POGO Departures Could Cause Metro Manila Office Vacancy Rate to Hit 20.5% by Year-end

October 31, 2024 Philippines Industry Updates

In 2025, 615,000 square meters of new office spaces are expected to open, particularly in areas such as Cubao, North Edsa, and the Bay Area.

The office vacancy rate in Metro Manila is forecast to hit 20.5 percent by the end of 2024. This anticipated increase is primarily attributed to the departure of Philippine offshore gaming operators (POGOs) and the influx of new office spaces in the region. Colliers Philippines, a prominent property consultancy firm, provided this outlook during a recent briefing in Taguig City.

According to Kevin Jara, the Director for Office Services at Colliers, the rising vacancy rates will result in flat net demand for office spaces.

Jara pointed out that as of the third quarter of this year, the vacancy rate had already risen to 18.6%, up from 18.3% in the previous quarter. This increase is largely due to the termination of leases by POGOs and the non-renewal of pre-pandemic agreements.

The impact of the POGO shutdown, officially known as the ban on Internet Gaming Licensees, is becoming increasingly evident. The government ordered the closure of these operators earlier this year, leading to a significant reduction in occupied office space.

Jara noted that an additional 157,000 square meters of office space occupied by POGOs is expected to be vacated by the fourth quarter of 2024. “These were the ones that we know and have officially notified their landlords that they’re not renewing their lease,” he was quoted as saying in a Business World report.

He emphasized that these leases have been officially terminated, reflecting the immediate consequences of the POGO ban. “57,000 sq.m. have already been vacated in the third quarter. That’s the immediate effect of the POGO ban,” he added.

With more operators announcing their exit, landlords are now grappling with a rising number of empty offices.

Despite the increase in vacancies, there is still a substantial influx of new office supply. Colliers projects an additional 119,000 square meters of office space to become available by the fourth quarter of this year. “In 2025, we are expecting 615,000 sq.m. of new office stock, mostly coming in Cubao, North Edsa, and the Bay Area,” he said.

Jara also shared insights regarding rental rates in the market. He stated that average office rent is expected to remain flat by the year’s end. The situation is nuanced, as the rent for office spaces will largely depend on various factors including building occupancy, the age of the property, and the landlord’s portfolio.

Areas with a higher concentration of POGO tenants, particularly the Bay Area, are likely to experience a decline in rental prices. In contrast, submarkets such as Makati, Fort Bonifacio, and Ortigas are projected to see slight increases in rents, driven by declining vacancy rates in those regions.

In the midst of these fluctuations, Jara pointed out that there has been an uptick in transaction volumes for office spaces, largely led by the information technology and business process management sectors, along with traditional office users. This indicates a level of resilience in the market, despite the uncertainties posed by recent regulatory changes.

Jara remains optimistic about future opportunities within the office market, citing various factors that could stimulate demand.

“We think the market remains stable despite updates in regulation just over the past three months,” said the representative of the consultancy company.

“We are still confident to see more opportunities arise, even with upcoming events in the US elections and with impending legislation such as the Corporate Recovery and Tax Incentives for Enterprises to Maximize Opportunities for Reinvigorating the Economy (CREATE MORE).”