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Developers urged to tap traditional firms to offset declining demand from BPOs

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Office demand from business process outsourcing firms has been declining.

By Bjorn Biel M. Beltran
Special Features Writer

OFFICE PROPERTY developers should tap the country’s traditional businesses to complement the continuous growth of offshore gaming operators and offset the weakening expansion of outsourcing firms, a global property services firm said.

According to the latest report from Colliers International, office space demand from business process outsourcing firms (BPOs) in the Philippines has seen a significant decline amid a government-issued moratorium on the processing of Philippine Economic Zone Authority (PEZA) applications in Metro Manila and uncertainty regarding the second package of the comprehensive tax reform program, which intends to reduce corporate income tax to foreign investors.

From 361,000 square meters (sq.m.) of transactions from BPO firms in the first half of 2018, the industry closed only 199,000 sq.m. of deals in the same period this year, 45% lower year-on-year.

Meanwhile, Chinese-run offshore gaming operators (POGOs) as well as traditional companies, including firms in the legal, engineering, construction, health care, food and beverage, and flexible workspace sectors, have picked up the slack.

Demand from POGOs continued to grow with office space transactions reaching 274,000 sq.m. in the first half of the year, in areas like Alabang, the Bay Area, Quezon City, Ortigas, Makati central business district (CBD) and its fringes. Colliers projected this take-up to breach 300,000 sq.m. this year, as government relations with China continue to warm, and new business hubs around the country become more accommodating to offshore gaming operators.




Traditional companies tallied at 271,000 sq.m. of office space transactions in 2019’s first half, surging 22% higher than the 222,000 sq.m. it closed in the same period last year. This is also expected to grow as the economy sustains its momentum, and government investment in infrastructure bears fruit.

“As business participants, we should focus on the opportunities now,” Dom Fredrick Andaya, director at Colliers International Philippines, Inc., said in a briefing on August 9.

“There’s the Build, Build, Build program. GDP (gross domestic product) growth came in below expectations, but we’re still hoping that the economy will continue to grow. This will fuel the growth of the traditional sector of the industry. And we’re seeing it. We’re seeing that growing not only in Metro Manila, but also in other locations in the Philippines.”

Mr. Andaya further noted that increasing demand from traditional firms would encourage tenant diversity in the property market and reduce the risks from over dependence on Philippine Offshore Gaming Operators to drive demand.

Traditional firms and POGOs represent an equal share of 74% of all transactions in the office market, with outsourcing firms accounting for the remaining 26%.

Leasable office stock is projected to reach 14.3 million sq.m. in two years, around 31% higher than Metro Manila’s available stock of 10.9 million sq.m. as of the end of 2018. About 54% of the new supply will be in Ortigas Center, Fort Bonifacio, the Bay Area, as well as emerging sites in Cebu, Iloilo, Clark, and Davao.

Rents in Metro Manila are expected to rise by an annual 6% this year to 2021 as a result, as firms compete for PEZA-approved office space and limited supply.

Colliers saw an office vacancy rate of 4.9% in the previous three months, lower than the 5.4% recorded in the first quarter following substantial absorption of office space in Quezon City and Ortigas CBD and its fringes. Annual vacancy is expected to become 6.1% from the current year to 2021, equivalent to an annual supply of 1.08 million sq.m. and yearly net absorption of about one million square meters.

In the residential property market, sustained demand in both pre-selling and secondary condominium markets have encouraged the entry of upscale and luxury joint ventures developed by local and foreign companies.

These joint projects, though relatively expensive with total contract prices per unit ranging from P7.6 million to P31 million, have an average take-up rate of nearly 90% as of the first half of the year.

“Aside from the capital appreciation potential, investors and end-users are enticed by upscale facilities, innovative concierge services, and the advantage of being in a master planned development. We see strong take-up from similar projects in Metro Manila being sustained over the next three years and thus project more aggressive launches from both local and foreign developers,” Joey Roi Bondoc, senior research manager at Colliers International Philippines, Inc., said in the report.

Among the major foreign firms that either expanded or established their presence in the country through joint projects with local players are Hankyu Realty Co., Ltd., Mitsui Fudosan, and Nomura Real Estate Development Co.

In the previous three months, Colliers recorded the completion of 2,600 residential units, bringing the total of completed units in the first half of the year to 6,300. Condominium stock in Metro Manila was at 125,150, with the property experts projecting it to reach 128,050 by year end. Fort Bonifacio and the Bay Area is seen to account for nearly 80% of the new supply from 2019 to 2021.

The completion of new units pushed overall vacancy in Metro Manila to 10.6% in the second quarter of 2019. This is expected to reach 11% per annum until 2020 due to the significant number of new projects in the pipeline. However, leasing activities is seen to remain firm in sub-markets housing POGOs in the Bay Area, Ortigas Center, Makati CBD, and its fringes.

Offshore gaming is also expected to sustain modest rental growth in Metro Manila, growing at around 0.9% annually from this year to 2021.

Meanwhile, capital values in the metro grew by an average of 3.7% quarter on quarter, with average prices of prime three-bedroom units in the secondary market in Makati CBD, Rockwell Center, and Fort Bonifacio ranging between P145,000 and P362,000 per sq.m. Overall, the average price of residential units in Metro Manila are seen to rise by an annual average of 5.2% from 2019 to 2021.

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