Pogo sector poised for comeback

The Philippine offshore gaming operator (Pogo) industry may soon stage a comeback after a two-year slump, now that local tax regulations are in place and travel restrictions are easing, real estate veteran David Leechiu said.

The president of Leechiu Property Consultants (LPC) said that for the first time in 24 months, his group was about to close its first Pogo office property leasing deal.

“[It’s a] credible, sizable, chunky Pogo deal and when we sign this contract, we will throw a very big party in the office to celebrate this milestone achievement,” Leechiu said in a forum with the Nordic Chamber of Commerce of the Philippines last week.

The Pogo industry boomed in the early years of the Duterte administration, but the growth was spoiled by a confluence of tax uncertainties, COVID-19 pandemic-related travel bans and crackdowns in China.

As gambling is illegal in China, it became more difficult for its nationals to work in overseas Pogos.In the last two years, the Pogo industry has vacated about 500,000 square meters (sq m) of office space.

“They are still in the Philippines. They still have maybe a million sq m, all in different buildings, but they have shed a lot of space,” said Mikko Barranda, LPC director for commercial leasing.

On the other hand, traditional offices have given up about 300,000 sq m during the same period, while the business process outsourcing (BPO) industry have shed about 154,000 sq m which, however, accounted for just 2 percent of BPO footprint in the country.

Resolved issues

“It is quite possible that they will make a comeback. They’ve already resolved issues with the Philippine government and certainly, it’s going to be less of an issue,” Leechiu said during the open forum.

Under the Pogo law enacted last year, all offshore gaming licensees, regardless of whether Philippine or foreign-based, are considered doing business in the Philippines, so they must pay a 5-percent gaming tax on the gross gaming revenue or receipts derived from their gaming operations. Foreigners employed by Pogo licensees and their service providers will also have to pay a final withholding tax of 25 percent on gross income, provided, that the minimum final withholding tax due from any taxable month from such persons is not less than P12,500. The new law also requires that the employees secure a tax identification number.

“China is making the movement of nationals difficult and some players have found cheaper places to operate in,” Leechiu said, when asked why the new tax regime was acceptable for the Pogo industry.

The easing of travel restrictions also bodes well for the industry, Leechiu said.

“If they can resolve the mobility of the region, then I think a big chunk of the Pogo market could come back,” Leechiu said.

The new Pogo deal that Leechiu is anticipating involves an existing player that is now looking to expand after a two-year hiatus.

Despite challenges posed by the Omicron variant, LPC is generally upbeat on the Philippine office property market, which it expects to be driven by the BPO industry.

At the end of 2021, space requirements likely to be concluded within the first half of 2022 were estimated at 224,000 sq m. “Omicron has affected only office expansion timelines but not the business confidence of IT-BPMs (business process management) and other firms in the country,” Barranda said. “Office contractions remain at their lowest. We are seeing tenants renew leases in anticipation of recovery,” according to Barranda.

Work disruptions experienced by many in the Visayas in the aftermath of Typhoon “Odette” in December only emphasized the importance of fully equipped workplaces, he said.

Massive power outages left scores of employees working from home unable to function. Thus, IT-BPMs and other firms in Cebu scrambled for the few fitted office spaces available to keep operating.

“Although many firms will continue to adapt a hybrid setup, allowing some to work from home, majority still recognize that workplaces in business districts offer redundancy,” Barranda said. IT-BPMs, in particular, highly value work spaces that offer backup systems in case power, connectivity and other systems go on the blink.

LPC maintains its view that the Philippines remains a highly attractive destination for firms in the West now on the road to recovery.

While businesses still face pandemic risks such as surges from new variants, they seem to have learned to live with COVID-19 and now have contingency plans to ensure uninterrupted operations.

New provincial hubs are likewise gaining interest among locators. INQ