BPOs, traditional firms to offset POGO ban impact

MANILA, PHILIPPINES — Real estate experts from Colliers Philippines and JLL Philippines believe that business process outsourcing (BPO) companies and traditional firms will fill the void left by the recent ban on Philippine offshore gaming operators (POGOs) in the office market.

Dramatic decline in POGO office footprint

Colliers Philippines reported a sharp decline in POGO office occupancy in Metro Manila, from 1.3 million square meters (sq.m.) in 2019 to 489,000 sq.m. in the first half of 2024. 

Kevin Jara, Associate Director for Office Services at Colliers, noted that traditional offices and BPOs are currently sustaining the office market. 

In the first half of the year, traditional offices accounted for 56% of transactions, BPOs 26%, and POGOs 16%.

Colliers advise landlords with POGO tenants to re-market their spaces to traditional and BPO occupiers, suggesting refurbishments to make these spaces suitable for new tenants. The unique layout of POGO offices may require significant modifications to attract BPOs.

POGO ban’s impact on office vacancy rates

Philippine President Ferdinand Marcos, Jr. recently ordered a total ban on POGOs due to their involvement in illicit activities. 

Jara highlighted that the Bay Area might see vacancy rates rise to 51% following the POGO exit, with Makati potentially reaching 43%. However, other areas like Fort Bonifacio, where POGOs were not allowed, are unlikely to be affected.

Colliers projects that overall Metro Manila vacancy rates could increase to 22% by year-end, up from the previously forecasted 19.1%. Despite this, Jara remains optimistic, forecasting a positive net take-up of 163,000 sq.m. for the market, even in a worst-case scenario.

Meanwhile, Jan-Loven de los Reyes, JLL Philippines’ Head of Research and Strategic Consulting, noted that the POGO ban’s impact on office vacancy levels would be minimal, as many POGOs had already exited the market due to the pandemic. 

JLL reported that BPOs accounted for 39.9% of leasing transactions in the first half of 2024, followed by traditional offices at 34.9%, and POGOs at 25.2%.

BPOs, traditional firms expected to fill the gap

De los Reyes emphasized that developers would likely target BPOs and traditional firms to fill the vacancies left by POGOs. He also predicted a “tenant-favorable market” in Metro Manila, with office rents potentially decreasing further due to the increased supply and weak demand.

Despite the challenges, both Colliers and JLL foresee a recovery in the office market by 2025 and 2026. 

Colliers predicts the demand for office space to reach 480,000 sq.m. over the next two years, driven by BPOs and traditional firms.

At the same time, JLL Philippines expects the distribution of office demand to revert to pre-pandemic levels, with BPOs accounting for around 70% of transactions

As the market adjusts to the POGO ban, landlords and developers are expected to offer more competitive leasing terms to attract new tenants.