Manila, June 13, 2017 – Office space absorption from outsourcing firms slowed down in the first three months of the year due to perceived geopolitical concerns and delays in the approval of applications for incentives. Despite this, Colliers International Philippines is optimistic that office space take up from Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) firms will rebound as a number of current players have already closed major accounts while firms get a clearer view of the government’s fiscal policies.

For 1Q 2017 the BPOs and KPOs’ combined share to total office take up in Metro Manila dropped to 21% from an average of 60% to 70% in the past few years. Colliers attributes the decline to geopolitical issues that compelled existing tenants to take a wait-and-see stance on their expansion plans as well as delays in the approval of Philippine Economic Zone Authority (PEZA) applications. The drop in BPO office absorption was offset by higher space take up from traditional service-oriented companies such as consulting, accounting, and logistics firms.  Office space absorption in Metro Manila was also boosted by demand from online gaming firms and government-owned and -controlled agencies. In 1Q 2017 the Philippine Charity Sweepstakes Office (PCSO) occupied an estimated 9,000 sq m of space in Export Bank Plaza.

“If this shift in market demand persists, this would result in the behavioral change in the landlord-dominated market. The landlords should be strategic in managing the issues on slower BPO demand and delayed PEZA approvals,” said Colliers Director for Office Services Dom Fredrick Andaya.

Given this, Andaya added that landlords should consider “making their buildings more flexible to accommodate traditional companies who require smaller cuts.”

Meanwhile, Andaya advised tenants to closely monitor buildings that are already PEZA-registered as these get taken up quickly. “Firms should consider expanding in the provinces where the government intends to spur development by offering more incentives and building key infrastructure projects,” Andaya said.

Meanwhile, office space demand in other urban areas remains relatively stable with a number of BPO and KPO companies expanding their operations outside Metro Manila. Accenture is hiring an additional 1,000 “highly-skilled” talents in Cebu while a health information management (HIM) firm will open shop in Bacolod. Colliers has observed that the provincial share in the BPO transactions increased to about 45% in the first three months of the year compared to between 20% and 30% share previously.

The Philippine economy has been expanding by an average of 6.3% per annum since 2010. This robust growth reflects not just the sustained dynamism of the BPO-led Services sector but also the expansion of other key economic sub-sectors such as construction, telecommunications, banking and finance, warehousing and logistics, and manufacturing. Companies engaged in these businesses were compelled to expand and thus occupy larger and high-quality office space. The Philippine economy is projected to grow between 6% and 7% per annum over the medium term and this should help sustain the traditional firms’ demand for office space. 

Overall, Colliers remains positive that the outsourcing sector’s office space take up will rebound by the latter part of the year as a number of major BPO players in the country have reportedly secured new accounts and as the government issues more concrete directives on its fiscal policies.

However, Colliers cautioned that recent political issues such as the declaration of martial law in Mindanao and the proposed tax reform bill might thwart BPOs’ expansion plans. Andaya is optimistic that issues on security and inconsistent implementation of business policies will be resolved soon.

“Among the crucial factors in attracting foreign investments, including those from the outsourcing sector, is consistent implementation of business policies. Changing rules mid-game and limiting the fiscal perks currently enjoyed by BPO firms will stifle the sector’s expansion,” Andaya noted.


Philippine Daily Inquirer

Philippine Daily Inquirer

Colliers International | Manila 11F Frabelle Business Center, 111 Rada Street Legaspi Village, Makati City 1229 Philippines | Tel: +632 888 9988