By Bjorn Biel M. Beltran
Special Features Writer

PHILIPPINE offshore gaming operators (POGOs) have overtaken the Information Technology and Business Process Management (IT-BPM) industry in terms of office demand, a property consultancy firm found.

Pronove Tai International Property Consultants Chief Executive Officer Monique Cornelio-Pronove said in a media briefing that a shift in landlord strategy across Metro Manila has led to a surge in the growth of POGOs, with the demand from Chinese-run firms in the first half of the year already exceeding 2018’s full-year take-up by 37%.

In 2018, POGOs took up 229,000 square meters (sq. m.) of office space, while take-up for this year was at 315,000 sq.m. as of June 30 this year.

“Whilst in the past two years, the offshore gaming operators were beleaguered due to the lack of clear regulatory environment which virtually turned this type of occupier into a pariah in the business community, this year has significantly been different,” Ms. Pronove said.

“More and more landlords and local government units have warmed up to having them as tenants. Proof of this is the increase in leasing transactions accounted for by the POGOs during the first half of 2019,” she added.

Of the 703,000 sq.m. of office space transacted, 45% was taken up by POGOs, Ms. Pronove said. The traditional office segment and IT-BPM lagged behind at 28% and 26%, respectively.

Much of the growth in demand could be attributed to the growing acceptance of POGOs among Philippine landlords. From only three LGUs giving Letters of No Objection (LONOs) to POGOs in 2016, there are now seven cities in Metro Manila issuing this document required by the Philippine Amusement and Gaming Corporation (PAGCOR) for POGOs to operate in its areas.

These cities include Makati, Pasay, Parañaque, Mandaluyong, Las Piñas, Muntinlupa, and recently Quezon City by way of Special Use Permits (SUPs). To date, Taguig City has yet to issue LONOs to POGOs, but hosts the largest IT-BPM locators in the country and remains to be its preferred district.

Overall office leasing transactions grew by 36% year on year from 481,000 sq.m. in the first half of 2018 to 703,000 sq.m. during the same period this year. POGOs demand over the year registered the highest growth at 216%, while IT-BPM registered an unprecedented contraction at -8% year-on-year from 204,000 sq. m. to 187,000 square meter.

Once the main driver of office space demand, the IT-BPM sector has dropped to third in the demand ranking, behind POGO and traditional office occupiers in the first half of the year, for the first time in 18 years, according to Pronove Tai.

Ms. Pronove said that the government-issued moratorium on economic zone proclamations in Metro Manila, as well as looming fears regarding the second package of the Duterte administration’s Comprehensive Tax Reform Program, have caused a ripple effect in the IT-BPM sector’s continued development.

“The moratorium order issued on June 17 banning economic zone proclamations in Metro Manila has exacerbated the situation for the IT-BPM market,” she said.

“While decentralizing demand to suburban areas is commendable to provide impetus for growth in other areas, the government should provide a business-friendly environment across all locations where businesses have the flexibility and support to choose where it deems fit to expand based on its own parameters.”

The IT-BPM sector, however, still accounts for a significant portion of the Philippine office space market, occupying 35% of all office stock in Metro Manila or approximately 3.9 million sq.m. of space.

According to Pronove Tai, for the past two years, the sector’s average annual demand is 425,000 sq.m. in an environment where the average supply is one million sq.m. per annum.

“While we forecast the POGO sector to double its space this year, a diverse tenancy mix is always a success formula, thus we suggest the government to rethink its moratorium order,” Ms. Pronove said.