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Post POGO: CREATE and its impact to BPOs

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BPOs were born out of necessity. In the late 90’s, the need for large multinational companies to outsource peripheral businesses was to realign them in focusing only on its core competence.

However, when the Asian Financial Crisis and Global Recession hit, these MNCs had to scramble to lower cost, while still maintaining overall customer experience. BPOs answered this need and grew exponentially from then on. 

At this moment, BPO leasing activities are picking up. Colliers is currently tracking requirements in Metro Manila and in the provinces. However, the requirements mostly are shorter term and reactive to the social distancing requirement imposed by the current situation. Most of the major players are on status quo and slowly adding work-from-home (WFH) as a permanent strategy in their operations, but, not all BPOs can do WFH. Some that deal with highly sensitive client information can only be serviced from inside the traditional offices. These BPOs that are doing higher value support, can now take advantage of the growing number of available spaces ready for their operations. 

While leasing transactions show very little POGO transactions for the year, BPOs and traditional office takers are almost head-to-head in terms of take up. However, it is the BPOs that have the capacity to take the huge floors recently vacated by POGOs.

Landlords must then approach these transactions with an open mind, especially if their properties were recently vacated by POGOs, but are part of the 340,000 sqm PEZA proclaimed sites occupied by the offshore gaming industry. Albeit the spaces are fitted, rental rates must still be BPO-friendly considering this sector is very cost-sensitive. Landlords must be willing to allow shorter term leases in the hopes that these companies will choose to renew for a longer term.

Possible Headwinds

While touting the importance of the BPO industry and their possible gallantry in saving landlords from all the vacant spaces left by POGOs, headwinds may lay ahead. The CREATE Bill which is looking at revamping the corporate taxation and incentives schemes of the Philippines may inadvertently delay economic recovery. In its current wording, the bill will greatly reduce the authority and role of PEZA and strip the company locators of their tax incentives over a period of time. These incentives include, but are not limited to, income tax holidays (ITH), 5% Corporate income tax after the ITH period, and Zero VAT rating on purchased good and services, to name a few.

 If this happens, the competitiveness of the Philippine market will wane and our status as the country of choice for outsourcing will be challenged. In a recent interview with a QC-based BPO, their management is preparing for this eventuality by looking at moving growth to Costa Rica, Jamaica, India, and Romania.

The Silver Lining

Colliers recommends taking advantage of existing spaces and marketing these to BPOs that actively need the space. Landlords must be flexible to accept shorter lease terms and lower rates as long as the end goal is that their spaces are occupied. Similarly with how landlords coped during the Asian Financial crisis, properties during that time were heavily discounted but renewal clauses in the contract allowed for rates to be adjusted to fair market value. This means that when times are better in the future, rental rates can be adjusted to such.

Landlords must start developing provincial projects. These projects can still be PEZA-proclaimed, and locators can still enjoy incentives for a time before they sunset. 

Leasing decisions and strategies must be backed by data and market studies. Landlords must move to align themselves with the knowledge experts so that their newly vacated properties can take advantage of prevailing market conditions and their leasing teams can chase the right clients. 

 Outsourcing has always grown during economic turmoil. Majority of BPOs are already reporting account growth and new wins. With PEZA spaces, newly vacated and fully fitted available in the market due to the exit of POGOs, government must consider well its decision to change the status quo on incentives, else it drives the demand to more competitive markets.

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Daniel Salapong

Senior Manager

Office Services

Manila

Daniel is a Senior Manager for Landlord Representation (LR) under the Office Services Team.  He started in Colliers as part of the Tenant Representation team and transitioned to his role in LR – now marketing the different projects in the Colliers portfolio.

As a Senior Manager, Daniel is tasked to provide customized solutions to accelerate the success of our clients, and fully lease out assigned projects, office spaces, buildings in partnership with developers and owners.

Throughout the leasing process, clients will be able to benefit highly from his valuable insights and recommendations providing them the service excellence Colliers is known for.

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