POGOs now top property demand driver

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PHILIPPINE Offshore Gaming Operators (POGOs) have displaced the information technology-business process management (IT-BPM) sector as the single biggest source of demand for office space in the country, real estate service firm Leechiu Property Consultants (LPC) reported on Monday.

LPC noted that POGOs have accounted for 375,000 sq.m., or 38%, of total Metro Manila office space take-up of 990,000 sq.m. year-to-date, as “[t]he Philippine offshore gaming industry surged ahead of the IT-BPM sector for the first time as the country’s top demand driver for office space…”

“They did not stop negotiating for more office space despite China’s crackdown,” LPC President David Leechiu said in a press briefing in Makati City.

The Department of Finance (DoF) last week said it would take its crackdown on tax-dodging POGOs a step further by closing down those that still refuse to pay personal income tax withheld from their foreign workers even after being notified of such liabilities, and haling them to court.

The government estimates POGOs’ tax liabilities at a cumulative P21.62 billion, so far, and that it foregoes about P2 billion in monthly revenues for every 100,000 unregistered POGO workers in the country.

Philippine Amusement and Gaming Corp. (Pagcor) Chairperson and Chief Executive Officer Andrea D. Domingo backed the DoF’s move, telling reporters in a mobile phone message on Monday that the “BIR (Bureau of Internal Revenue) has the legal authority to close down establishments that evade taxes.”

“Pagcor supports this move. We are issuing a letter to all POGO operators and service providers to this effect.”

Traditional office tenants were the second biggest demand driver, taking up 320,000 sq.m., while IT-BPM firms occupied around 294,000 sq.m.

By the end of 2019, LPC estimates total office take-up to reach 1.2 million sq.m. in Metro Manila, about 450,000 sq.m of which will be by POGOs. IT-BPM locators are projected to occupy 350,000 sq.m., while the rest will be taken up by traditional offices.

Should the crackdown against POGOs prompt several of these businesses to leave the country, Mr. Leechiu said that IT-BPM — also known as business process outsourcing (BPO) — will be able to fill the gap.

“The POGO footprint is in four geographies, so if they disappeared today, the BPO sector will just backfill that requirement,” Mr. Leechiu explained.

POGOs currently operate in the so-called Bay area — land reclaimed from Manila Bay, Makati City, Alabang and Quezon City.

Mr. Leechiu also noted that 60-70% of POGOs are from China, while others hail from other markets like Australia, Europe and Japan.

Citing data from the Bureau of Immigration and IT and Business Process Association of the Philippines, LPC said POGOs spend about $9 billion in annual salaries for their employees, bigger than the estimated $7.5-billion cumulative annual pay for BPO workers.

POGOs are also seen as a key driver for the residential market, generating annual housing rental income of $680 million.

At the same time, the property consultancy maintained its stance that the Philippine Economic Zone Authority (PEZA) should continue declaring more economic zones in Metro Manila to drive the expansion of the IT-BPM sector, notwithstanding a moratorium imposed in June by Malacañan Palace under Administrative Order No. 18. “We would continue to encourage signing of more PEZA zones in Metro Manila because we need the BPO sector to keep growing in Manila if we want them to grow in the provinces,” Mr. Leechiu said.

AO 18 forms part of government efforts to push development further away from Metro Manila.

LPC noted that out of the 1.2-million sq.m supply pipeline until 2022, 86% are still applying for PEZA accreditation. Delays in their approval could lead to a deficit in PEZA space in the next five years, causing a slowdown in IT-BPM expansion in that period.

Mr. Leechiu said further that IT-BPM firms are likely to accelerate expansion in the Philippines over the next 12 months, in the face of expected recession in several major economies such as Italy, Germany, Mexico, Brazil, China, the United States and some Middle East countries.

“The Philippines is one of only two places in the world where BPOs can scale at the level they need to scale globally and quickly. Only India and the Philippines can give them the scale of talent they need to be able to have a meaningful impact on their bottom line.” — Arra B. Francia

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