THE office market should let go of the online gambling firm tenants that operate in the country even if most of them have fled the country, a top executive of Colliers Philippines said on Thursday.
“Let’s move on from POGOs [Philippine offshore gaming operators] already,” Kevin Jara, associate director for tenant representation at Colliers Philippines, said at their online Third Quarter Property Market briefing.
As what the company previously reported, “a large chunk” of them have moved their operations to other destinations abroad.
“I think half of them have already left the country,” he bared, referring to the call of some legislators to ban their operations since social costs outweigh the financial benefits the country derives from them. “The current contribution of POGO space to total office stocks is just 5 percent. So if there is like a full POGO ban, the impact is only 5 percent additional vacancy.”
Based on the latest Colliers quarterly report released during the webinar, Jara bared that office transactions in the first nine months of 2022 rose by 72 percent to 495,600 square meters (sq m) compared to the 288,300 sq m in the same period last year. Such improved leasing activity, according to him, is indicative that the office market in Metro Manila is sustaining its recovery.
Per the study, more occupiers executed flight-to-quality strategies and locking in spaces in central business districts such as Fort Bonifacio, Makati and Ortigas.
Following the negative net take-up on the last couple of years, Colliers has so far seen that net absorption reverted to positive territory in 2022. In fact, there was a net take-up of 99,400 sq m of office space from January to September of this year, as vacancy was steady at 17.7 percent.
From 2020 to September of this year, lease rates in Metro Manila have corrected by 35 percent. Business process outsourcing (BPO) firms led transactions as of September, followed by traditional occupiers, such as serviced offices, logistics, fintech, health care, and government.
Quarter-on-quarter (QoQ), the report showed robust office performances, with deals reaching 168,700 sq m from July to September of 2022 alone, or 99,300 sq m higher than the 69,400 sq m during the same period a year ago.
Net absorption, though, reached 29,700 sq m in the third quarter of this year, slightly lower than the 45,100 sq m of net take-up the previous quarter.
Transactions outpaced vacated spaces in Metro Manila, Jara said, while citing also strong transactions activity seen in the countryside. The research bared that deals coming from provincial areas account for 23 percent of total transactions nationwide, with QoQ deals reaching 145,000 sq m from only 82,000 sq m.
Cebu, Davao and Pampanga cornered 85 percent of the transactions with outsourcing players dominating the take-up.
In terms of new office space, there were 102,700 sq m delivered in the third quarter, lower than the 146,700 sq m from April to June of this year and the 156,600 sq m from July to September 2021.
On average, lease rates in the National Capital Region decreased by 1.9 percent in the third quarter of this year, slower than the 2.6 percent decline in the previous quarter.
“We are still seeing sustained quarterly transaction activity. We’re going to end in a net positive office space demand even without significant POGO transactions in the market,” Jara pointed out.
In the last quarter of 2022, Colliers expects new supply to reach 228,300 sq m, bringing the total inventory for the year to 783,900 sq m, with Quezon City and Fort Bonifacio dominating new completion. This is up from 633,900 sq m a year ago.
The company revises its net take-up forecast for the entire year to about 140,000 sq m, lower than its initial forecast of 350,000 sq m.
Despite lower 2022 projections, it’s still an improvement after the Metro Manila office market posted two consecutive years of negative net absorption: −181,300 sq m in 2020 and −273,100 sq m in 2021.
The low precommitment levels from upcoming buildings is likely to push vacancy to 19.5 percent this year from 15.7 percent last year. Further correction in rents is, likewise, projected in 2022 before a bottoming out in 2023.
Outsourcing and traditional firms will continue to lead office space absorption within and outside of Metro Manila.
“Let’s give other sectors a chance again in contributing to office space demand like the BPO. Ibpap [Information Technology and Business Process Association of the Philippines] already has a positive forecast for income growth in the next six years, and it’s not something that will be sidelined. It’s going to be an important factor in office space demand in the coming years. So let’s move on from POGOs already,” Jara stressed.
Image credits: Nonie Reyes