Worst seen over for PH office property industry

After nearly two years of grappling with the COVID-19 pandemic, the Philippine office property sector has finally gone over the hump and is now on its way to a “meaningful” recovery, led by the resilient information technology-business process management industry (IT-BPM).

This is according to property consulting firm Leechiu Property Consultants (LPC), which is now expecting a shortfall in Philippine Economic Zone Authority-registered office space in about two years.

In the first nine months of the year, demand for local office property space had reached 383,000 square meters, which already accounted for 98 percent of total demand for the whole of last year.

As such, LPC expects demand for full-year 2021 to reach 450,000 to 500,000 sqms with IT-BPM remaining a catalyst and accounting for about 129,000 sqms of additional requirements likely to be closed in six months.

While there’s still a long way to go to return to prepandemic levels, LPC president David Leechiu noted in a press briefing on Thursday that in the midst of a prolonged pandemic, the office demand seen so far made the country still one of the biggest office leasing markets in the world 18 months into the pandemic.

“We are the envy of most property markets in the world,” Leechiu said.

In 2019 or before the pandemic erupted, annual office demand in the country hit 1.7 million sqms.

Without any boost from the Philippine offshore gaming operator (Pogo) sector, Leechiu said it would take a long time for the country to return to these levels.

“But if the Pogo sector recovers, then I think we’re going to see that very, very soon,” he said.

The passage of Republic Act No. 11590 or the Pogo Law—which clarified taxation for Pogos—seemed to have halted the exodus. With travel restrictions easing up, LPC anticipate Pogos to start reopening their offices and begin to grow by the second quarter of 2022.

In the meantime, annual demand from the business process outsourcing (BPO) sector alone had peaked at 600,000 sqms in 2018-2019. “So I think the best case is that the BPO sector will take up 600,000 (sqms), possibly in 2033 or 2024, maybe sooner,” he said.

Compared to previous quarters this year, third quarter demand slowed due to mobility issues brought about by the rising COVID-19 cases and strict lockdowns of previous months. However, the rate of contraction has slowed.

To date, IT-BPM takeup accounted for 44 percent of total office demand or 169,000 sqms, a big portion of which represented locations outside Metro Manila. Iloilo, cited as market darling, took up 37,000 sqms, outpacing the combined demand from Clark, Laguna and Davao.

“While the recovery has not been as fast as earlier predicted, the worst appears to be behind us. We also note that government reforms have buoyed the industry,” Leechiu said.

The current vacancy rate across Metro Manila was estimated at 17 percent of total office. Bonifacio Global City, Taguig and Alabang enjoy relatively lower vacancy numbers, seen to allow rents to hold up well, compared to rising vacancy numbers in Ortigas, Quezon City and the Bay Area.

LPC’s latest study noted that the pandemic has slowed down the rate of capital appreciation in the residential condominium and other markets. It thus urged investors to take advantage of this slowdown in price appreciation before the economic recovery restores higher growth rates in residential property values.

“We may seem light years away from the pre-COVID era which saw the office market double and triple over just a few years,” said Leechiu, “but markets continue to grow supported by strong fundamentals.”

With the reforms to the tax system as enabled by the Tax Reform Acceleration and Inclusion (TRAIN) reducing income taxes for 99 percent of all tax payers, LPC noted that the spending power of the mid-income and lower market segments had increased. Increasing overseas Filipino worker remittances and the return of workers to their jobs abroad are further seen to stimulate real estate investments, estimating that 50-60 percent of remittances would typically flow to real estate.

The LPC study further expressed optimism that the completion of 120.6 kilometers of Metro Manila infrastructure from 2016-2022 and a forthcoming 88.6 kms. from 2023-2025 would further provide access to new areas and reinvigorate the real estate industry.