Demand for office space seen further strengthening

THE PHILIPPINES will see a record increase in office property supply this year and breach the one-million square meter fresh annual supply next year. The economic turmoil in China and Europe, however, will only intensify demand for outsourcing such that there won’t be too much excess supply for long.

This is the assessment of property veteran David Leechiu, who recently put up his own property consulting firm, Leechiu Property Consultants, after leaving the Jones Lang Lasalle group.

“It’s been really crazy. The market has been very good,” Leechiu said in an interview with Inquirer last week.

“You see the correlation. Bad news comes out and in a few weeks, many of the clients of these service are saying , ‘hey I’ve got this demand now for 1,000 seats, 2000 seats..’ so whenever there’s crisis overseas, that immediately translates to cost-cutting measures and outsourcing of services to the Philippines,” Leechiu said.

As such, Leechiu said he was not concerned about the big influx of office property space up for completion this year and next year.

Last year, about 614,000 square meters (sqms) in office space supply were made available, and another 979,000 sqms will be added this year. By next year, the additional inventory is estimated to reach 1.1 million sqms.

“Eighteen months ago, when I saw these numbers, I was a little concerned. Now I’m not because today, 55 percent of the stock in 2016 is either leased out or about to be leased out. The 45 percent—which is not a big number anymore—will be leased out before the year ends and it’s only March,” Leechiu said.

Based on his 20-year experience in the property consulting business, Leechiu said 70 percent of leasing activity usually took place in the last five months of the year.

“So I’m excited. If we have leased out 55 percent of space as early as March, what more can come in 2016 end-year?” Leechiu said, adding that deals were becoming bigger in terms of footprint and higher in terms of rental rate.

Leechiu said rising urgency was shaping up as a trend amid the economic turmoil in other parts of the globe.  During the US economic boom in 1995 to 2007, he said clients would usually try to look for the “next Philippines,” trying to experiment with outsourcing in other places like Vietnam, Costa Rica, Africa, Cairo or Eastern Europe like Poland.  “But now, (the tendency is to decide) I need to go now, how fast can I ramp up?” he said.

These days, Leechiu said firms in need of outsourcing services would no longer have time for experiments, for putting a bit of operations here or there. “It’s all about scale and speed now,” he said.

Asked whether his firm was seeing new names of companies seeking business process outsourcing (BPO) opportunities in the Philippines, Leechiu said new names were coming in from sectors such as healthcare and construction-related services.

These are the companies willing to build BPO operations from scratch to as many as 2,000 seats in three to four months, he said.

“It’s not just finance and accounting anymore. It’s construction-related. And why? Because there’s no construction of relevant scale in the Middle East. There’s none in Europe, none in China,” he said.

While construction specialists and laborers would previously go to other places like China, western Europe and Middle East for work, he said the big companies like architectural firms, engineering firms, are outsourcing to the Philippines. And they are either doing it through third parties or doing it themselves. The phone companies are doing the same thing and it’s not just from the US. There are Mexican/Latin American, European companies, Australian companies coming in,” he said.

As such, he said it was still very exciting for the Philippines now and noted that demand was spilling over to new places.

Other potential BPO growth areas identified by Leechiu are Tuguegarao City (Cagayan), Puerto Princesa (Palawan), Tagbilaran (Bohol), Kalibo (Aklan), Calamba City (Laguna) and Batangas City (Batangas).