Metro Manila office market could decline to two-year low amid Philippine crackdown on Chinese online gaming operations

By Cheryl Arcibalcheryl.arcibal@scmp.com / https://www.scmp.com/business/article/3076703/metro-manila-office-market-could-decline-two-year-low-amid-philippine?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3076703 | March 30, 2020 10:12 AM SGT
Office vacancies could rise to a two-year high in Manila, as the Philippines starts to crack down on Chinese-operated online gaming operators to curb a rise in criminal activity associated with their operations.
Vacancies are likely to rise to 7.6 per cent this year, a level last recorded in the last quarter of 2017, from 4.3 per cent in 2019, based on data by consultancies Colliers International and Cushman & Wakefield. Rents are also likely to decline amid lower demand for projects set to be completed in the near term.
The online gaming operators, known as Philippine Offshore Gaming Operators (Pogos), occupied about 1.26 million square metres of office space in 2019 in Metro Manila, which covers other business hubs besides Manila, representing 11 per cent of the total office space in the capital. They have set up in Manila as online gambling is illegal in mainland China.
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"Assuming that all Pogo firms leave the country due to the crackdown, we are likely to see a higher office vacancy in Metro Manila," said Joey Bondoc, senior research manager for Philippines at Colliers. "If no additional space is taken up by the Pogo sector this year, vacancies could rise to 7.6 per cent," he said, noting that in the last three years, these firms have accounted for about a third of total office deals in Metro Manila.
Colliers had trimmed its rental growth forecast for the segment to 5.6 per cent from 5.8 per cent, but this does not take into account developments around the Covid-19 outbreak.
The bleak outlook reflects the significance of Pogos to Philippine real-estate market. A legislative probe into their activities was first held in January after a Filipino lawmaker sought the suspension of visa-upon-arrival privileges for Chinese nationals, saying that the scheme was linked to the rise of criminal activity in the Philippines.
But before the inquiry could be concluded the Covid-19 outbreak struck, with the country reporting its first case on January 30. Since then, Manila has restricted the entry of Chinese nationals coming from the mainland, Hong Kong and Macau. The Philippines had reported about 500 cases of the infection, with 33 deaths, as of Tuesday.
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"Office leasing activity from MNCs and online gaming is anticipated to dip as business decisions are being put on hold," said Janlo delos Reyes, JLL Philippines' head of research and consultancy. "These headwinds are projected to impact the real-estate market in the interim, but we expect the market to stabilise once the virus is contained."
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