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AI Adoption Signals a Shift in Office Space Demand, Cushman & Wakefield Reports
AI's rise in the IT-BPO sector may dampen office space demand, according to Cushman & Wakefield. The integration of AI tools like virtual assistants and automated customer service is reshaping workforce needs, reducing office space requirements. Coupled with policy shifts in the Philippines, such as the POGO ban and flexible work initiatives, Metro Manila's office market is seeing record-high vacancies and declining rents, signaling a tenant-friendly environment.
The latest analysis from real estate firm Cushman & Wakefield suggests that the growing adoption of artificial intelligence (AI), particularly in the information technology and business process outsourcing (IT-BPO) sector, may curb future demand for office spaces. In their recent report, Claro dG. Cordero, Jr., Director and Head of Research, Consulting & Advisory Services, highlighted how AI tools—like virtual assistants, chatbots, and automated support systems—are transforming business operations by handling tasks once managed by human employees. This shift, he noted, could lead to a slower growth trajectory for office space needs in prime markets unless companies adapt strategically.
While AI is driving efficiencies and cost savings, Cordero also pointed out that certain areas, such as data analysis and complex customer service, still rely on human expertise.
Industry stakeholders have been urged to support workers in adapting to this AI-driven transformation. "Equipping employees with advanced technical skills will be crucial to maintaining workforce relevance in an AI-integrated workplace," Cordero emphasized.
Last month, BMI, a division of Fitch Solutions, shared similar projections, suggesting that AI integration might impact the Philippines' BPO industry, with companies now able to return call center functions to developed markets at reduced costs.
Other Market Disruptors Impacting Office Space
Alongside AI, Cushman & Wakefield pointed to broader global and regional factors reshaping the office space landscape. In the Philippines, recent policy shifts are expected to influence vacancy rates significantly. Notable challenges include the nationwide ban on Philippine Offshore Gaming Operators (POGOs) and the implementation of the CREATE MORE Bill, which supports flexible work arrangements. These developments are anticipated to leave more office spaces unoccupied.
As of the third quarter, vacancy rates for premium and grade “A” office buildings in Metro Manila rose by 280 basis points (bps) compared to the prior quarter and 136 bps year-over-year, hitting an 18.2% vacancy rate—the highest seen since 2004. Cushman & Wakefield also recorded a quarterly influx of 114,000 square meters of new office space, further contributing to rising vacancy rates as large corporations reassess their space requirements.
Market Outlook: Vacancy and Rent Trends
In Metro Manila, tenant demand appears to be lagging, as vacancy rates continue to rise while rental rates decline. Average asking rents for high-grade office spaces dropped to PHP 1,003 per square meter per month, a slight dip from the previous quarter and part of a broader trend of four consecutive quarters of declining rents. Compared to the previous year, rents have decreased by 363 bps.
Tetet Castro, Director and Head of the Tenant Advisory Group at Cushman & Wakefield, noted that "the Metro Manila office market is recovering more slowly than expected, with increasing vacancies and softening rents making conditions favorable for tenants."
Looking ahead, Cushman & Wakefield anticipates that elevated vacancy rates and lower rents will continue to shape the office space market in Metro Manila, influenced by the combined impact of AI adoption, policy changes, and an evolving corporate landscape.