POGO: A Major Driver of the PH Real Estate Market

In the span of just three years after the effectivity of the Executive Order, the online gambling market in the Philippines has grown into a $6 billion (₱300 billion) industry.

In a span of just three short years, the Philippine Offshore Gaming Operators (POGO) are already poised to overtake the Information Technology Business Process Outsourcing (IT BPO) industry as the main driver of growth in the demand for office space in the country’s National Capital Region (NCR).

Current estimates show that the IT BPO industry accounts for 41% of the growth in office space demand, while the POGOs account for 27% of the increase. These figures were provided by Sheila Lobien, Chief Executive Officer (CEO) of the Lobien Realty Group, in a recent press release. Moving forward, The Lobien Group expects POGOs to eventually overtake IT BPOs as the driver of growth within the next twelve months (SEE: Lobien bullish on PH’s offshore gaming sector, The Manila Times).

What are Philippine Offshore Gaming Operators (POGOs)?
The term POGO was officially born in 2016, as a result of President Rodrigo Duterte’s Executive Order 13 of 2016 — which gave PAGCOR the authority to regulate the operations of POGOs. According to the definitions provided by the Philippine Amusement and Gaming Corporation (PAGCOR), Philippine Offshore Gaming Operators (POGOs) are entities — licensed by PAGCOR — to offer “games of chance or sporting events via the internet using a network and software or program, exclusively to offshore authorized players (SEE: Philippine Amusement and Gaming Corporation Offshore Gaming Regulatory Manual, PAGCOR).” 

In simpler terms, POGOs are just (1) Philippine based companies, (2) which operate online gambling and gaming platforms (3) catering to foreigners.

In the span of just three years after the effectivity of the Executive Order, the online gambling market in the Philippines has grown into a $6 billion (₱300 billion) industry.

This rapid market growth can be attributed to the growing Chinese demand for online gambling (SEE: How China’s online gambling addiction is reshaping Manila, Rappler).

Casinos are illegal in China. Thus, its citizens have to look for other avenues in order to satisfy their growing gambling addiction. In the past, these people would often travel to Macau or Hong Kong in order to go to a casino. The rise of the internet, however, has led to a cheaper and more convenient alternative: online gambling.

The Philippines has been one of the preferred destinations to operate these online gambling platforms due to the country’s (1) close business ties with China (SEE: PHL bags $12B in investments from Duterte’s fourth visit to China, GMA News), (2) favorable tax incentives for POGOs (SEE: The Rise of POGOs: A new landscape in e-casinos and sports betting, Business World), and (3) proximity to China.

Moving forward — as Chinese investments continue to flood into the country and as the Philippine economy continues to grow, the e-gaming market should continue its rapid growth in the foreseeable future.

Direct Effect of POGOs on the Office Space Market
Today, PAGCOR has authorized 57 Philippine Offshore Gaming Operators to operate in the country.  The latest industry estimates show that these companies employ roughly 250,000 people in the Philippines. With such a large workforce, it should not be a surprise to see why POGOs have had a significant effect on the Philippine office space market — both in terms of (a) quantity demanded and (b) rental rates.

Effect on space demanded
In terms of physical demand, POGOs currently occupy 51,000 square meters (sq m) of office space in Metro Manila, according to a research conducted by the property consulting firm Pronove Tai. Almost 50% of this space is found in The Bay Area (SEE: The Country’s Own Bay Area) while another 40% is found in Makati. This figure is expected to grow exponentially in the coming years as more and more operators enter the Philippine market. In response to this expected increase in demand, real estate developers are all in a rush to increase the available supply. According to estimates by the Lobien Group, supply is expected to grow by 2.4 million square meters (sq m) over the next three years.

Effect on rental price
In terms of rental price, POGOs are willing to pony up the cash and pay premium rates for their prime office locations. As a result, rental rates for office space in the Metro have skyrocketed — specifically in the Bay Area, Bonifacio Global City (BGC), and Makati Central Business District (CBD). Estimates show that the rent in these three prime spots are 30% to 40% more expensive than the rest of Manila. Rent is expected to rise even higher as more firms enter the market.

Spillover Effect of POGOs on the Residential Market
The effects of POGOs are not limited to the office space market either. In fact, empirical evidence shows that the benefits extend to the residential areas around POGO offices as well, which experience large increases in (1) occupancy rates, (2) rental prices, and (3) property values.

Effect on residential occupancy rates
Philippine offshore gaming operators prefer having their employees near the office. Meaning, POGOs would often buy or rent residential spaces around the vicinity to house their thousands of employees. This phenomenon has led to an increased demand for condominiums, apartment units, and houses near POGO offices. The data supports this claim as research has shown that the occupancy rates of condominiums around the Bay Area are at an impressive 94%.

Effect on residential rental prices
Philippine offshore gaming operators are also willing to pay high premiums for these residential areas. As a result, residential rental rates around Metro Manila — especially near Manila Bay — have increased by as much as 62% in 2018. This trend is expected to remain strong moving forward.

Effect on residential property values
Finally — as a combined result of all of these effects, property values have also gone up. For example, a piece of property in the Bay Area which cost ₱123,000 per square meter (sq m) in the first quarter of 2018 cost ₱165,000 per square meter (sq m) in the second quarter of 2018. This increase represents a 34% jump in a span of just three months.