By VG Cabuag & Butch Fernandez
Traditional business-process outsourcing firms (BPO) drove demand for office space in key Philippine cities, which rose by 34 percent from before the enhanced community quarantine (ECQ) was imposed in mid-March to May, according to real-estate broker Leechiu Property Consultants.
David Leechiu, CEO of the company, said some 211,000 square meters of office demand was recorded for the first five months of the year, 34 percent higher, or 54,000 square meters, more than the 157,000 square meters recorded before the ECQ in March.
Of this demand, Metro Manila comprises up to 60 percent, and the rest came from the provinces. This despite the decision of the government to place the National Capital Region under lockdown starting mid-March to contain the spread of Covid-19.
Firms from the information technology and business process management (IT-BPM) accounted for 37 percent, followed by Philippine offshore gaming operators (Pogos) mainly from China at 13 percent. Traditional offices, corporate tenants and flexible workspaces accounted for the rest.
Demand from the IT-BPM and Pogos combined with improving investor and public confidence should bring up office demand to approximately 800,000 square meters by year-end, Leechiu said.
“We expected zero demand in the second quarter of 2020 but despite the ECQ/MECQ [modified enhanced community quarantine], we’ve seen transactions concluded,” said Leechiu.
“Philippines is most likely the only office market in the world that is still growing in demand today. We also expect IT-BPM demand to surge once more by year-end when both the Philippines, US and other countries would have adopted to a new normal.”
He also said he expects Pogos to make a comeback by the end of June and further drive demand.
Leechiu said the operations of most Pogos would hit 30 percent to 50 percent by end-June following a compromise agreement between the operators and the Bureau of Internal Revenue. The tax agency has threatened to stop the operations of Pogos pending the settlement of their tax obligation.
“As soon as travel restrictions are lifted, we are optimistic that POGOs will be back to full capacity, and will start revisiting their expansion plans.” Leechiu said many firms in China are also likely to transfer their customer service operations to the Philippines.
These developments, he said, would keep the office property market buoyant and will provide sources of revenue for the Philippine government.
Prospects
Leechiu also said new office spaces would be smaller than initially projected. While construction has already resumed in current office projects, work capacity may still be at 50 percent owing to the imposition of social distancing and the deployment of a skeletal workforce.
Depite the jump in office space demand, Senate President Pro Tempore Ralph Recto said he is not upbeat about the prospects for the Philippine real estate market.
While he acknowledged that the Real Estate Investment Trust (REIT) law somehow accounts for this positive development, Recto said in a text message to BusinessMirror: “REIT is helpful, however, I expect office space, real estate in general, will be weak.”
Asked about the basis for his “weak” projection, Recto replied: “Work from home. Social distancing. Prices are dropping. Stock prices of publicly-listed real estate companies have dropped a lot.”
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