Overseas demand continues to propel the Philippines’ office sector

From western outsourcers to Chinese online gaming firms, international locators are homing in on the country’s grade-A workspaces

Cebu City, Philippines. photosounds/Shutterstock

The office segment remains one of the redeeming points of the Philippines’ real estate industry. The development of premium-grade offices in the archipelago is not merely surviving; it is thriving on a groundswell of online gaming operators, coupled with a dependable stream of western outsourcing firms.

The archipelago’s Information Technology and Business Process Management (ITBPM) sector accounted for a majority (46 percent) of demand share in the office market last year, according to Pronove Tai International Property Consultants. This demand translated to a staggering 490,000 square metres in transactions.

Although they do not directly compete with ITBPM firms in demand for grade-A office spaces, Philippine Offshore Gaming Operators (POGO) are already among their biggest locators. POGOs have cornered a 22 percent share in the office market, equivalent to 221,000 square metres in transactions.

“Office is benefiting from a diverse group of occupants – BPOs (business process outsourcing), KPOs (knowledge process outsourcing), flexible workspace operators, government agencies, traditional companies, and offshore gaming firms from China,” said Joey Roi Bondoc, research manager for Colliers Philippines.

POGOs need not only brick-and-mortar workspaces for their Chinese-speaking talent pool but also suitable living quarters, leading to an uptick in residential leasing demand in Metro Manila.

“Indeed, a large portion of the property sector demand is coming from Chinese investors,” reported Paolo Abellanosa, corporate communications manager for Santos Knight Frank.

“They have by now saturated the [Manila] Bay Area and are presently looking to expand in areas with higher vacancies, such as Alabang, Ortigas and Quezon City.”

The POGO wave comes amid a détente between Manila and Beijing that ushered nearly USD190 million in foreign direct investments in the Philippines from China in the first 10 months of 2018. “This trend is likely to continue in 2019 as more capital from China flows into the Philippines in industries like infrastructure, manufacturing, office, residential and hospitality,” said Abellanosa.

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Although the threat of automation is looming over tech-oriented livelihoods worldwide, Filipino office developers can still focus their energies on the provision of IT-centred facilities because “the need for computer and technology experts will continue to drive the ITBPM industry,” said Christophe Vicic, country head for Jones Lang LaSalle Philippines.

Some 43,000 low-skilled workers are predicted to lose their jobs from 2016 to 2022 but there will be openings for 697,000 mid- to high-skilled jobs, according to figures from the IT and Business Process Outsourcing Association of the Philippines (IBPAP).

The Philippines teems with premium office spaces that can accommodate the needs of international office tenants. “Chinese investments are centered in areas where there are strong economic activities mostly characterised by interconnectivity of retail establishments and residential condos, accessibility to public transport, better security, and friendly regulatory environment,” observed Monique Pronove, CEO of Pronove Tai International Property Consultants.

“For that reason, the Bay Area — Pasay and Parañaque — and Makati continue to be the most preferred location of Chinese nationals, mostly from the offshore gaming sector,” she added.

The winning entries in the 2018 PropertyGuru Philippines Property Awards attest to the viability of such areas. D.M. Wenceslao & Associates, Inc won Highly Commended Office Development for Aseana Three, one in a cluster of office towers forming Aseana City, an integrated development in Parañaque.

Another winner for Highly Commended Office Development last year, The Stiles Entreprise Plaza by Alveo Land, is a two-tower project that links to a new entertainment and lifestyle hub in Metro Manila: Circuit Makati. It is the first office condominium in the area.

Cebu, an island province south of Manila, is also getting a fair share of the action as well. “Online gaming is also present in Cebu where a POGO firm occupied the entire Plaza Magellan building in Mactan Newtown,” noted Vicic.

Mactan Newtown refers to a township development by Megaworld Corporation, a three-time winner of the Best Developer gong at the Philippines Property Awards.

Cebu Exchange by Cebu Lavana Land Corporation (a subsidiary of ArthaLand Corporation) garnered the prize for Best Office Development in Cebu last year. Latitude Corporate Center by Cebu Landmasters took the Highly Commended honour in the same category.

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Striking the proverbial iron while it is hot has become a new imperative for developers and public servants hoping to sustain the forward momentum of the commercial property segment. “While Chinese money still drives the real estate industry, both landlords and developers must maximise the current opportunities in terms of high yields related to Chinese transactions,” said Pronove.

The viability of the office segment is contingent on a “friendly regulatory environment” as overseen by not only the national government but also local government units across the islands, according to Pronove. The offshore gaming industry is susceptible to risks arising from testy bilateral relations between Manila and Beijing as well as unpredictable Chinese immigration policies.

“To redirect interests to non-Manila areas, new and improved infrastructures, business-friendly local government regulations and several staff housing options should be made available,” suggested Abellanosa.

With sustained office space take-up and diversified tenancy in the market, the commercial segment should experience a health level of vacancy at around five percent to 5.5 percent a year from 2019 to 2021, predicted Bondoc.

In an industry governed by uncertainty, offices are indeed shaping up to be among the few shining lights of the Filipino economy.

What exemplary developments in the Philippines do you think meet foreign demand? Nominate those projects to the 2019 PropertyGuru Philippines Property Awards. Entry submissions close on 10 May. Find more details here: https://www.asiapropertyawards.com/award/philippines-property-awards/