PH office leasing posts growth during crisis

The Philippine office leasing market bucked the global trend and so far avoided a recession but business has slowed significantly and threatens to weaken due to the ongoing crisis and new tax measures, Leechiu Property Consultants said.

Data from the company covering the period from March to September this year showed 240,000 square meters (sq m) of office space were vacated—63 percent in the last three months alone.

The drop was offset by 297,000 sq m in new contracts, marking a net gain in office leasing. This was mainly driven by more companies shifting business process outsourcing (BPO) and IT operations to the Philippines amid the health crisis.

Despite a 78-percent drop from last year, Leechiu Property CEO David Leechiu said these were encouraging figures and a rare bright spot in the Philippines considering the economic downturn and the turmoil in office leasing in other parts of the globe.

As an example, the United States reported an office space contraction of 4 million sq m amid COVID-19, a scale unseen since the 2009 global financial crisis.

“We need all investment engines fired up,” Leechiu told the Inquirer in an interview, adding that the industry was open to further dialogues with the government on finding a middle ground.

Leechiu said their data pointed to warning signs. From office spaces vacated this year, 103,000 sq m or 43 percent came from Philippine offshore gaming operators (Pogos), a fast emerging sector.

While this accounted for 6 percent of the roughly 1.7 million sq m leased to Pogos, Leechiu said the exit was due to new tax rules. All told, Pogos accounted for 11 percent of office spaces in the Philippines.

“This could be a foreshadowing if we play the same game with the BPO sector and manufacturing sector,” Leechiu said, referring to new government revenue legislation.

The combined BPO and IT sector already accounted for 7.2 million sq m or 48 percent of occupied space today. Manufacturing is another major driver.

Leechiu said it took decades to nurture and develop these sectors to become the current economic drivers they are at the present.

Calling these long-term partnerships, Leechiu said these businesses provide both direct and indirect economic benefits.

As such, he said more stable rules would help “convince investors to keep pouring money into the Philippines.”

Data from the company also showed the office leasing segment propped up allied sectors such as residential leasing, construction and salaries for both foreign and Filipino workers. The company said Pogos alone contributed $9.9 billion in salaries, office rentals and housing. INQ