MANILA, Philippines – Amid the Alice Guo saga and continued raids on illegal Philippine offshore gaming operators (POGOs), calls to completely ban these enterprises have been gaining political traction. But from an economic perspective, could a ban on POGOs hurt the property market that it once caused to thrive?

In the short term, a ban on POGOs will certainly still bite, but the office and residential sectors no longer seem as “ultra-dependent” on the industry as it was before.

“The question there is how dependent are we, the market, on them? Today, the amount of square meters that they’re taking up is negligible compared to the take-up they had [before],” Leechiu Property Consultants commercial leasing director Mikko Barranda told Rappler.

Data from Leechiu Property Consultants (LPC) show that POGOs now make up less than 11% of total gross demand for office space in the country, which is already lower than the nearly 16% in the first half of 2023.

It’s also a far cry from pre-pandemic figures when POGO operations were at its peak. At one point, POGOs were a main driver of leasing demand in Metro Manila. Barranda said that in 2019, POGOs made up “easily a quarter” of demand for office space – around 300,000 square meters or 7 to 8 times what they have today.

All that changed after the pandemic hit. POGOs packed up their operations and workers fled the country, leaving offices empty in their wake. In the third quarter of 2020, office vacancy rates in Manila climbed to 7.1%. At the time, POGOs vacated 277,000 square meters of space, leading to P1.4 billion in office rent losses.

By October 2022, LPC estimated that the figure had ballooned to a total of 630,000 square meters of vacated POGO office space since the onset of the pandemic in the first quarter of 2020.

Even as the pandemic sizzled down, China was slow to ease travel restrictions. Meanwhile, the Philippine government under the Marcos administration began to crack down on POGOs and tighten regulations. This meant that many of the POGOs that initially fled when the pandemic hit never returned.

The effect of all this? A ban on POGOs would “still be a dent,” the property expert said, considering that they still account for about 75,000 square meters in gross demand for office space. However, much of the “shedding” of POGO office space has already happened, leading the market to recalibrate around their absence.

For instance, the DoubleDragon Plaza in the Bay Area used to predominantly cater to POGOs. The 11-story office complex had over 130,000 square meters of leasable space that could have been at risk of sitting empty. But LPC observed that the property has successfully pivoted to serving government and private sector offices.

“Because their [POGOs] take-up has been negligible, it’s good to also reassess that we’re not ultra-dependent, meaning the market’s still good because other demand drivers are helping the market,” Barranda told Rappler on Thursday, July 11.

But the POGOs that have remained within Metro Manila – largely concentrated around the Bay Area in Pasig and Parañaque – seem to be going strong. Unlike in previous quarters, no POGOs terminated their office space leases in the second quarter of 2024. Some even expanded into other buildings in the Bay Area.

Still, Barranda described POGOs as “similar to any other business now.”

“They need to grow, they take space. But unlike before where they were taking space speculatively – meaning they will lease an entire building and then find a way to fill up that building – now they take space according to what they need,” Barranda said during Thursday’s media briefing.

Moving forward, it seems unlikely for POGOs to make a major comeback in the office market anytime soon. LPC’s live demand data – which combines inquiries, site inspections, and ongoing negotiations – show that only a few POGOs are looking for new office spaces. Of the 298,000 square meters of live demand in Metro Manila, 51% of that is from traditional companies, 41% from IT-BPM companies, and just 8% from POGOs.

And unlike the previous administration, the government under Marcos is no longer extending a welcoming hand to POGOs. National Economic and Development Authority Secretary Arsenio Balisacan argued that the Philippines may be better off without POGOs, since its social costs outweigh the billions in revenues that the sector brings in.

“It may be a big number, but the cost, particularly the social cost of POGOs are quite high. We are trying to position our country as a legitimate place for business. We are trying to attract investors to come, tourists to come. The least that we want is to have a reputation that criminals are here, things like that,” Balisacan said in a press briefing on Tuesday, July 9.

“The social cost, the way we view at NEDA, may not be worth those revenues. Because if you succeed at generating those jobs anyway, we will get much more than what we lost,” he added. “There are a lot of other opportunities for the country, for the economy, and for our workers.”

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POGOs disrupted Bay Area residential prices

When it comes to residential properties, it seems that those who were riding on the POGO phenomenon have already begun to cut their losses.

“While most of the investors who bought units to house the POGOs are local Filipino-Chinese investors, they have already started selling these residential units. It’s a large decline, and if the POGO sector starts to shrink further, then it will likely impact these locations,” LPC research and consultancy director Roy Golez Jr. said, specifically referring to the Bay Area, and parts of Alabang and Makati.

The exodus of POGOs has already disrupted rent and property prices in the Bay Area, where entire buildings were built and sold to investors looking to rent them out to POGO workers.

“The [rent] yields are all over the place. Near the casinos, better yield. Where there were POGOs before, bad yield,” Golez told reporters.

The business districts of Makati and Bonifacio Global City or BGC will be “largely impervious” to any changes to the POGO sector, Golez added.

Where is growth in property market coming from?

Even without POGO money fueling property development and leasing like in days past, LPC views the market as “resilient.”

Demand for the Philippine office market continued to grow in the first half of 2024, with a 24% increase in transactions compared to the same period in 2023. Occupiers are either expanding or relocating from old buildings to newer ones.

Growth in the office market was particularly strong in the information technology and business process management (IT-BPM) sector and government sector. Transactions for IT-BPM rose by 13% from first half of 2023 to first half of 2024, while leasing activity for government agencies increased by over sevenfold in the same period.

The historically POGO-dominated Bay Area is also continuing to diversify, with 68% of office leasing demand in the Bay Area coming from the government sector in the second quarter of 2024, according to LPC.

Sales for residential condominiums in Metro Manila also went up by 6.5% in the second quarter of 2024 after shrinking for the past three quarters. However, LPC still advises a “cautious stance” for condominium project launches in the metro, with developers still needing to address inventory concerns. Around 3% of ready-for-occupancy units and 21% of pre-selling units remain unsold.

More opportunities may also lie a stone’s throw beyond the National Capital Region, particularly in townships south of the metro near expressways. Listed below are the compound annual growth rate or CAGR of property prices in different townships in Cavite and Laguna, as gathered by LPC:

1. Forresta: 14.8%
2. Ciela at Aéra Heights: 11.4%
3. Southmont Lanewood Hills: 13%
4. Southmont Verdea: 7%
5. Maple Grove: 17.8%
6. Arden Botanical Phase 1: 20%
7. Arden Botanical Phase 2: 10%
8. Riverpark: 26%
9. Nuvali Arcillo: 7%
10. Rockwell South: 15%

“It’s indicative that the price growth for residential communities south of Metro Manila has been growing almost all in two digits,” Golez said. – Rappler.com