Rent, utility costs more worrisome to IT-BPM sector

By Richmond Mercurio (The Philippine Star), November 2, 2016

Property consultancy firm Colliers International in a recent report said office rental rates, internet costs, and electricity prices are more likely to be considered as threats that could hamper growth in IT-BPM and office demand.

MANILA, Philippines – President Duterte’s anti-US stance is the least of the concerns for the country’s office property market and information technology and business process management (IT-BPM) sector for now.

Property consultancy firm Colliers International in a recent report said office rental rates, internet costs, and electricity prices are more likely to be considered as threats that could hamper growth in IT-BPM and office demand.

Philippine property executives interviewed by The STAR have shrugged off concerns on the the impact of Duterte’s anti-US remarks to both industries.

“We’re good for as long as nothing happens to the demand side of the equation, as long as there is nothing that will impact the demand,” Leechiu Property Consultants chief executive officer David Leechiu said.

The BPO industry, which is among the biggest occupants of office spaces in the country, was slightly taken aback after Duterte unleashed verbal assaults to the United States in recent months.

The US is among the Philippines’ top investors in the BPO sector.

“The industry continues to grow and the clients are supportive of the growth that we have,” Robinsons Land Corp. office buildings division general manager Faraday Go said.

“Actually, at the end of the day there is no big concern. Because DICT Secretary Rodolfo Salalima has already explained to us that there’s no really big concern. The BPO is more on the growth stages until now. What we can see is more growth than ever for the industry and we’re hoping that with the collaboration of all the groups, the private and public sectors, we will continue to grow,” Filinvest group head for offices Maricel Brion-Lirio added.

In its report titled “Nots and Bots” authored by senior market analyst Dinbo Macaranas, Colliers said the growth of the IT-BPM industry and growth in office space demand in the Philippines are intertwined.

“With the growth of the IT/BPM industry expected to continue, office space demand will grow with it as well,” Colliers said.

“The concerted impact of business expansions due to product development and operational efficiencies, and the corresponding FTE (full-time employees) additions given the indispensability of humans in business processes, should continue to drive office space demand in the next five to 10 years,” it added.

The property consultancy firm, however, said office rental rates as well as internet and electricity prices show glaring disparities which occupants and real estate developers cannot disregard.

“In Colliers’ meetings with clients in India earlier this year, tenants identified the increasing rents in the Philippines as a growing concern. Indeed, some of the Indian companies hinted at possibly re-shoring certain operations back to India. This did not come as surprise considering the upward pressure on rents in Metro Manila today,” it said.

Colliers said current prime rents in the Philippines’ primary businesses districts are more expensive than its Asian neighbors Taipei, Bangkok, Guangzhou and Kuala Lumpur at slightly below $31 per square foot.

This is compared to $22 per square foot two years ago in which Manila ranked the fifth least expensive in Asia.

Colliers also said alternative locations in the Philippines are limited within the small Metro Manila market and with vacancy expected to remain low, upward pressure on rents are likely to continue in the coming years.

“Unless more rural areas in the Philippines are developed rapidly as potential business districts and infrastructure outside the metro is improved, the country’s current business cities will continue to command expensive rental rates,” it said.

As far as internet and electricity prices are concerned, both are a considered more expensive in the Philippines than in any other parts of the world. Internet speed and power supply are also a problem.

“Technology is the backbone of the IT-BPM industry. As the industry moves to its latest wave of evolution, it is imperative that internet connectivity and price are at par with global standards,” Colliers said.

“The cost of electricity is a controversial issue in a number of countries, particularly for the Philippines which is known to have one of the most expensive in the world. A more imminent concern is the sufficiency of power supply. Given the current scenario, it is therefore important that any potential future development of office spaces must have access to reliable power supply,” it added.