The POGO (Philippine Offshore Gaming Operators) exodus continues and the once bustling Chinese-run industry that filled high rise office buildings with young Chinese workforce now only accounts for 2.8 percent of office portfolio in Metro Manila”, according to a study. 

John Corpus, executive director for Worldwide Occupiers Services Team of KMC Savills, one of the country’s leading property management and consultancy firms, said in a presentation at the virtual PH Real Estate Property: Trends & Outlook” that non-renewals and pre-termination of office space leasing outweigh new leases.

According to Corpus, POGOs accounted for 72 percent of vacated offices in the January-May period this year followed by multinational headquarters at 14 percent, data processing and outsourced services 10 percent, and flexible offices 4 percent.

For the January-May 2021, the KMC data showed that new leases are on the downtrend from 50,000 square meters in January to roughly 25,000 sqm new leases in May.

In contrast, vacated office spaces fluctuated from a low of 50,000 sqm in January to a high of 150,000 sqm in February only to drop in March to around 90,000 sqm. Leasing activity recovered in April to around 125,000 sqm and stayed at that level in May. 

Despite a slight pick up on leasing activity in Metro Manila, Corpus said that non- renewals and pretermination continue to dampen demand. Occupiers also appear to be re-evaluating their use of space as a return to office approaches for many organizations, he said. 

As a result, office space vacancy level in Metro Manila as of May this year was at a high of 12.8 percent, exceeding base forecast of 11.2 percent. KMC’s upper forecast is 13.2 percent vacancy rate. 

KMC said that as non-renewals climb higher, vacancy rates are also expected to worsen in Metro’s central business districts. Quezon City is forecasted to post the highest vacancy level at 19.5 percent, followed by Alabang at 16.1 percent, Ortigas at 16.5 percent, Makati at 10.6 percent, Bonifacio Global City at 9.8 percent and Bay Area with the lowest vacancy rate at 9.6 percent.

With rising vacancy rates, rental rates should also continue to soften. Rental rates in Metro Manila as of the first quarter of 2021 was already at P993.8 per square meter a month or 1.2 percent lower than rent levels a year ago.

Following the overall Metro Manila trend, KMC said further reduction is expected as occupiers renegotiate the lease contracts considering current conditions. 

Overall, KMC said office lease rates will continue to soften as take-up is behind current and upcoming supply. 

The BPO, e-commerce and IT industry are the saving grace in the office space with 90 percent of take-up coming from them and is expected to continue to row for the medium to long term. 

With lower rental rates, KMC said this is an opportunity for occupiers to position long term commitments and developers listing under REIT securing projected income stream.