A report shows that the Philippine office leasing market expanded by 4% despite the ban on Philippine Offshore Gaming Operators (POGOs).
The Philippine office leasing market has defied expectations, expanding by 4% in 2024, despite the government's stringent ban on Philippine Offshore Gaming Operators (POGOs). This growth, totaling 1.1 million square meters (sqm) in transacted deals, is primarily driven by the increased demand from government agencies and traditional offices.
Government expansions, particularly relocations and expansions of government offices, have significantly contributed to the market's growth, accounting for 122,000 sqm of leased space. Traditional offices, including corporate headquarters and business centers, have also witnessed a 13% surge in demand, totaling 492,000 sqm.
Leechiu Property Consultants said in a release cited by the Philippine Star: “This expansion comes despite challenges such as the POGO ban, high interest rates, and inflationary pressures.”
The real estate market experienced contractions due to the POGO ban, leading to a 65% increase in vacated office spaces, totaling 690,000 sq.m. The POGO sector alone accounted for 274,000 sq.m. of these vacancies, with the majority occurring in the last two months of the year.
The POGO ban, while initially causing a 65% contraction in the market, has accelerated a shift towards more sustainable tenants. The IT and Business Process Management (IT-BPM) sectors have adapted to the changing landscape by relocating or consolidating their operations. This strategic move has helped stabilize the market and mitigate the negative impact of the POGO ban.
However, the market still faces challenges such as high-interest rates and inflationary pressures. Despite these headwinds, the outlook for the office leasing market remains optimistic.
Office vacancy rates remained elevated at 18%, with a total of 3.3 million sq.m. of vacant space.
LPC's Director of Commercial Leasing, Mikko Barranda, noted that while vacancies are high, supply and demand trends suggest the market is moving towards equilibrium, with clearer signs of recovery expected by 2027.
Metro Manila recorded a total leasing demand of 881,000 sq.m., with the Bay Area emerging as the top-performing district, primarily due to government relocations. Outside Metro Manila, Cebu led the provincial demand with 113,000 sq.m., representing nearly half of the total demand in provincial areas.
Looking ahead, LPC anticipates that the market will stabilize, with vacancy rates returning to pre-pandemic levels by 2030.
The firm also highlighted the growing demand for data centers in the Philippines, driven by the adoption of artificial intelligence (AI) and the country's strategic location in the Asia-Pacific region. This trend is expected to further bolster the real estate market in the coming years.
As the Philippine economy continues to evolve, the office leasing market is poised to adapt and thrive. The increasing demand from various sectors, coupled with strategic real estate investments, will likely drive further growth.
Read related article: POGO Exodus Leads to Increased Vacancies in PH Office Spaces
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