Amid market uncertainty, Colliers International reported on Wednesday the improved performance of the real-estate industry’s office segment, with the completion of about 291,000 square meters of workspace in Metro Manila, thus bringing the total stock to 11.7 million sq m in the third quarter of 2019.
The leading global real-estate services and investment management company said Quezon City covered 37 percent of the new supply from July to September this year, followed by Ortigas Center at 35 percent, Bay Area at 22 percent, and Fort Bonifacio in Taguig at 6 percent.
“Seventy-two percent of office space demand is from Pogo [Philippine offshore gaming operators] and traditional [occupiers]. So the rest, the 28 percent, is only from BPOs [business-process outsourcing],” Colliers International Senior Research Manager Joey Roi H. Bondoc said after the property market briefing held in Makati City.
He attributed the decline in the office takeup of the BPO—traditionally the main tenant, absorbing 60 percent of the inventory four or five years ago—to its “wait-and-see” stance due to issues on taxation and availability of economic zones.
The government’s tax-reform bill rationalizes tax perks granted to outsourcing tenants, and some industry groups say this could hike taxes by 130 percent to 170 percent and cut industry growth by as much as 50 percent. This has caused BPO locators to be cautious about expanding.
The outsourcing sector, meanwhile, has mixed sentiment toward the state’s moratorium on the acceptance, processing and evaluation of applications for Philippine Economic Zone Authority ecozones in Metro Manila by virtue of Administrative Order (AO) 18 given its perceived impact on its future expansion.
“More than the higher tax or the decentralization push, it’s really the uncertainty that is holding them back. That makes them wait and see. Will they expand now or will they expand after the next administration?” Bondoc said.
Meanwhile, the Pogo keeps outpacing the BPO and other locators in terms of its share of total rental transactions in the National Capital Region office market. For the first nine months, offshore gaming firms constantly expanded in the NCR, accounting for 37 percent of all closed deals, based on the quarterly study of Colliers Internationals. These are mostly in the Bay Area and the fringes of Makati and Ortigas.
While there’s concern over the sustainability of the Pogo in the country due to the Philippine Amusement and Gaming Corp.’s directive to suspend the issuance of permits to online casinos for Chinese gamblers, the Colliers official is bullish that it will still propel office demand over the next three years due to an “accommodating government policy” in general.
The traditional occupants continuously propelled the office market in the metropolis, accounting for 35 percent of transactions from January to September, or a 34-percent share in the same period in 2018. Colliers, though, sees a lower absorption from this segment in the next 12 to 24 months, especially with the slower economic growth forecast of multinational banks, credit rating firms and multilateral aid agencies.
The national government has cut its economic growth projection to 6 percent from the already downgraded 6.2-percent forecast.
Bondoc said the comprehensive tax-reform program may provide a boost for tenants. Reducing corporate income tax to 20 percent from the current 30 could stimulate further expansion of micro, small and medium enterprises that, eventually, will contribute to greater office space takeup.
Colliers observed that office vacancy stood at 5 percent only during the period in review, nearly unchanged from the 4.9 percent recorded in the previous quarter. Absorption was strong across almost markets, especially in Quezon City, Fort Bonifacio, Bay Area and Alabang. A marginal rise in vacancy was in Ortigas because of the delivery of 102,700 sq m of new leasable space.
Looking forward, leasable office stock in NCR is seen to reach 14.1 million sq m by the end of 2021, or 28 percent higher than the Metro’s stock of 10.9 million sq m at the end of 2018.