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Large BPO firms eye expansion in Iloilo

Colliers believes that offices in the city should remain attractive among tenants looking for Philippine Economic Zone Authority (PEZA)-proclaimed spaces.

Manila, 29 May 2019 - Iloilo City offices continue to attract major occupants such as call centres and legal transcription service providers. Colliers believes that offices in the city should remain attractive among tenants looking for Philippine Economic Zone Authority (PEZA)-proclaimed spaces.


Colliers recommends that developers target non-outsourcing tenants especially for buildings waiting PEZA approval; explore the viability of building offices on the proposed Iloilo reclamation project; and explore developing mixed-use townships outside Iloilo City. Meanwhile, tenants looking for alternative sites outside Manila should consider Iloilo.


“Over the next three years, we see outsourcing firms such as call centres occupying much of new office space, especially in the Mandurriao Area. We already see some companies offering a mix of call centre and higher value outsourcing services such as legal transcription and health information management,” said Kevin Jara, Colliers International Philippines’ senior manager for tenant representation.


Jara added that “Colliers sees more knowledge process outsourcing (KPO) firms from Manila expanding in Iloilo City in the next two to three years.  Among the factors that these firms consider is the city’s skilled labor pool. This makes Iloilo City a viable expansion site outside Manila.”


Opportunities at old airport

National developers such as Ayala Land, Megaworld, SM Prime and Robinsons Land have ramped up completion of office space in Mandurriao, the location of the old airport. At present, Mandurriao accounts for 80% of Iloilo City’s office stock, representing 87,800 sq metres (944,700 sq feet) of the city’s total space of 109,400 sq metres (1.1 million sq feet).


Megaworld offers 60,800 sq metres (654,200 sq feet) of leasable office space. The developer benefits from having Philippine Economic Zone Authority (PEZA) status, hence all buildings within its Iloilo Business Park are PEZA-proclaimed, enabling outsourcing occupants to avail themselves of tax and non-tax perks. This has also allowed Megaworld to secure major occupiers such as WNS, iQor, Startek, Nearsol, Transcom, and Reed Elsevier.


Only one office project was completed in the entire Iloilo city in 2018, the Two Techno Place Office developed by Megaworld offering 10,500 sq metres (113,000 sq feet) of office space. From 2019 to 2021, it plans to complete One Fintech Place, Two Fintech Place, IBP BPO 11 and IBP BPO 12 with a total leasable space of 69,400 sq metres (746,700 sq feet).


Ayala Land developed 9% of Mandurriao’s office stock, with its Iloilo Ayala Technohub offering of 7,100 sq metres (76,400 sq feet) of leasable space. Ayala Land plans to build Atria Park District BPO 1 and 2 that are likely to offer a combined leasable space of 18,400 sq metres (198,000 sq feet). Meanwhile, Robinsons Land also offers 2,000 sq metres (21,500 sq feet) of office space thru Robinsons Place Iloilo.


SM Strata Tower 1 is due to be completed in 2019 and should offer about 23,400 sq metres (251,800 sq feet) of new space. Other buildings due for completion from 2019 to 2021 include SM Strata Tower Building 2 in Mandurriao with a leasable space of 22,250 sq metres (239,400 sq feet).


Overall, we see Iloilo’s leasable office supply increasing to 242,900 sq metres (2.6 million sq feet) by 2021 or an addition of about 44,500 sq metres (478,800 sq feet) of office space per year from 2019 to 2021. All of the upcoming supply is likely to be in Mandurriao as developers cash in on the area's viability as a key outsourcing destination in Western Visayas.


PEZA and flight-to-quality driving demand

Large BPO companies continue to occupy substantial space in the city’s business district. Major outsourcing firms such as iQor, Transcom, Startek, WNS, Reed Elsevier, and Nearsol are already in Iloilo and took space in 2018 especially in Megaworld’s Iloilo Business Park. These companies have taken advantage of PEZA-proclaimed buildings within the business park, availing of tax incentives. Colliers believes that in the next three years, any PEZA-approved buildings in the Iloilo Business Park could easily achieve full occupancy status as there is pent-up demand for PEZA-proclaimed spaces across the city.


SM Strata, according to the firm’s leasing officials, is also receiving queries from a number of outsourcing firms. These companies are awaiting the approval of SM Strata’s PEZA application. A number of traditional and non-outsourcing firms, including insurance companies, have expressed interest in this building. These firms are transferring from old office buildings in the old city centre to newer buildings in the Mandurriao area.


BPO demand to temper vacancy

Despite the completion of 10,500 sq metres (113,000 sq feet) of new office space, vacancy dropped to 5.0% in 2018 due to strong demand from BPO companies for PEZA-proclaimed in Iloilo Business Park. We recorded pockets of vacancies especially in older buildings in the old city centre that are unable to accommodate the large floor plate requirements of outsourcing firms. This makes newer offices in Mandurriao more attractive to new and expanding foreign locators.


Colliers is projecting a sustained demand from 2019 to 2021 in Iloilo. But the lack of PEZA proclamation for office towers due to be delivered over the next three years could raise vacancy. Colliers estimates an annual vacancy of 9% per year from 2019 to 2021, up from 5.0% in 2018. The vacancy should taper to about 7.8% in 2021 once the new office buildings secure their PEZA status. A couple of new office towers are due to secure their PEZA status in 2019 and 2020. In our opinion, the granting of PEZA status should further raise office space demand in the city over the next two to three years.


Stable rental growth

In 2018, asking lease rates averaged at PHP 525 (USD 10) per sq metre, 5% higher compared to 2017 rates. Across the city, office space in Mandurriao commands the highest lease rates. From 2019 to 2021, we see lease rates rising by about 3% per year.


Over the next three years we see more non-outsourcing firms such as insurance companies, law firms, and manpower agencies occupying small offices in the Mandurriao area. These firms should help prop up lease rates in Iloilo City’s business district.




Explore viability of reclaimed property

Colliers encourages developers to look at the feasibility of land on the proposed Iloilo reclamation project. The project is awaiting approval from the national government. The city government plans to build a mixed-use township on the reclaimed property featuring office and residential towers.


Mixed-use properties with national players

Colliers recommends developers to maximize the usability of their properties. Aside from building office towers, developers should explore the viability of featuring residential condominium, malls, hotels, and schools. Local developers with limited experience in developing mixed-use communities should partner with national players such as Ayala Land and Megaworld.


Non-outsourcing tenants

We encourage developers with pending PEZA applications to aggressively look for non-outsourcing tenants such as banks, insurance companies, and manpower agencies. These firms do not require PEZA-proclaimed space.


Tenants to expand in Iloilo

Colliers encourages tenants to further explore Iloilo City as their expansion site outside of Metro Manila. According to Tholons, an outsourcing consultancy firm, the city is the 92nd most competitive global site for outsourcing operations in 2018. Tholons releases an annual list of the top outsourcing locations in the world based on talent, cost, infrastructure, quality of life, and innovation and in the Philippines alone more than a dozen areas are eyeing a spot in the Top 100 but only six made it to the list. However, maintaining the ranking is likely to be a challenge moving forward.




The Daily Guardian