Online gaming operations in other countries can pick up the slack in the event China-owned Philippine offshore gaming operations (POGO) mature and start to slow down, according to property consultant Leechiu Property Consultants (LPC).
David Leechiu, LPC chief executive officer, said POGO takeup hit 738,000 square meters (sq.m.) so far this year compared to the information technology-business process management (IT-BPM)) sector’s 573,000 sq.m. as total office space demand in the country hit a record of 1.7 million sq.m.
LPC said the IT-BPM’s uptake is 14 percent less than in 2018 “due to the lack of readily available office supply and a wait-and-see attitude.”
“In Metro Manila, demand from POGOs doubled from 290,000 sq.m., in 2018 to 608,000 sqm. in 2019 while IT-BPM takeup remained steady at 428,000 sq.m., or 4,000 sq.m., less than the 2018 demand owing to the scarcity of offices spaces with tax incentives,” Leechiu said.
Leechiu noted that IT-BPM transactions were brisk in the first half of the year but significantly dampened after Administrative Order 18 was issued in June directing the Philippine Economic Zone Authority (PEZA) to stop processing new economic zones in Metro Manila.
“Meanwhile, POGO transactions peaked in the second quarter and continued into the fourth quarter. During this period, gaming operators took up entire buildings in the Bay Area, Quezon City and Makati City,” Leechiu said.
Leechiu added local industries exhibited demand for office spaces with flexible work spaces, real estate developers and banking institutions accounting for 25 percent of demand or 336,000 sq.m., in Metro Manila and 22 percent of demand, or 379,000 sq.m., for the entire country.
Leechiu said the annual projected demand nationwide for the IT-BPM industry, which has been a driver of the office sector for more than a decade, is estimated at 600,000 sq.m. annually.
“Nevertheless, supply of PEZA-accredited vacant spaces in both Metro Manila and provincial locations will be extremely low in the next five years. In 2020, for instance, only 138,000 sq.m., spread over seven buildings in Metro Manila and 79,000 sq.m., in six buildings in provincial locations will be available, leaving an unserved demand of 383,000 sq.m.,” he said.
The supply will increase in 2021 to 277,000 sq.m., with five of the buildings in Metro Manila accounting for 120,000 sq.m., and nine buildings representing 157,000 sq.m., in provincial locations which will still leave an unserved IT-BPM demand of 323,000 sq.m., he noted.
“Lack of PEZA supply is likely to make the Philippines a less attractive hub for IT-BPM firms on expansion mode. We need more PEZA-accredited buildings in the pipeline if we want the country to continue being an ideal location for these companies,” Leechiu said.
In 2019, the Bay Area among Metro Manila districts experienced the highest take-up at 468,000 sq.m. with 75 percent of the total absorbed by POGOs. Most POGOs prefer to occupy entire buildings which Bay Area could readily supply. Quezon City came in second at 253,000 sq.m., and Bonifacio Global City/Taguig third at 221,000 sq.m., with IT-BPM predominantly claiming the available supply of PEZA- accredited spaces in these areas.
“Makati City was a close fourth at 215,000 sq.m., with most of the take-up consisting of limited spaces that could readily be used by flexible work spaces and local firms, which drove demand,” Leechiu said.
Outside of Metro Manila, IT-BPM claimed majority of new spaces in Cebu City while POGOs drove demand in Clark and Pampanga.
Leechiu said the Clark corridor is “the new frontier.”
“A number of factors have conspired to make it so. These are the combination of international access, better connections to Metro Manila via rail and other new roads in addition to existing tax incentives and massive amount of available talent,” he said.
Leechiu said rental and renewal rates are expected to peak in the next few years, “given the diminishing office supply and lack of PEZA spaces.”
“Rental rates at Bay Area are already at P1,600 per sq.m. (per month), and are likely to climb further in 2020. Makati prime and grade A buildings are expected to hover below Bay Area rates. Bonifacio Global City (BGC) is also projected to go beyond its current P1,400 per sq.m., asking rate,” he said.