BPO office take-up on recovery track

MANILA, Philippines — Office space demand from business process outsourcing (BPO) companies in Metro Manila is recovering from last year’s decline, Leechiu Property Consultants (LPC) said.

In a media briefing Tuesday, LPC chief executive officer David Leechiu said year-to-date net office take-up from BPO firms as of this month has reached 301,275 square meters (sqm), closing in on the full-year take up of 357,999 sqm in 2017.

“It’s just about recovering and gaining traction in 2018. But it could be so much bigger. It could be more than the numbers we saw in 2017,” Leechiu said.

Net take-up from BPO firms dropped an estimated 26.2 percent in 2017 from the 485,100 sqm take- up in 2016.

“We still need to keep working together to remove all these obstacles because the BPO industry could very well keep growing at a tremendous pace. But for some reason, we slowed down in 2017,” Leechiu said.

“That could’ve had tremendous growth in 2017 but we scared them away and we’re trying to win them back in 2018,” he added.

He said among the factors that affected investor confidence last year were threats of terrorism in Mindanao, the drug-related extrajudicial killings, and President Duterte’s hardline stance against the European Union.

Leechiu said he expects the year-end BPO take-up numbers to be at the same level, if not slightly higher than last year’s figures.

“So we’re just going to be a little ahead than 2017 for the BPO industry. I’m hoping in 2019 they will make a full recovery, if not surpass 2016 numbers,” Leechiu said.

Asked if the second package of the Tax Reform for Acceleration and Inclusion (TRAIN) law will affect office space demand, Leechiu said it would have an impact but emphasized that it could be offset by rising wages in the US and as well as the devaluation of the Philippine peso.

Leechiu explained that unemployment in the US – the country’s largest BPO market – is driving wages higher, which is resulting in companies opting to offshore some of their processes.

“Many are saying that they have no other recourse but to offshore regardless of what’s going on in Philippines, India, Latin America, Europe,” Leechiu said. 

“They are going to keep offshoring because that is still better than not doing anything, better than keeping the jobs in the US when the rates are going up,”he added.

Leechiu said that the financial impact of TRAIN 2 could also be offset by the weakening of the peso as it would result in cheaper operational costs for BPO companies.

“The BPOs are not investing heavy capex in the Philippines. But they’re investing in opex and opex is spent every month. So every devaluation that happens, it gets cheaper and cheaper for them to operate here,” Leechiu said.

The LPC official said at present, a number of BPO companies are still on a wait-and-see mode, but more companies still willing to go ahead in their operations in the country despite TRAIN.

“I think companies will learn to adapt to it and adjust to it. They just don’t like to change the rules midway, but once the change is in place, they start again and come up with a new or expansion plans,” Leechiu said.

Moreover, LPC reported that net year-to-date office take-up in September for the entire Philippines breached the one-million mark at 1.08 million, 41 percent of which was from the IT-BPO sector.

It added that both the IT-BPM and offshore gaming industries took up more than 120,000 sqm of office space outside Metro Manila.

LPC also noted that Clark City was the second largest market for office take-up after Metro Manila, exceeding Cebu by more than 30,000 sqm during the period.