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PH seen running out of office space

/ 05:02 AM December 11, 2018

The Philippines may run out of office space for lease as early as 2021 due to brisk demand from local and foreign businesses even as growth from the business process outsourcing (BPO) sector—a key driver of the real estate industry—has slowed down in the last two years.

This is according to property market veteran David Leechiu, head of leading local property consulting firm Leechiu Property Consultants (LPC), who estimated that office space take-up in the Philippines would close this year at a record high 1.5 million square meters (sq m) from 950,000 sq m last year. This includes pre-commitment transactions done by tenants for office buildings that are yet to be built.

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Leechiu also noted that the Philippines’ warmer diplomatic relations with China would also support a sustained boom in the real estate that could last for the next 20 years. “China has ignored us in the last 40 years and that’s changing,” he said.

“Two and a half years ago, we told developers to stop developing. We’re now telling them to start developing. We didn’t call this [projected 2021] deficit until we were comfortable with the demand,” Leechiu said in a press briefing on Monday.

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Leechiu said the record office property take-up this year was happening “despite everything that we have read that is counter to business” – referring to rising interest rates, anti-western sentiment and foreign groups’ criticisms of extra-judicial killings related to Pres. Duterte’s war against drugs.

Demand in Metro Manila alone grew from 910,000 sqms in 2017 to 1.16 million sqms by December 2018, posting a growth of 27 percent and accounting for 73 percent of total demand this year. The figure also included pre-commitments by BPO tenants competing for scarce Philippine Economic Zone Authority-accredited space to be completed in 2019 in the metropolis.

Outside of Metro Manila, Clark Global City registered the highest office demand at 156,000 sqms. Cebu and Laguna followed with 133,000 sqms and 46,000 sqms respectively. Davao City took fourth place generating 28,000 sqms.

By sector, BPO sector is still the biggest demand driver with a share of 41 percent in Metro Manila this year, but demand from the sector had gone down by a “disturbing” 40 percent from the high in 2016, Leechiu said. “They are still growing but at significantly slower space,” he said.

He noted that the offshore gaming industry was not too far behind, with a share of 28 percent this year while flexible working spaces were also accounting for an increasing share. More and more local entrepreneurs were likewise starting to upgrade to newer offices after frugal operations in the last few decades, he said.

In the last two years, Leechiu said BPO locators have diversified out of the Philippines and instead expanded in other places like India, Indonesia or Eastern Europe. But with rising wages in the US, he projected that there could be a resurgence in demand from BPOs starting 2019.

To boost the BPO industry, Leechiu said it would be best if the government would fast-track approval of PEZA accreditation of special economic zones.

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Asked whether he thought the offshore gaming industry – which is drawing a lot of attention these days because of the influx of Chinese workers – was sustainable, Leechiu said: “The market is real and insatiable. The gambling culture in China is so big and they like it here.”

Having said that, however, Leechiu said the government should encourage BPOs because these employ a lot more local workers and even if some online gaming firms employ local workers, he noted that up-skilling was more limited in the latter.

By 2021, the projected completion of big-ticket infrastructure projects in the country is seen to jack up land prices in strategic locations in Clark, Cavite, Laguna and Batangas. “The completion of eight projects totaling 665 kilometers of roadway will make 2021 a milestone year in infrastructure development,” he said. “New transportation arteries will spur growth in rising regional centers in these key areas.”

To date, Leechiu reported that close to half of the pipeline supply in Bonifacio Global City and surrounding areas has already been pre-committed “as competition for PEZA accredited space tightens.”  As such, he said a deficit in office supply could happen as early as 2021.

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