explore expansion in cities with limited office supply. Major developers such as Robinsons Land and Megaworld are already pivoting toward provincial growth with key projects in Iloilo, Bacolod, Bulacan, Davao, and Dumaguete. As more firms consider decentralizing operations, having high-quality office spaces will be critical in ensuring sustainable provincial market growth and attracting long-term occupiers.

WHAT TO EXPECT IN 2025

The office market is expected to remain tenant-leaning in 2025, as high vacancy rates persist due to non-renewals and carryovers from delayed construction of office buildings. However, early indicators from our Q1 2025 data suggest renewed leasing activity — particularly from 3PO firms in both Metro Manila and provincial locations — signaling a rebound in office demand.

Global economic conditions could further bolster the Philippines’ office market. With rising costs in key international markets, outsourcing remains a cost-effective strategy for multinational companies. The recent US tariff policies, as highlighted in our previous write-up, are expected to place additional cost pressures on US firms, making offshore solutions in the Philippines even more attractive. This trend could drive increased demand for office space, particularly from 3POs and shared services firms looking to expand their footprint in cost-efficient locations.

The passage of the CREATE MORE Act — particularly its provision allowing Registered Business Enterprises (RBEs) to implement up to 50% work-from-home (WFH) arrangements—will also play a crucial role in shaping office demand. In the short term, this policy may have varied effects: some firms may rationalize their office footprint, while others may see little to no change in their space needs as they are already compliant with the onsite requirement. However, in the long term, the clarity on hybrid work policies provides occupiers with a stable regulatory framework — reducing uncertainty and allowing companies to make more confident real estate decisions.

For tenants, current market conditions present an opportunity to secure favorable deals, while landlords must enhance their offerings to remain competitive. Landlords in the Bay Area, Alabang, and Makati Fringe — particularly those with aging buildings and spaces previously occupied by POGOs — will need to implement refurbishments, offer tenant improvement allowances, and introduce flexible lease structures to attract occupiers and mitigate vacancy risks.

Source: Business World

Banks see higher loan demand in Q1

Banks expect higher loan demand from companies and households this quarter after a series of interest rate cuts done by the Bangko Sentral ng Pilipinas (BSP) last year. 

Based on the results of the BSP’s fourth quarter 2024 Senior Bank Loan Officers’ Survey (SLOS), most respondent banks projected a net increase in overall demand for loans from businesses in the first quarter.

The increase was due to higher customer inventory financing needs, clients’ more optimistic economic expectations and an increase in borrowers’ short-term financing needs.

Likewise, there was also a net increase in overall credit demand from consumers as anticipated by surveyed banks in the current quarter amid rising consumption and banks’ more favorable credit terms.

The SLOS consists of questions on loan officers’ perceptions relating to the overall credit standards of their respective banks, as well as to factors affecting the supply of and demand for loans to both enterprises and households.  

For the fourth quarter alone, the survey indicated a net rise in overall loan demand from firms, but slightly lower than the previous quarter. The increase was also driven by inventory financing needs, optimistic economic outlook and rise in borrowers’ short-term financing needs.

Meanwhile, the diffusion index approach indicated a lower net rise in demand for household loans in the fourth quarter last year compared to the previous quarter.

“The overall increase in household loan demand was mainly due to banks’ more attractive financing terms and higher consumption,” the BSP said.  

This is despite the tighter lending standards for enterprises from October to December and unchanged standards for consumer loans.

“The diffusion index approach indicated a net tightening of credit standards in the fourth quarter of 2024, due to the deterioration in borrowers’ profiles and the profitability of the bank’s portfolio,” the BSP said. 

On the other hand, the broadly steady loan standards for households were mainly due to the unchanged profile of borrowers, tolerance for risk and the profitability of the bank’s portfolio.

Source: Philstar

Can the Philippines keep its title as contact center capital of the world?

The Philippines continues to be the global leader in the contact center industry, and if the country wants to retain this position for the next 10 years, urgently modernizing processes with the use of generative artificial intelligence (AI) and data is key.

According to IDC, generative AI spending in the Asia-Pacific (APAC) region alone is projected to reach $26 billion by 2027. This includes AI investments in customer engagement as businesses seek to remodel their operations around creating delightful customer experiences at every touchpoint.

