Dramatic BPO resurgence seen in 2018

The Philippines will likely see a dramatic resurgence in the business process outsourcing (BPO) industry next year on the back of improved relations with the US, in turn boosting office space take-up to another record high and making Metro Manila one of Asia’s top office markets.

This is according to property veteran David Leechiu, president of property consulting firm Leechiu Property Consultants (LPC), who predicted that office property take-up in the metropolis next year could reach a new record high of 800,000 to 850,000 square meters (sqms) from around 750,000 sqms this year.

In an interview on Tuesday, Leechiu said rental rates in the Metro Manila may rise by 10-15 percent next year for Philippine Economic Zone Authority (PEZA)-accredited buildings while non-PEZA buildings with online gaming tenants may still command a 10-percent rental rate growth.

If Metro Manila would achieve the 800,000-850,000-sqm office take-up projected by LPC next year, Leechiu said the metropolis would the third biggest office market in the region after Shanghai and Beijing.

LPC is currently helping a number of the world’s largest companies set up shared services hubs in the Philippines, easily taking up 100,000-130,000 sqms within this year. Leechiu said these were among the top 20 companies globally in terms of market capitalization and were entering the Philippines for the first time.

As such, Leechiu said that for next year, the BPO sector may resume the strong office take-up seen in previous years. In 2016, the sector took up 480,000 sqms of office space equivalent to 77 percent of property deals but from January to November this year, the sector’s take-up eased by 28 percent from last year to 350,000 sqms, equivalent to 48 percent of total transactions year-to-date.

Online gaming firms, on the other hand, accounted for 32 percent of total transactions so far this year, surging in contribution from only 9 percent last year. Online gaming expanded their take-up of office space by 306 percent from last year’s level to 230,102 sqms in the first 11 months.

It has been reported that the slowdown in the BPO industry this year was a result of a conscious diversification by Western companies in turn amid anti-Western statements from Philippine leaders, difficulty in securing PEZA accreditation, concerns on the tax incentive rationalization and other security risks arising from the Marawi siege, extra-judicial killings and the declaration of Martial Law in Mindanao.

Despite all these challenges, however, Metro Manila’s office take-up is projected to end this year at an all-time high of 750,000 sqms. As of end-November, total take-up in the metropolis stood at 738,305 sqms or 16 percent higher than the take-up of 630,000 sqms for 2016.

With the US and the Philippines reaffirming their relations – US President Donald Trump visited the country during the Association of Southeast Asian Nations (ASEAN) Summit – Leechiu said prospects would be brighter for the BPO industry in 2018. At the same time, the bicameral version of the Philippine tax reform program is seen friendly to the BPO sector, allaying earlier concerns on a change in the fiscal regime.

Next year, LPC projected that BPOs would likely take up about 485,000 to 500,000 sqms of office space in the metropolis. Online gaming is seen to account for around 280,000 sqms while other industries will likely take up 20,000 to 30,000 sqms as the government liberalizes foreign ownership limits in various industries.

In terms of districts, Bay City is the most favored destination for online gaming companies this year. This district accounted for 67 percent of office take-up in the metropolis as of end-November and has run out of available inventory.

Alabang and Ortigas will likely be the next markets for rapid expansion by online gaming firms because these are the districts with “open-minded” local government units (LGUs) and enough inventory to offer to new locators, Leechiu said.

Leechiu said that Alabang, in particular, would be “the star for the next five years.”