The state of Philippines' office leasing during COVID-19
According to Lobien Realty Group (LRG), one of the fastest rising real estate consultancy firms in the Philippines, the country’s Real Estate Industry has not escaped the economic onslaught brought by the pandemic, as shown by the current performance of the Office Leasing Market. Nonetheless, LRG remains hopeful of its prospects for the future. While the Philippine economy is very sensitive to political, natural, and global financial risks, it has proven to be very resilient–with recoveries posted after every challenge. The same goes for the Office Market. Due to COVID-19 causing ADB’s 2020 GDP reforecast of -3.8%, Office Rental Rates will decline but will gradually recover. GDP Construction percentage was rising steeply in 2019, reflecting the confidence of investors, but the advent of the COVID-19 pandemic, which will drop 2020 GDP to an estimated -3.8%, will naturally reflect a corresponding reduction in Construction GDP share. The construction sector however, will highly recover once the outbreak is mitigated as the government has started to approve the resumption of the construction of major infrastructure projects to strengthen infrastructure competitiveness, tourism and attract more investments. The completion of most of the supply of offices this year are expected to slide to 2021 or later due to the construction and mobility restrictions imposed by the government during the community quarantine. An upward demand for office space is projected by the end of the year until next year, provided that the COVID-19 outbreak will be contained by early 2H 2020. Available office supply from the 1Q 2020 is at 556,686.86 SQM as compared to 378,152.24 SQM in the 2nd QTR 2020. Vacancy during the same period jumped from 4.6% to 5%. Average rent rose from 1,175 PHP/SQM to 1,195 PHP/SQM. For the year on year comparison covering the 2Q of 2019 and 2020, total office supply went down from 1,004,956.51 SQM to 751,330.25 SQM while available supply declined from 525,959.48 SQM to 378,152.24 SQM. 47% were leased out in 2019 while 50% were leased out in 2020. Vacancy, meanwhile, improved from 7.31% to 5%. Average rent rose slightly from 1,110 PHP/SQM to 1,195 PHP/SQM. Demand drivers for office spaces in Metro Manila Data from the end of 2019 shows that the top drivers of demand for office spaces in Metro Manila are the Gaming Industry which occupies 36%, and the BPO Industry which occupies 30% of the total supply of Metro Manila office spaces. The remaining 34% of office spaces in Metro Manila are occupied by a variety of different enterprises. Philippine Offshore Gaming Operators (POGO) occupied around 1.14M sqm. of total office space or approximately 10% of the total leasable office stock in the Philippines before the COVID-19 crisis began. As of June 2020, five (5) licensed POGOs and their local service providers have reportedly shut down their operations. These POGO operators are estimated to account for 11% of the total of 45 companies that are actively operating in the country. The travel restrictions imposed by both the Philippines and China will result in a slowdown of office take-ups from both POGOs and traditional occupiers. As for the Business Process Outsourcing (BPO) companies, they continue to recognize the Philippines as one of their preferred office locations. According to the Information Technology and Business Process Association of the Philippines (ITBPAP), the Philippines ranked #1 in voice BPO and #2 in non-voice, in terms of complex services in the world. The Tholons Services Globalization Index 2019 ranks the Philippines top 5 in the top 50 Digital Nations, while in 100 Super Cities, Manila ranks at #2, Cebu City at #12, and Davao City at #95. The ITBPAP has also finalized the “Digital Cities 2025”. These cities will be developed into ICT hubs and will serve as business and innovation centers to sustain the rapid growth of the IT-BPM sector. The 25 new destinations are also expected to draw in investments that would create more jobs and other economic opportunities in areas outside Metro Manila. The rising demand for flexible office space and townships
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