By Arra B. Francia, August 13 2019; Business World

Image Credit to Business World

PROPERTY developers remain optimistic about demand for office space despite China’s crackdown on Philippine offshore gaming operators (POGOs), citing limited exposure to such tenants.

Ayala Land, Inc. Commercial Business Group Head Jose Emmanuel H. Jalandoni said POGOs make up less than a tenth of their leasable office portfolio, limiting the company’s vulnerability to this segment.

“For the office sector, we’re limiting it to a maximum of 10% for our office portfolio. Right now it’s a little below 10%…Since we’re limiting our exposure to 10% it’s more manageable,” Mr. Jalandoni told BusinessWorld on the sidelines of an event last week of its parent Ayala Corp.

In a separate interview, DoubleDragon Properties Corp. Chairman and Chief Executive Officer Edgar J. Sia II said his company is also relatively protected from developments hounding POGOs.

“DoubleDragon’s leasable space portfolio is diversified enough that it is well-covered overall. The POGO exposure is only about 12% of 2019 total leasable space,” Mr. Sia said in an e-mail, adding that his company requires tenants to pay 12 months rental security deposits up front, on top of post-dated checks covering the entire lease term.

Mr. Sia, however, admitted that there could be downsides in terms of yields the company will get for its properties.

“The only downside if the POGO tenants are replaced by BPO and corporate tenants is that, in that case the company expects to no longer get the very high 29% yield on cost but may revert to the normal yield of 14%, which is anyway still more than double the company’s cost of fund which now stands at 6.2%.”

Concerns about the country’s office sector arose after the Chinese embassy last week asked the Philippines to stop hiring Chinese citizens in casinos and other gaming facilities, citing how a large number of them have been illegally brought into the country since Beijing has been cracking down on cross-border gambling. It also blamed offshore gaming operations in the country for increased crimes and other social problems in China.

Analysts said this move could hurt the property sector as POGOs have been driving demand for office space in recent years.

Real estate consultancy Colliers Philippines said offshore gaming firms accounted for 37% of total office transaction last semester. Total space taken up by POGOs is expected to breach 300,000 square meters for the year, according to its second-quarter office report released last week.

Despite the high demand from POGOs, Ayala Land’s Mr. Jalandoni said the company still expects business process outsourcing firms and traditional offices to boost its businesss.

“I think reports show that demand for this year and last year was mostly POGOs, but BPO demand is still there and we’re also seeing demand from traditional office so it’s a balanced demand,” Mr. Jalandoni said.