Philippine Offshore Gaming Operators (POGOs) vacate 274,000 square meters of office space in 2024, mostly in the last two months, due to government ban.
The Philippine real estate market is grappling with a surge in office space vacancies, primarily driven by the government's crackdown on Philippine Offshore Gaming Operators (POGOs).
In 2024, POGO firms vacated 274,000 square meters (sqm) of office space, primarily concentrated in the Bay Area of Pasay City. This exodus, which was mostly done during the last two months, was triggered by President Ferdinand Marcos Jr.'s directive to phase out POGO operations by the end of the year, citing concerns over tax evasion, money laundering, and social issues.
With POGOs out of the picture, the Philippine office market faces a lingering challenge. Vacancy rates are projected to remain high at 18% in 2025, based on data released by Leechiu Property Consultants (LPC) on December 10, 2024.
The POGO sector's departure has significantly impacted the commercial real estate market, particularly in key business districts like Metro Manila. The Bay Area, once a hub for POGO operations, is now facing a 23% vacancy rate. While government agencies are relocating and expanding their presence in the area, it is not enough to offset the loss of POGO-related demand.
The information technology-business process management (IT-BPM) sector has also contributed to the rise in vacancies, with 200,000 sqm of office space vacated due to relocation, downsizing, and consolidation efforts. Traditional office tenants have also downsized and relocated, adding another 216,000 sqm to the vacancy pool.
As a result of these factors, the Philippines' overall office vacancy rate has climbed to 18%, with a total of 3.3 million sqm of vacant office space. This exceeds the current demand of 1.1 million sqm, which is primarily driven by the government, IT-BPM, and traditional sectors.
Leechiu projects that office space vacancy will likely stay at 18% next year.
While the government's crackdown on POGOs has had a significant impact on the short-term outlook for the office market, the long-term prospects remain positive. The IT-BPM sector, a key driver of economic growth, continues to expand, and the government's infrastructure investments are expected to boost demand for office space.
However, the market will need time to absorb the excess supply and stabilize. Real estate analysts predict that vacancy rates will remain elevated in 2025 but are expected to gradually decline thereafter.
“In 2025, we do believe that given all these contractions, we will need time to be able to fill this all up, so vacancy levels next year will continue to flutter in the same level and we will see that really take a turn in 2027,” LPC commercial leasing director Mikko Baranda was quoted as saying in a GMA Network report.
He projects that the office vacancy level of the Philippines would only start shrinking by 2027 as “supply and demand trends indicate that the market is shifting toward a more balanced equilibrium.”
He also disclosed that this figure could eventually contract further to 7 percent by 2030.
To mitigate the impact of the POGO exodus, property developers and landlords may need to adopt flexible leasing strategies, offer attractive incentives to tenants, and consider repurposing vacant office spaces for alternative uses, such as residential or retail.
The POGO crackdown serves as a reminder of the importance of a diversified economy and the need for robust regulatory frameworks to ensure sustainable growth. As the Philippines continues to attract foreign investment and develop its digital economy, the real estate market will need to adapt to changing dynamics and emerging trends.
Read related article: Office Market Registers Negative Net Take-up After POGO Ban
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