Uncertainty over BPO perks weighs on PHL office market

By Keith Richard D. Mariano, Businessworld, Feb 15, 2017

UNCERTAINTIES over the grant of incentives to business process outsourcing (BPO) firms have weighed on the Philippine office market, according to a property consultancy, as the government’s investment priority shifts away from service exports.

Most applications for incentives offered by the Philippine Economic Zone Authority (PEZA) have remained pending since the leadership change, Colliers International Philippines Senior Research Manager Randwil Dinbo Macaranas said during a Feb. 9 briefing in Makati City.

“Actually, since the Duterte administration took office, there has been minimal PEZA proclamation. It’s practically none, I believe, in Metro Manila. There was one in a provincial location,” Mr. Macaranas noted.

The delays in the accreditation process have, in turn, restricted certain office developments catering to BPO firms from progressing, according to Colliers.

“It’s causing delays because there is a huge financial implication if companies are not able to avail of the PEZA incentives and they are only able to avail of these incentives if they are in a PEZA IT (Information Technology) Zone,” Colliers Director for Office Services Dom Frederick Andaya said.

Mr. Macaranas is banking on the fact that such applications have already reached the Office of the President for approval.

“You have to understand that these applications are essentially, or the approvals at least, given that they are already at the Office of the President, it’s practically ministerial in nature. So we feel that at some point, government will be forced to do something about it,” Mr. Macaranas said.

“I also feel that they (the government) cannot apply any change in law retroactively, so if you have your PEZA application already that would not be a problem. What happens is that the next ones would not be able to avail of PEZA incentives.”

At present, PEZA extends fiscal and non-fiscal incentives, such as income tax holidays and exemption from limitations in the employment of foreign nationals, to developers of IT parks and buildings as well as their tenants.

In the Investment Priority Plan (IPP) proposed under the administration of President Rodrigo R. Duterte, the government showed bias for the manufacturing and agriculture sectors as well as projects located outside the National Capital Region.

“We know for sure that these BPO companies are expanding in the Philippines because of cost [considerations],” Mr. Andaya noted.

“The Philippines is not the cheapest in terms of labor; India is still cheaper than the Philippines is. If the government phase out the PEZA incentives for BPOs all together, then that will create a problem,” Mr. Andaya added.

The surge of offshore gaming firms opens a new source of demand for office spaces although its sustainability remains a question among property developers, according to Colliers.

In the fourth quarter of 2016, offshore gaming operators drove demand in the office market particularly in the Bay Area, after the Philippine Amusement and Gaming Corp. issued 35 licenses for such operations.

Notwithstanding the possible rationalization of incentives, the sustained demand from offshore gaming, continued expansion of the IT-BPO sector and flight of tenants to quality opportunities should keep the office market afloat this year.

In this light, Colliers projected the overall demand for office spaces in Metro Manila to increase 8% this year. Uptake managed to rise 7% in 2015 despite the delays in the turnover of projects due to a shortage of skilled labor in the construction side.