Office property glut seen until 2020
Property consulting firm Colliers Philippines sees the office property market turning less favorable for landlords from 2019 onward, citing the slowdown in the business process outsourcing (BPO) sector and the “unpredictability” of the offshore gaming industry that has boomed almost overnight in the metropolis.
In a briefing yesterday, Dinbo Macaranas, senior research manager at Colliers Philippines, noted that office supply had reached a record high at a time when demand from BPOs was slowing and the sustainability of Philippine Offshore Gaming Operators (POGOs) was yet to be proven, resulting in rising vacancy rates and flattening rental rates in Metro Manila.
As such, Colliers expects office property completions in 2019 and 2020 to be pared by as much as 50 percent similar to how developers had held back from 2007 to 2009 in the aftermath of the Asian currency crisis.
One indicator that the office market is no longer landlord-dictated is that property vacancy rates in Metro Manila have breached 5 percent for the first time in seven years, hitting 5.6 percent at the end of the third quarter from 4.5 percent in the previous quarter, Colliers noted.
With more office buildings to be completed this last quarter of the year, Colliers sees the vacancy rate to inch up past 6 percent by yearend, whereas for most of the time since 2012, the vacancy rate was kept at the 3-percent level.
Macaranas said the increase in office vacancy rate was a welcome development for tenants.
“Looking ahead to 2018, we expect vacancy to move up to the 8-percent range as supply will be largely unchanged from the current 900,000-square-meter projection, regardless of whether developers attempt to postpone project completions or not. For 2019 to 2020, should developers’ plans push through and demand stays flat, we expect vacancy to reach the mid-teens level—not exactly ideal for them,” the research said.
At least for 2017, however, Colliers said office demand remained robust, with POGOs, which offer online gaming services to offshore clients using BPO-like backroom and support systems run locally, making up for the slack in BPOs.
With the state-owned Philippine Amusement and Games Corp. issuing 42 POGO licenses since last late year, these firms have sprung across the metropolis, requiring office space of at least 5,000 sqm to as large as 30,000 sqm per site. A total of 153,000 sqm of newly leased space had been recorded from this sector so far this year, Colliers said.
“However, given the wide range of space requirement from players in this sector, it has become difficult to predict the sustainability of this demand in the medium to long term,” Colliers reported.
“Assuming that the legality of their operations is recognized in the Philippines, notwithstanding cases which have been filed with the Supreme Court questioning PAGCOR’s jurisdiction over POGOs, concerns about potential crackdowns in home countries such as China and Korea persist even over a year into the expanded mandate of PAGCOR to regulate these entities.”
Overall, net office take-up in Metro Manila reached 356,000 sqm in the first nine months, still on track to reach 550,000 sqm for the full year, Colliers reported. POGOs accounted for 25 percent of total transactions while traditional companies had a 40-percent share. The balance of 35 percent constituted BPOs, primarily driven by higher-valued knowledge process outsourcing.
Although the share of BPOs has improved to 35 percent from only 21 percent in the first quarter, Colliers noted that this remained a far cry from the sector’s 60-70 percent share in previous years.
“Several factors may explain this slowdown, including delays in PEZA (Philippine Economic Zone Authority) proclamations, concerns about peace and order, as well as the US taking on a more protectionist stance on BPO expansions outside the country. In the medium to long term, concerns about labor and the potential impact of artificial intelligence keep the outlook less predictable,” the research said.
Over the short-term, Colliers advised landlords to focus on demand from traditional companies as well as maximize the potential of POGOs while demand still exists.
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