By Denise A. Valdez, Reporter

DEMAND for office space in the Philippines is expected to start recovering by the second quarter of the year, and transactions are projected to reach 800,000 to 1 million square meters (sq. m.) by the end of 2020.

In an online media briefing yesterday, real estate consultancy firm Leechiu Property Consultants (LPC) said the office sector will remain the primary driver of real estate this year, and growth will come from the information technology-business process management (IT-BPM) and Philippine Offshore Gaming Operator (POGO) industries.

“We are still optimistic about seeing the Philippines end at somewhere between 800,000 to 1 million sq. m. of office transactions this year throughout the country. And most of that would happen in Metro Manila,” LPC President and Chief Executive Officer David T. Leechiu said.

“We anticipate that everything that’s going on today will normalize by June, July, August, and leasing will be significantly more and catch up beginning August all the way through 2020,” he added.

However, the “conservative” projection of up to a million square meters of office space demand this year remains 43% lower from 2019’s office transactions of 1.75 million sq. m.

Comparing transactions in the first quarter this year and last year, LPC said demand has already dropped 47% to 157,000 sq. m., with provincial space taking a bigger chunk of the pie at 31% (49,000 sq. m.) from last year’s 11% (32,000 sq. m.).

Similarly, office supply is expected to be reduced by 44% to 842,000 sq. m. in 2020 due to construction delays brought by the Luzon-wide quarantine amid the coronavirus disease 2019 (COVID-19).

But by year’s end, Mr. Leechiu said vacancy should be at “very manageable levels,” although this would depend on the IT-BPM and POGO sectors continuing to take space in the market.

“The IT-BPM sector is the largest office occupier. We need to support them, and the very least we can do is grant more PEZA (Philippine Economic Zone Authority) zones throughout the country,” he said, referring to the accommodation of economic zone (ecozone) applications in Metro Manila.

“The COVID-19 situation is pushing the entire world into a recession, and that has become a unique opportunity for the Philippines because that will generate jobs in the BPO (business process outsourcing) sector faster than any other event in the Philippines,” he added.

President Rodrigo R. Duterte ordered a moratorium on approving ecozones in Metro Manila last year, with the intention of driving investors to the countryside. But the IT-BPM sector has flagged it as a threat to its growth, noting ecozones are a pull for investors because of its fiscal incentives.

Mr. Leechiu said it is important to encourage ecozones in Metro Manila as restricting it would mean an additional layer of difficulty for companies to expand in the Philippines.

He also compared the potential growth of the Philippines post-COVID-19 to the 2008 global financial crisis, where when it ended, annual vacancy jumped to 365,000 sq. m. from 35,000 sq. m. and annual demand grew to 400,000 sq. m. from 332,000 sq. m.

“Learning from the 2008 Global Financial Crisis, we are optimistic that demand from the IT-BPM sector will catch up starting at the second half of the year,” LPC said in its presentation.

“And as soon as the travel ban is lifted, we expect POGOs to complement the BPO demand throughout the next five years,” Mr. Leechiu added.

The POGO sector, which is largely powered by Chinese workforce, comprised the biggest demand for office space in 2019 at 774,000 sq. m. Mr. Leechiu said continuing to welcome them is essential in maintaining the growth trajectory of office demand in the country.

“POGO is our friend and they have increased investor sentiment. We just have to hold their hand,” he said.

The Luzon island, which accounts for about 70% of the Philippine’ gross domestic product, is under quarantine for a month until April 13 due to COVID-19. Travel bans have also been put in place during the period to temper the spread of the virus.