China’s POGO crackdown, coronavirus may dampen PHL office space demand

By Denise A. Valdez
Reporter

THE CONTINUED global spread of the coronavirus disease 2019 (COVID-19), coupled with the Chinese government’s crackdown on its citizens employed by Philippine Offshore Gaming Operators (POGO), may dampen office space demand in the country this year.

The POGO industry, which is largely powered by Chinese employees, has grown exponentially in the last four years to become the top driver of office space demand.

JLL Philippines, Inc. Research Head Janlo de los Reyes said there may be a decline in office take-up from POGOs this year, mainly due to labor issues and travel restrictions arising from the COVID-19 outbreak.

“Landlords may become reluctant to accommodate new (POGO) tenants within their buildings due to health concerns. Similarly, we may likely see a dip in residential sales and leasing as the Chinese market is one of the major drivers in recent years,” he said in an e-mail.

POGOs are now also looking for new sources of Chinese-speaking workers, as the Philippines imposed a travel ban on China, Hong Kong, and Macau to curb the spread of the COVID-19.

“POGO firms continue to pre-lease office space due to be completed in the next two to three quarters. However, the challenge is to look for Chinese employees that will man the operations,” Colliers International Philippines Senior Research Manager Joey Roi H. Bondoc said in an e-mail.

“Operators are looking for employees outside Mainland China. And they plan to fit out once the new office towers are completed,” he added.

Colliers Philippines reported POGOs have pre-leased close to 54,000 square meters (sq.m.) of office space in the first two months of 2020. These are located in three business districts across Metro Manila.

Strong demand from POGOs has been fueling the growth of the office sector in recent years, outpacing the information technology-business process management (IT-BPM) industry.

Data from Leechiu Property Consultants (LPC) showed the POGO industry took up the largest office stock in 2019 at 738,000 sq.m. out of the 1.7 million sq.m. total office transactions.

POGOs’ net take-up for current supply stood at 613,000 sq.m., while 127,000 sq.m. are pre-commitments for future supply this year and 2021.

On the other hand, Colliers originally projected POGOs to take up more than 300,000 sq.m. or a third of total office space demand for 2020.

In the worst case scenario where the POGO industry does not take up additional office space this year, Colliers’ Mr. Bondoc said vacancy rates in Metro Manila may rise to up to 7.6%.

Office vacancy in Metro Manila stood at 4.3% in 2019, according to Colliers.

“So far, Colliers has assumed that the global health scare is likely to peak in (first half of) 2020… However, we acknowledge the possibility of a more negative scenario and this is likely to extend the travel ban. Hence, disruption…might last into (the second half of) 2020,” he said.

Despite the challenges, Colliers is hopeful IT-BPM and traditional firms will make up for an expected slowdown in office space demand from POGOs.

“Note that the Metro Manila office market does not depend on a single segment for absorption,” he said. “[W]e also have traditional firms and outsourcing companies that could fill the void.”

Demand from the IT-BPM sector stood at 573,000 sq.m. in 2019, representing 34% of total take-up. Demand from other sectors such as flexible work spaces, banking and finance, technology, real estate and government, reached 379,000 sq.m. or 22% of the total.

The highly domestic nature of manpower for these sectors is seen to keep them relatively resilient from the impact of the COVID-19 epidemic.

As business districts that relied on POGOs for growth may see slower office demand this year, Mr. Bondoc said they may easily attract outsourcing and traditional companies that are looking to consolidate operations.