Colliers International Philippines is one with the nation and the world in Doing What is Right for the people, clients and communities in combating the spread of COVID-19.
When this is over, it will not be business as usual. This pandemic will change the way of life across the board. In commercial real estate, we see significant changes in how this sector will rebound and evolve when this pandemic is over. While we are all busy coping and surviving this challenge, we intend to share our knowledge to accelerate the success of our partners by writing a series of papers about The New Normal in Commercial Real Estate. We need to be ready and preparation starts now.
IN A COVID WORLD, WHERE DO BPOS GO NEXT?
In 2020, the COVID-19 pandemic hit, disrupting all businesses including the BPO sector as containment measures pulled the global economy into deep recession. Colliers aims to tackle the immediate impact of COVID-19 on the BPO industry, the recalibration occupiers have implemented with their real estate strategy and the outlook on where the outsourcing industry is headed.
Impact of COVID-19 and How BPOs Responded
During the Enhanced Community Quarantine (ECQ) in Luzon, only establishments providing essential services were allowed to operate. Human safety was prioritized, and many companies transitioned to a work-from-home setup, with some maintaining a skeletal workforce in the office. Employees were allowed to bring home their laptops or desktops to work in the safety of their homes.
At the same time, BPOs and export-oriented industries were classified as part of those providing essential services. Several BPOs were allowed to continue operating in their offices as long as they provided accommodations and transportation for their personnel.
These changes have not come without challenges as outsourcing companies navigate through uncertainty and an ever-changing environment. Many employees reported concerns with internet connectivity issues which affected work productivity. Others struggled with longer working hours and less delineation between the office and their personal lives. Moreover, some outsourcing companies were simply unable to shift to remote working due to the sensitive nature of the data being handled. These operational challenges were also compounded by massive economic downturn being experienced by all businesses which have led to cancelled accounts and rental bleeding on unutilized offices.
Recalibration of their Real Estate Portfolio
The shifting business reality has spurred occupiers to recalibrate their real estate strategy and portfolio. With the step-by-step easing of community quarantine restrictions and reopening of businesses in Metro Manila, some BPO companies are now gradually returning to their offices, especially those who found it difficult to operate remotely. Companies are also reassessing their workplace design and number of employees reporting to the office in compliance with government directives such as the Department of Labor and Employment’s (DOLE) “one-meter distance per worker scheme". Conversely, there are those BPOs who found work-from-home effective and continued working on “split” operations (e.g. 50% in the office, 50% WFH) for the time-being. All in all, the office design and operational make-up of companies continue to evolve in response to the world’s changing conditions.
The pandemic has affected BPOs to varying degrees and at different complexities based on their unique context and nature of operations. Several occupiers immediately intend to right-size their office portfolio (e.g. non-renewal of certain portions) while others have cancelled or deferred their expansions that were supposed to happen as they wait out and see where this health is crisis is going. Some also plan to transition to remote work entirely and keep a smaller office as their official business address.
On the other hand, there are reemerging signs of growth with the BPO industry as some are already moving to secure additional seats to meet social distancing requirements and cater to new accounts (especially those from the healthcare industry). Thus, flexible workspace operators/seat leasing facilities have become a top consideration due to the immediate availability of a fitted office. While many growing occupiers prefer offices space near their existing sites in Metro Manila, provincial locations are also being considered due to lower costs, untapped labor pools, and opportunities for a first-mover advantage.
While cost and labor availability will remain key decision points for BPOs, the pandemic has brought to light new factors to consider moving forward. Apart from environmental safety (remember the disruption caused by the Taal eruption) and business continuity considerations (e.g. disaster recovery sites), the strength of a location’s healthcare system will be vital. With the learnings from COVID-19, business resilience will be a key component of company plans from here on.
Similar to the market resurgence that happened after the 2008 Global Financial Crisis (GFC), companies will look for technology to help their businesses adapt and for other ways to alleviate cost pressures. Outsourcing to countries with lower labor costs such as the Philippines will be viable for many companies and the BPO industry will be poised to secure more work and create more jobs once global market conditions begin to recover, hopefully starting 2021.
Once enacted into law, the CREATE bill will be a welcome incentive which will encourage locators to invest and grow in the Philippines. Still, BPOs are facing possible challenges such as the PEZA moratorium in Metro Manila (Administrative Order 18), high pre-leasing rate in PEZA-proclaimed buildings in the metro and the supply gap of PEZA office spaces in the provinces. Colliers encourages developers and government agencies to work towards creating more PEZA-proclaimed spaces to take advantage of the potential wave of opportunities heading towards the country. On the tenant side, in, Colliers International also suggests outsourcing companies to look into the following:
- Leverage on current market conditions to derive more mutually beneficial commercial terms
- Design a workplace strategy that is adaptable and resilient to disruptions in preparation towards future crises
- Put stronger emphasis on real estate and operational considerations in business continuity plans moving forward
The reality today is there remains great uncertainty on how this pandemic will play out. Many companies are still studying what the optimal work setup for their business is in the long run which will ultimately carry over to their real estate decisions. Colliers International is one with our clients and industry partners in determining what will be best for our people, organizations and country. The Philippines’ greatest capital is our people and the BPO industry can continue being a powerful force that drives the economy and creates a positive ripple effect for many aspects of society. Ultimately, Colliers believes that in the midst of COVID-19, the government and industry stakeholders can work together to survive this crisis and enter another boom period for the BPO industry.