REDEFINING THE OFFICE SEGMENT
THE COUNTRY’S real estate industry will experience continued success this year. In particular, seen to further fuel the growth in the office segment — alongside those engaged in the business process outsourcing ( BPO) sector — are offshore gaming companies.
In its review for the fourth quarter of 2016, property consultancy Colliers International said information technology- business process management ( IT-BPM) firms remained to be the leading sustainer of demand for office space, contributing as much as 60% to Metro Manila’s office takeup last year.
“IT-BPM companies have continued to expand in Metro Manila,” the group said. “More recently, [ however], they have also considered provincial locations as players already have sites in the country’s capital,” it added.
The IT and Business Process Association of the Philippines earlier said it projects an 8% compound annual growth rate in full-time equivalents in the five years to 2022, with growth expected from the shift from primarily voice- driven services to mid-to-high level value of services as well as the growing presence of BPO firms in provincial locations. These alternative areas, according to Colliers International, include Cebu, Iloilo, Pampanga, Davao and Bacolod as these have the talent pool, business competitiveness, and ICT council support.
In its market report, another real estate advisor CBRE Philippines, Inc. said it expects BPO firms to continue driving the growth of the office market. “Uncertainties” in the new administration, it said, did not induce unfavorable sentiments among the players in the office sector, and foreign investors are actually still into the country’s BPO industry. Testament to this is the anticipated increase in the take-up rate of office spaces inside and outside the metro following the entry of new global businesses, it added.
“Nonetheless, the concentration of labor has kept Metro Manila as the preferred site. The sizeable take-up in 2016 from Google, Towers Watson, Cardinal Health, among others, shows that the industry will likely continue growing. The biggest recorded transaction for the year came from Google which closed over 50,000 sq. m. across three sites,” Colliers International, for its part, said.
In its report, Colliers International said a total of 676,000 square meters (sq. m.) of office space was taken up in central business districts in the metro in 2016. This was up by 7% compared to the year prior.
In the October to December period, 154,000 sq. m. were recorded. More than 70,000 sq. m. were attributed to offshore gaming businesses during this quarter alone, and these comprised 82% of the total 85,000 sq. m. taken by these firms last year.
“The Philippine Amusement and Gaming Corporation ( PAGCOR) has launched POGO ( Philippine Offshore Gaming Operators) late last year, initially setting 25 POGO licenses but with a potential to increase to 50 in the next six months,” Colliers International said in its forecast for the local property industry this 2017.
On the heels of his oath- taking last year, President Rodrigo R. Duterte announced he wanted to put an end to online gambling in the Philippines. PAGCOR then stopped renewing online gaming licenses, and since then has relied on offshore gaming licenses as a new source of revenue.
“In the last quarter of 2016, there was a surge in inquiries from offshore gaming companies, each with a minimum requirement of 10,000 sq. m. taking BPO spaces,” said Colliers International.
With the impending increase in demand from these gaming companies, it said it is imperative for the government to create concrete policies for PAGCOR, which is central to the development of these businesses’ growth prospects. It also suggested that landlords must be prompt in considering accommodating offshore gaming companies that are eyeing expansion.
“We suggest that tenants should be quick to close transactions to ensure that they acquire their chosen workspace. Developers, on the other hand, must be timely in delivering buildings to address the tenants’ immediate office needs.”
Due to its proximity to the airport and the soon-to-rise PAGCOR Entertainment City, the Pasay-Bay area has become the preferred site of a large number of offshore gaming companies. Similar tenants have thus looked to other locations in the absence of available office space, Colliers International said, adding that 35 POGO licenses have already been issued by PAGCOR so far and 25 more are in the offing. This is equivalent to at least 350,000 sq. m. of office space in the near term, it noted.
“The significant size requirement and these companies’ willingness to pay higher rents will potentially
DRIVING DEMAND
The positive performance of the office market in 2016 was primarily driven by the influx of players in the offshore gaming sector, along with the continuous expansion of IT-BPM and tenants looking for flight- toquality opportunities, Colliers International emphasized. “For 2017, Colliers foresees the same drivers dictating the pace in the market, with overall Metro Manila demand projected to grow by 8%,” it added.
On account of this strong demand, it said it sees overall vacancy to remain low over the next 12 months.
“We predict that the current stock will increase by 889,000 sq. m., 64% higher than last year’s new adds. Despite this expected upcoming supply, we project vacancies to remain below 5% due to the strong pre-leasing across submarkets. Buildings due to be completed within the year are already 32% pre-leased as of the start of 2017.”
Moreover, delays were seen on the supply side during the last quarter of 2016. Only 543,000 sq. m. of office space were delivered due to the lack of skilled manpower. The figure was way below the previously projected 880,000 sq. m. This was also the case with the preceding three-month period.
“The delivery of office buildings is hindered by construction delays brought about by the tight labor situation,” Colliers International said in its review as of end- September last year, adding that these delays have also caused troubles in the residential, leisure and retail segments. —