A GLUT of office space has hit the Philippines property sector as cash-hungry foreign companies cut back on their export of back-office operations, an international property consultant said Thursday.
“From a very conservative outlook, it could take a year for the market to absorb this excess space,” said Joey Radovan, vice chairman for the Philippines unit of CB Richard Ellis (CBRE).
Office leasing, driven over the past three years by unprecedented demand by business process outsourcing (BPO) companies, plunged to 225,000 square meters (2.42 million square feet) last year as the credit crunch took hold, Radovan said in a company statement.
This was down sharply from 330,000 square meters leased in 2007, as economic growth slowed to 4.6 percent from a 30-year high 7.2 percent the previous year.
“Outsourcing and offshoring is a cost-saving strategy for most global companies based in the US, but moving back-office operations to countries like the Philippines still require capital expenditure. The financial unraveling in the US has forced most companies to delay expansions or seek more cost-efficient locations, at least for the time being,” said Rick Santos, CBRE Philippines chairman.
Property firms built 360,000 square meters of office building space that were mostly dedicated to BPO companies, leading to an excess of about 145,000 square meters, Radovan said.
Radovan said the resolution of the US crisis, or at least confirmation that it has bottomed out, would cause US multinationals to resume cost-cutting strategies including outsourcing.
Victor Agustin, CBRE director, said while the first quarter of this year could see a little slowdown in property purchases, the second half would likely see BPO companies expanding here.
CBRE described the country as a “maverick” property market that is expected to perform better than in most other economies.
Santos said the relatively good shape of the country’s economic fundamentals amid the global slowdown would yield positive results for the sector.
“The Philippines would have a much more stable property market this year,” he said, adding the BPO industry would continue to drive the sector.
“BPOs are an anchor for the sector for the last five years, and we hope such would be sustained this year,” said Radovan.
Agustin is confident that the surplus office space would be easily eaten up by just a very few large-scale BPO locators. CBRE is already processing a lot of inquiries for the excess space, he said.
He added that captive, in-house shared services providers are also expected to boost sales of these properties.
— AFP and Ben Arnold O. De Vera, Manila Times