Office, retail and residential property segments are all likely to see “significant impact” from Pogos’ exit from the Philippines, according to Cushman & Wakefield.
Office vacancy rates could rise from the current 16 per cent to more than 20 per cent by the end of the year, when about 385,000 square metres or 4.14 million square feet of new office space is set to be completed, according to real estate firm. This would mark some of the highest vacancy rates since the historical high of about 30 per cent in the early 2000s following the 1997 Asian financial crisis.
The residential segment, particularly flats, could see a halt in the small appreciation of rents and capital values, as vacant units are turned back over to the market given the high cost of capital expenditure to reinstate the properties previously occupied by Pogo employees, the property consultancy added.
There is no official data on the number of residential units that foreign Pogo workers occupy, but at least 20,000 foreign residents are expected to leave the Philippines by late September.
Meanwhile, in the retail segment, restaurants, services and speciality shops catering to foreign Pogo employees are expected to vacate their spaces, adding to the available stock. The retail vacancy rate in Manila and neighbouring cities fell by 54.7 basis points to 7.5 per cent in the first quarter of the year, compared with the preceding quarter, as no significant supply was added to the market, according to JLL.
“About 60 per cent of our population is under the age of 30 with the median age at 24.5 years,” Gomez said in an interview in Hong Kong. “We are at the peak of a very young, very dynamic population. Unemployment is at a record low and we continue to get strong remittances from OFWs, while we have a very fast-growing BPO [business process outsourcing], so the components that support consumption are there.”
As of June, SM Prime owns and operates 86 shopping centres in the Philippines with 9.3 million square metres of gross floor area. It also owns 22 office buildings with 1.6 million square metres of combined floor area and 47 residential projects across the country. It aims to launch as many as 7,000 residential units this year, according to its latest financial report.
While the group has no Pogo tenants in its office portfolio, sales of its residential segment could see “some effect” specifically in districts where Pogo offices are located, said SM Prime president and CEO Jeffrey Lim.
“Any impact in the residential industry will be offset by the large local backlog for housing and long-term need, which is over 4 million units today in the addressable segments,” Lim said.
The company’s residential subsidiary, SM Development Corporation, has shifted the focus of recent project launches to products and locations with no Pogo exposure, he added, noting that SM malls have “no significant direct exposure to Pogos”.
Instead, Lim cited growth projections for the BPO industry to employ more than 2 million Filipinos by 2025, which would be up nearly 18 per cent growth from the estimated 1.7 million headcount by end of 2023.
The industry generated more than US$35 billion in revenue for the local economy from 2023-24, and this is expected to increase by more than 11 per cent to US$39 billion by 2025, according to a trade group.
Remittances from OFWs are also estimated to grow by 3 per cent per year to US$40 billion this year and US$41 billion in 2025, according to the World Bank.
These trends are underpinning the growth of consumer spending in the Philippines even as interest rates are among the highest in the region.
On Thursday, the central bank eased policy rates by 25 basis points, the first reduction in four years amid moderating consumer prices.
Gomez of SM Investments believes that with Philippine household debt at just 10.8 per cent of gross domestic product, the easing of rates could further boost consumption and investment in the country.
Office demand could also improve, said Jaime Dela Cruz, research manager at KMC Savills.
“Businesses may take advantage of lower interest rates to fund their business expansions by relocating to larger or better office spaces,” Dela Cruz said.
Still, the economy and the property market are facing risks this year and next, said Claro Cordero Jnr, director of research, consulting and advisory services for Cushman in the Philippines.
“Given the varying levels of risk facing the market – geopolitical (such as the South China Sea conflict), climate and economic – Cushman & Wakefield believes that the market will exhibit a slower return to market recovery for the rest of the year,” he said. “This is likely to be the theme to welcome 2025.”