Office market poised for record take-up

MANILA, Philippines — Property consultancy firms remain bullish on the office market in Metro Manila as business outsourcing companies regain their investment appetite amid growing demand from offshore gaming firms.

Colliers International Philippines said Metro Manila office space take-up is projected to hit a record high this year, noting that it has revised its initial forecast of 1.06 million square meters (sqm) net absorption for this year to 1.15 million sqm.

Joey Roi Bondoc, Colliers Philippines research manager, said the higher forecast is driven by the resurgence of demand from the outsourcing sector as seen in the first three quarters of the year.

Bondoc reported that overall office take-up in the first three quarters registered at 810,000 sqm, more than double the 370,000 sqm in the same period last year.

Take-up in the fourth quarter is projected to hit 344,000 sqm.

Bondoc attributed the high absorption figures to the renewed confidence of outsourcing firms in the country’s office sector.

Last year, office space demand from both business process outsourcing (BPO) and knowledge process outsourcing (KPO) firms dropped as companies held off expansion plans due to uncertainties caused by several factors, including US President Trump’s anti-outsour-cing sentiments and the delay in approvals by the Philippine Economic Zone Authority (PEZA).

“Some of those concerns have been addressed already. They realized that Trump is more concerned on manufacturing jobs in the states so the outsourcing companies are not even really affected,”Bondoc told The STAR on the sidelines of the briefing.

Year-to-date office transaction figures show that demand from outsourcing firms account for 42 percent of total office transactions or nearly 480,000 sqm, 26 percent from KPOs and 16 percent from BPO (voice) firms. This is higher than the 26 percent share in 2017. 

Among major deals closed in the first three quarters of the year involved Paypal, SMS Global Solutions, Alliance IT, Alorica, Accenture, Teledirect, SPi CRM, Infor and Google.

Bondoc said the country’s improving competitiveness as an outsourcing destination is also a factor in attracting more firms to locate in the country, as Manila currently ranks second in Tholon’s list of the world’s most competitive outsour-cing destinations.

Likewise, Pronove Tai International Property Consultants chief operating officer Monique Pronove expressed optimistic sentiments for the Metro Manila office market.

“It has been a strong year so far for the office market. The next five years also look encouraging and will open up potentials in the future of the industry,” she said.

While she acknowledged the strong demand from the outsour-cing sector, accounting for 42 percent of transactions in the third quarter,  Pronove emphasized that the demand from the offshore gaming sector is seen to remain in the market.

She cited third quarter 2018 figures which showed that offshore gaming accounted for the second largest share of office transactions at 26 percent or 82,000 sqm.

This was followed by traditional offices at 24 percent and flexible workspaces at eight percent.  

 “Philippine offshore gaming operators (POGO) is a steady second demand driver,” Pronove said.

Data from Pronove Tai show that POGO take-up increased 61 percent quarter-on-quarter from 51,000 sqm the previous quarter. 

Pronove stressed that POGO had such a strong demand that it was the main reason behind the Bay Area’s tight vacancy, with the sector accounting for 72 percent of the Bay Area’s transactions in the third quarter.

Meanwhile, Colliers International Philippines director for office services Frederick Andaya cited the strong pre-leasing activity in Metro Manila as another driver for the demand.

“Strong pre-leasing activities indicate that robust office space demand will probably be carried over to 2019,” Andaya said, estimating that 22 percent of office space to be completed in the next 12 months have already been pre-committed.

From 2019 to 2021, Colliers estimates completion of about 2.66 million sqm of new leasable space or 890,000 sqm annually.