By Krista A.M. Montealegre,
DELAYS in the approval of incentives to business process outsourcing (BPO) firms and the limited number of cities that allow offshore gaming operations could weigh on the office market, Pronove Tai International Property Consultants said.
Pronove Tai Chief Executive Officer Monique Cornelio-Pronove said in a briefing on Thursday Metro Manila’s vacancy rate in existing “all grade” office supply in the third quarter increased to 5% — the highest since 2011 and a level considered “healthy” to enable companies to embark on their expansion activities. Vacancy rate stood at 4% in the second quarter.
Demand from the information technology-business process management (ITBPM) industry and offshore gaming continues to be robust, but the slowdown in the approval of applications for incentives offered by the Philippine Economic Zone Authority (PEZA) has affected take-up.
In the last 14 months, PEZA has made only five building proclamations in Metro Manila out of 22 applications, Ms. Cornelio-Pronove said.
“The private sector has put in the investment. The government needs to help us or else we will have a growing vacancy because I can’t bring all of this demand to these buildings,” she said.
Seeking accreditation from PEZA may mean fiscal and non-fiscal incentives, such as income tax holidays and employment of foreign nationals, for the property developers as well as their tenants.
The lack of new PEZA buildings and the absence of notable transactions from new entrants expanding in the Philippines resulted in slower demand from IT-BPM firms, which accounted for 44% of pre-leased space for buildings completed in the third quarter from 52% in the first quarter.
Offshore gaming was the second biggest driver at 33%, taking up the slack in office space demand.
“You have buildings supposed to be built for PEZA but they don’t have PEZA (accreditation) so what do you do? You shift. Now, they have opened their arms to offshore gaming companies,” Ms. Cornelio-Pronove said.
The official was referring to Makati City and the Bay Area, which saw the lowest vacancy rates at 2%. Only the local governments in these areas are releasing no-objection letters — a key requirement for offshore gaming operators before they can be awarded a license by the Philippine Amusement and Gaming Corp.
Pronove Tai encouraged local governments, particularly those that host business districts with “high” vacancy rates, to open up to offshore gaming operators. Taguig, Muntinlupa, Quezon City and Mandaluyong registered vacancy rates of 7-8% last quarter.
“The gap is narrowing between the BPOs and offshore gaming… Will it be narrowing (further) in the future? We think so,” Ms. Cornelio-Pronove said.
Metro Manila added 331,000 square meters (sq.m.) of office supply in the traditionally “soft” third quarter — an increase of only 4% from the previous quarter, Pronove Tai data showed.
Delivery rate picked up to 89% last quarter from 67% in the second quarter, with only two buildings or 42,000 sq.m. of leasable space failing to meet the target completion date.
Massive construction delays has plagued the real estate sector in the last two years, amid the strong pipeline of private sector projects coupled with the Duterte administration’s aggressive infrastructure push.
As a result, the office market would see the highest new office supply levels in history, adding 1.2 million sq.m. of space to 2016’s office stock to end the year with 9.7 million sq.m.