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Cautious optimism for Metro Manila’s office market in the post-POGO era

The announcement of the Philippine Offshore Gaming Operators (POGO) ban three months ago has sent ripples through Metro Manila’s office market, culminating in the first negative net take-up of office space since the fourth quarter of 2021.

In the third quarter (Q3) of 2024, net take-up dropped by -33,000 square meters (sq.m.), driven largely by lease terminations and non-renewals, particularly from POGO operators. While these figures raise concerns for landlords with significant vacancies, other indicators suggest a cautiously optimistic outlook.

Colliers International has reported significant surrenders from POGO occupiers in the past months, with 57,000 sq.m. of newly vacated spaces in Q3 2024 and an additional 157,000 sq.m. expected to become vacant by the end of the year. By comparison, POGO operations at their peak leased approximately 1.3 million sq.m. of office space. Today, that figure has dwindled to just 275,000 sq.m., or 1.9 percent of the total office stock in Metro Manila.

Without the POGO ban, Metro Manila’s year-to-date net take-up would have reached 195,000 sq.m., exceeding half of 2023’s total of 280,000 sq.m. However, with further surrenders anticipated, Colliers projects a flat or zero net take-up by year-end, indicating no growth in occupied office space compared to 2023.

Philippines, POGOs, IGLs, Offshore Gaming Operators

Despite the decline caused by POGO departures, other sectors have shown resilience. Traditional firms and outsourcing companies have maintained robust demand for office space, with Q3 2024 transactions surpassing the quarterly average of 174,000 sq.m. A total of 651,000 sq.m. of transactions have been recorded so far this year, with Q3 alone accounting for 192,000 sq.m. This demand signals that the exit of POGOs has not significantly dampened activity in these tenant classes.

Traditional firms, including government agencies, accounted for 53 percent of total transactions in Q3, while third-party outsourcing (3PO) firms and shared services made up 29 percent and 7 percent, respectively. Both 3POs and shared services saw significant year-on-year and quarter-on-quarter increases in transaction volumes, demonstrating a positive outlook for these sectors.

Expansion continues to be the primary driver of office space demand, accounting for 57 percent of transactions, followed by relocations at 36 percent and new setups at 7 percent. IT-BPM companies, in particular, are fueling this demand, with expansion activities concentrated in key business districts such as Makati, Fort Bonifacio, the Bay Area, Quezon City, and Alabang.

The Bay Area led leasing activity across Metro Manila, capturing 26 percent of total transactions, followed by Fort Bonifacio (18 percent) and Quezon City (16 percent). With the recent passage of tax incentives for office expansions and relocations, Quezon City is poised for further growth among traditional occupiers.

POGO, Pogos, philippines, Cebu, e-games

The countryside continues to see increased activity, with provincial transactions reaching 189,000 sq.m. in Q3, up from 155,000 sq.m. in the same period of 2023. Cebu remains a standout, accounting for 32 percent of these transactions, or 69,000 sq.m., performing almost on par with Metro Manila’s prime districts like Makati (88,000 sq.m.) and Ortigas (56,000 sq.m.). Provincial transactions now represent 29 percent of nationwide deals, up from the 20–25 percent range recorded in previous years, highlighting the growing appeal of these markets.

Landlords are encouraged to ramp up development in provincial areas to meet the rising demand, particularly from outsourcing firms expanding their footprint beyond Metro Manila.

Metro Manila’s overall office vacancy rate rose slightly to 18.5 percent in Q3 2024 from 18.3 percent in the previous quarter, primarily due to POGO-related surrenders. By year-end, the vacancy rate is expected to reach 20.5 percent, with markets heavily reliant on POGO tenants, such as the Bay Area and Makati Fringe, likely to experience higher vacancies.

To mitigate these challenges, landlords are encouraged to provide additional concessions for spaces vacated by POGOs. Strategies include offering tenant improvement allowances, reinstating spaces to suit traditional and outsourcing operations, and providing flexible commercial terms. Occupiers may take advantage of these spaces, especially if they align with their operational requirements.

Despite the headwinds, there are promising opportunities for landlords and developers. Low-vacancy markets, such as Makati, Fort Bonifacio, and Ortigas, are expected to recover faster than secondary markets. This presents an opportunity for landlords to enhance their offerings, including integrating features that cater to current demands for flexibility, wellness, and sustainability.

Philippines, Manila, Pogo ban

Provincial markets also continue to show upside potential, driven by outsourcing expansions. Developers are encouraged to explore these areas and align their projects with tenant expectations to capitalize on the growing demand.

While the immediate impact of the POGO ban has presented challenges for Metro Manila’s office market, the resilience of traditional businesses and outsourcing firms has offset the worst-case scenario of zero demand. By maintaining a focus on high-quality office spaces and adapting to changing tenant needs, landlords can position themselves for long-term growth.

Additionally, the outcomes of recent U.S. elections and potential policy shifts could influence global business dynamics, presenting new opportunities for Metro Manila’s office market. As the market evolves, stakeholders must remain proactive and adaptable to navigate the challenges and opportunities that lie ahead.

Frank Schuengel
Frank Schuengel
Frank Schuengel is an online gambling industry veteran with over twenty years of experience in Europe and Asia. Equally at home in the Isle of Man and the Philippines, he started his career as a sports trader before setting up and running whole operations, and more recently focusing on the regulatory and licensing side of things in the worlds of fiat and crypto eGaming. When he is not writing about gambling topics, he can be found cycling around Manila and advocating sustainable transport solutions for a Philippines based mobility magazine.

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