In the Philippines, a 2024 IT & Business Process Association of the Philippines (IBPAP) survey reported that 67% of IT and business process management (IT-BPM) firms, the sector that includes contact center companies, are already leveraging AI in their operations, focusing on customer service, data entry, and quality assurance.

However, while AI use cases in customer experience are increasing, traditional contact centers still struggle to meet the evolving expectations for personalized, omnichannel interactions. Amid shifting customer demands, contact centers need to transcend inefficient legacy systems and overcome integration challenges to gain a competitive edge in the age of AI.

By embracing advanced technologies and improving system interoperability, they can better cater to modern customers and enhance overall service quality.

THE STRATEGIC BENEFITS OF MODERNIZING

Utilizing real-time customer data and advanced language models can address operational inefficiencies in contact centers and improve agent experiences. Modernizing contact centers through cloud-native architecture can facilitate the delivery of better customer service at a lower cost and help businesses transition from outdated systems to more advanced ones.

With 43% of APAC consumers expecting a response within an hour, according to Twilio’s 2024 Consumer Preferences Report, streamlined processes and unified customer data can lead to faster responses and solutions. Customers do not have to go through the hassle of repeating their problems or waiting on operators to locate their information.

Insights drawn from unified data, including customer history, conversational insights, preferences, and AI-derived traits such as sentiment, predicted lifetime value (LTV), and churn propensity, can also create highly contextualized and personalized interactions, which can keep customers happier and translate to greater loyalty and customer LTV for the business.

Businesses and agents also stand to gain. Reduced instances of app switching, better access to recommended responses, and automated wrap-up reports can enhance overall productivity. This approach addresses issues such as long waiting times, repeat calls, and high transfer rates, ultimately leading to service and operational performance improvements. Businesses can streamline operations further using predictive analytics, which reduces workload and search time for agents.

THE NEXT RACE: EMBEDDING CDP DATA INTO THE CONTACT CENTER TO EMPOWER AGENTS

Harnessing the potential of first-party data, which is customer data directly collected and owned by the organization doing business with them, and empowering agents is essential for modernizing contact centers. Collecting first-party data from various sources and integrating it into real-time service interactions can provide agents with more comprehensive information than traditional customer relationship management (CRM) systems. Using a customer data platform (CDP) alongside CRM can help contact centers better understand customer behaviors.

Leaders in customer experience can rely on CDP data because it offers real-time insights and supports the shift towards omnichannel. The real-time nature of CDP data allows leaders to respond swiftly to customer needs and preferences as they arise.

CDPs’ ability to consolidate data from billing systems, data warehouses, and marketing automation platforms also makes it easier to transition across channels without losing context or information.

With the emergence of newer large language models and the memory capabilities of CDPs, agents now have access to personalized assistance during customer conversations. This development changes the traditional approach to agent training.

Lengthy training sessions confined to a classroom setting, which also incur additional costs, are less necessary. Instead, agents can engage with customers more proactively, knowing that their AI assistant can help with complex scenarios that may arise occasionally.

NAVIGATING TRANSFORMATION AMIDST FILIPINO CONSUMERS’ PRIVACY EXPECTATIONS

As with every new technology, businesses need to be mindful of using AI safely to harness customer data and build transparent and trustworthy systems. According to Twilio’s recent State of Customer Engagement Report, 41% of businesses in the Philippines consider protecting customer data their most pressing challenge. Shortage of labor and navigating the complexity of regulations were also identified as top challenges.

Incorporating privacy and security features and principles into the development lifecycle of new technologies can support the compliant and responsible use of customer data. The report also found that the majority (77%) would trust a brand more if it disclosed how customer data is used in AI-driven interactions. Additionally, three in four Filipino consumers ranked transparent communications such as clear terms and conditions, return policies, ease of reaching customer support, and responsive customer service, as the most effective ways to maintain trust.

As customer expectations and business needs evolve, traditional contact centers must also keep up with the times. Improving customer experience requires adopting modern technologies that ensure data protection, improved response times, and transparency.

This shift involves moving away from outdated models and implementing scalable solutions that can meet business needs. Modern contact centers should be capable of rapidly adapting to changes and providing excellent customer service.

Source: Business World