Naysayers told: Move on, don’t dwell too much on Pogo separation

Local landlords could ride out any possible withdrawal of “steroids” injected by the online gaming sector, now the subject of a crackdown by regulators from both the Philippines and China, property consulting veteran David Leechiu said.

“It’s not the end of the world as what many people think,” Leechiu, founder and president of Leechiu Property Consultants, said in an interview with the Inquirer.

“There’s a buffer. There’s local demand, there are BPO (business process outsourcing) companies that will soak up these things over time and that time is being bought by the big deposits that these tenants have paid. It will buy the developers time to [market] the space to be absorbed by BPOs and multinational companies,” he said.

Leechiu was commenting on the possible threats to the Philippine offshore gaming operators (Pogos), the sector that had grown by leaps and bounds since 2016 when the Philippine Amusement & Gaming Corp. (Pagcor) opened the doors for online gambling catering exclusively to overseas players.

China, the main market of most Pogos that have sprouted all over the metro and likewise the main source of Mandarin-speaking migrant labor, has taken a strong stance by calling for a ban. China has raised concerns on money laundering, the working condition of its citizens in proposed Pogo hubs as well as predicate crimes associated with the Pogo network, like human trafficking, kidnapping and even killings.

“Chinese market for Pogo is less than 70 percent of the market. There are still other Pogo companies from other countries not affected by the Chinese statement,” Leechiu said.

Of the total office space currently occupied by Pogos—which accounts for about 8.5 percent of around 13 million square meters of office space in the metropolis—Leechiu noted 600,000 sqm had been translated only in the last 18 months.

Factoring in the rent-free period of about four to six months—the grace period usually given to large office occupiers to pave the way for adjustments—Leechiu said most of these new Pogo tenants had started paying only in April, May or June if they signed up in January.

“When they sign the lease, they usually give the landlord anywhere from a minimum 12 months to 24 months advance security deposit in total,” Leechiu said. This meant that if Pogos leave, the landlords would be covered for a year. Demand from BPOs could easily catch up during that buffer period, he said.

This could even be the last year that property developers would be producing additional office space in excess of one million sqm. Next year, he estimated that new office stock would ease to 900,000 sqms and further to 600,000 sqms in 2021 and 2022.

“Because the supply is falling, falling, falling, there won’t be as big of a shock to the system as people think because BPOs and local market will absorb that stock, which is why it’s so important for us to keep encouraging the BPOs to keep growing in the Philippines, which is why we need more PEZA (Philippine Economic Zone Authority) zones in Metro Manila,” Leechiu said. “The faster we allow them to grow in (Metro) Manila, the faster they will grow in the provinces because a significant chunk of labor force is in Manila.”

In recent years, however, PEZA has accredited fewer buildings as special economic zones in the metropolis to encourage locators to consider new growth hubs outside the National Capital Region.

“If we make it difficult for BPOs to expand in Manila and POGOs are not there to take up space- many other sectors like construction, retail, food and banking will get affected,” he said.

On the impact on the residential market, Leechiu said owners could still go back to renting to local tenants albeit at a much cheaper rate. He estimated rental yield could go down to 7-8 percent.

“This is still decent yield except that the steroids provided by the Chinese market brought your yield up to 12-15 percent. Now it will just normalize,” he said.