Healthy demand for office space

The Philippine office property market is seen to maintain its growth trajectory this year, owing to a healthy demand from the offshore gaming sector, outsourcing industry, and traditional companies.

As it is, 25 percent of the office space buildings slated for completion this year have already been pre-leased, according to data from Pronove Tai International Property Consultants.

Such demand in pre-leasing activity came primarily from offshore gaming sector, followed by the IT-business process management industry, and traditional office, disclosed Pronove Tai CEO Monique Pronove.

“We continue to have faith that IT-BPM will have a growth momentum,” Pronove explained. “Logistics and health care continue to drive demand under traditional offices and we continue to see offshore gaming expand to other areas other than the preferred Makati, Pasay and Parañaque. We will also see new wave cities from these offshore gaming, from Clark, Davao, Cebu City.”

Continued growth

For this year, Pronove said they are expecting a 10 percent growth in office stock.

“There will be (close to) 12 million sqm of space that will be completed. Quezon City will have the most supply and that will be the fastest growing district at 31 percent year on year in office stock. For supply, we have 1 million sqm of space coming from 45 new buildings, and Quezon City will deliver the highest supply at 33 percent,” Pronove explained.

Office stock refers to accumulated completed buildings from 1967 to 2018, while office supply pertains to the annual completed and future supply.

In 2018, office stock grew by 9 percent year on year. Total office space supply, which hit 845,000 sqm, was however, lower by 32 percent compared to the 1.25 million sqm recorded in 2017.

Muntinlupa City was the fastest growing district, recording a 19 percent growth, while Makati City remained the largest office district with a 32-percent share.

In terms of actual transactions, 2018 recorded the highest take-up at 1.1 million sqm. IT-BPM companies still topped the demand last year, followed by traditional firms, and the rapidly growing offshore gaming sector, data from Pronove Tai showed.

Headwinds

While there is much optimism for the Philippine office property market this year, headwinds—such as uncertainties in the investment climate caused by the proposed Trabaho bill and delays in proclamations of Philippine Economic Zone Authority (Peza) buildings—may dampen demand.

Pronove is thus urging the government to fast-track Peza proclamations, and ensure that its Build, Build, Build infrastructure initiative will push through. There is also a need to look at the targets of the IT-BPM industry in light of the possible impact of the proposed Trabaho (Tax Reform for Attracting Better and High-Quality Opportunities) bill.

The Trabaho bill seeks to lower the corporate income tax (CIT) from the current 30 percent, and to rationalize tax incentives, which may adversely affect manufacturing and outsourcing companies, which are currently enjoying a menu of fiscal and non fiscal perks. These same perks were earlier offered by the Philippine government to lure investors to set up shop in the country.

“For IT-BPM, we do anticipate that there will be some impact (due to the) Trabaho bill and we will need to look at their targets. Because of uncertainties, we have to advocate cautious optimism,” Pronove further said.