BPOs to drive property amid challenges

by ALBERT CASTRO, Malaya, April 21, 2016, http://www.malaya.com.ph/business-news/special-features/bpos-drive-property-amid-challenges

The business process outsourcing (BPO) will continue to drive office space demand in the Philippines, with requirement seen to increase by 11 percent this year, according to property consultant Collier International.

“Metro Manila vacancy will continue to remain low until 2017. As of the first quarter of 2016, overall vacancy stands at 3 percent. Despite this, there continue to be opportunities for companies to expand within Metro Manila, considering that supply levels are still at historical highs,” the property consultant said.

“Alternative office locations such as Quezon City and Alabang are expecting an influx of supply in the next two years. Rental rates in these locations are within acceptable thresholds for BPO/contact center companies, making them viable options,” it added.

Colliers said Manila office demand reached 155,000 square meters (sq.m.) in the first quarter this year.

Demand is seen hitting 704,000 sqm, an 11 percent increase from the prior year’s, based on the first quarter figures.

The company said pre-commitment on pipeline supply of 760,000 sq.m. for the year now stands at 52 per cent.

“In addition, demand is expected to pick up by the second half of the year,” it said.

As of the first quarter of 2016, the adjusted new office supply for the year stands at 760,000 sqm, down from 880,000 sqm as of yearend 2015.

“This shows that there is ample space to absorb the expected demand through 2016. This assumes however, there will be no significant delays in construction which will push completion dates further to 2017,” Colliers said

Colliers said by 2018, total Metro Manila supply will reach 11.3 million sq.m.

Major projects which slipped from late 2016 to early 2017 are Vector 3, South Park and Vertis Tower 1.

This year, Fort Bonifacio remains to be the major driver of upcoming supply. These office spaces will be provided by Uptown Place Tower 3, Vista Hub, Alliance Global Center and W City Center.

Colliers has noted a continued increase in pre-leasing activities.

Pre-leasing for buildings to be completed by 2016 have already increased from 43 percent from in the fourth quarter of 2015 to 52 percent in the first quarter of 2016.

Pre-leasing for 2017 have also started.

By sub-markets, , supply forecast per area and vacancy levels remained largely the same.

Fort Bonifacio still gets the lion’s share of the upcoming office supply.

Overall Metro Manila vacancy increased from 2 percent to 3 percent, mostly due to new completions this quarter, not due to softening demand.

Regional publication The Economist earlier reported that it will be “the end of the line” for the call center industry in countries like the Philippines, which in the past decade has been one of the biggest beneficiaries of companies’ decision to outsource such service to third world countries.

The Economist noted that the Philippines’ main draw has been the lower cost of doing business in the country vis-a-vis the United States, the need to diversify from the leading BPO-destination, India and the Filipino tongue’s neutral accent.

“The relative preference for Filipino accents has become so strong that large Indian outsourcing firms such as Infosys and Tata Consultancy Services have move some of their ‘voice work’ to Manila,” The Economist reported.

The Economist however said the country’s sector is threatened by the changing technology that in the future may turn voice-based service obsolete.

For one call-handling and data processing sent to BPO countries are “basic and repetitive” that it can performed better by a machine.

Software are also becoming “faster, cleverer, and cheaper” noted The Economist that automation could result to lesser jobs going the Philippines’ way.

Antton Nordberg, head of research at KMC MAG Group, Inc., an international associate of UK-based Savills, said this makes it mandatory for the local industry to move up the value-chain of the offshore and outsourcing industry in order to further lessen the threat to the industry.

“I do agree that technology is posing a threat but hard to see it will happen in near term. It’s more so in the longer term. Maybe when the technology is better established then we start seeing stronger shift. Of course now some simple tasks that computers can do will be done by computers but to take over the jobs is hard to imagine,” Nordberg said.

“Bigger threat I’d say is the talented labor pool and if it is enough to supply and cater the call center industry needs. And maybe when the labor pool is max out then the companies would have higher incentives to develop and absorb these new technologies. It’s also not free to develop these computers and as of now the cost arbitrage in labor is just a no brainer,” he added.