Exodus of Online Casinos Empties Manila’s Residential Towers

Siegfrid Alegado, Bloomberg News

(Bloomberg) -- An exodus of online casinos from Manila is slowly emptying the Philippine capital’s residential towers, pulling rents lower, according to property broker KMC Savills Inc. Next year could be worse, it said.

“We’ve seen entire residential towers emptied out,” Michael McCullough, managing director at KMC in Manila said on Tuesday. While vacancies from online casinos are so far just a “rounding error” in a multi-million square meter home market, “we’ll continue to see a lot more of that continuing to compound in the next six months,” he said.

The third quarter also saw “massive losses” in the office market as the pandemic shut many businesses, KMC said in a report, even as it sees demand from outsourcing companies absorbing the glut. Metro Manila’s occupancy deteriorated for the second consecutive quarter with nearly 47,800 square meters of vacated work spaces and incoming pipeline will continue to add pressure, it said.

The Philippines’ $8-billion online gaming industry, which caters mostly to Chinese punters, is taking a beating from higher taxes and weaker demand due to the pandemic. The once burgeoning sector -- which employs mostly mainland Chinese for customer support and marketing jobs -- helped boost property prices and rents across metropolitan Manila in the past three years.

The industry’s exposure to the Philippines’ residential market stood at 1.8 million square meters in 2019, according to broker Leechiu Property Consultants Inc. Office space vacancy in Metro Manila has risen to 7.3% as of the third quarter from 5.4% in end-2019, KMC said in its report.

Online casino operators are either giving up licenses or operating at a lower capacity, adding to rent pressure in residences amid a dearth in expatriates and as employees leave business districts to work from home work, McCullough said. “There’s a massive demand destruction.”

KMC estimates that rents in the capital’s residential condominiums would fall 10% on average by year end. The drop will depend on a district’s exposure to the online gambling market, with some areas possibly seeing as much as 25% decline, said Fredrick Rara, the company’s senior research manager.

“Somehow, it’s hard to tell when this will be bottoming out,” Rara said. “Hopefully, the first half of 2021 will be the bottom, the worst scenario.”