IT-BPM reclaims top spot in office demand

MANILA, Philippines — As uncertainties brought by the first tax reform package ease, information technology-business process management (IT-BPM) firms have reclaimed the top spot as the largest driver of office space demand in Metro Manila in the first quarter of the year, a property services firm said.

Based on its Metro Manila Office Market Overview 1Q 2018, Pronove Tai International Property Consultants said IT-BPM firms accounted for 51 percent of the 262, 000 square meters office space taken up in the first quarter of the year.

Pronove Tai chief executive officer Monique Pronove said the IT-BPM industry performed strongly in the first quarter following the implementation of the Tax Reform for Acceleration and Inclusion (TRAIN) Package 1. 

“The first package had virtually no effect on the IT-BPM. Their tax incentives remained intact for now, which allayed investor anxiety prelaunch and returned confidence in Q1,” Pronove said.

Traditional companies followed the IT-BPM industry as the second top driver of office space demand, accounting for 30 percent of the take-up during the quarter. Offshore gaming companies came in third with 19 percent of total demand.

In 2017, traditional offices accounted for majority or 60 percent of the pre-absorbed office space in the market. A slowdown in the take-up of office spaces by the IT-BPM industry was also seen in the same period.

Pronove said this was mainly caused by the uncertainties brought by TRAIN, particularly on the grant of incentives to IT-BPM firms.

“TRAIN Package 1 was already dealt with. We did not see any changes that will impact the IT-BPM,” Pronove said.

Timely delivery of office supply with 250,000 sqm or eight new buildings was completed in the first quarter of the year, according to Pronove Tai.

“This is equivalent to a three percent growth quarter-on-quarter and 55 percent higher than the same quarter last year,” the company said.

Of this new supply,Taguig City contributed the most completions with approximately 106,000 sqm (or 42 percent of the total Q1 supply), followed by Quezon City (34 percent of total Q1 supply) and Mandaluyong City (16 percent of total Q1 supply).

Total office stock for Metro Manila now stands at 10 million sqm largely from the three office districts of Makati City, Taguig City and Ortigas Center.

In addition, Quezon City recorded the fastest growth rate at nine percent. This brought Quezon City vacancy to rise to 13 percent from 11 percent the previous quarter.

 “Bay Area which was the fastest growing district for the past two years, registered zero percent growth or no new completions for the first three months of 2018,” Pronove said

Meanwhile, Metro Manila vacancy rate remained at a healthy average of five percent during the quarter.

“Inflation impact has a lagged effect and did not affect the Q1 property supply as construction materials were already procured,” Pronove said.

She added,  however, that if the inflation rate continues to rise, this will cause office construction activity to slow down in the next two years.

“Construction cost would rise, prices and interest rates would increase, and ultimately, vacancy will grow,” Pronove said.

While the implementation of the first tax reform package has not caused a negative effect on the office market, Pronove said that the second package and the tax scheme it proposes  may impact investor decision and confidence.

Under the proposed tax scheme of TRAIN Package 2, corporate income tax will be lowered to 25 percent compared to the current 30 percent.

Also, PEZA income tax holiday will be extended to a maximum of 10 years, followed by lifetime 15 percent tax on gross income. However, incentives are given based on corporate performance and gross domestic product.

“The Q1 2018 office market showed better performance compared to the same period last year as issues such as slow PEZA proclamations, contentious TRAIN discussions and clearer policies and better understanding of the POGO industry were addressed. 

“Therefore, we urge for more careful and thorough discussions on socioeconomic policies as they greatly affect investor confidence, “Pronove added.