Manila outsourcing boom spurs offices in quarter century

Bloomberg

Philippine builders are adding the most office space in Manila in at least 26 years, catering to companies such as American Express Co. and International Business Machines Corp. that are outsourcing more jobs to the Southeast Asian nation.
About 710,000 square meters of office space will be built in the Philippine capital this year and more than 780,000 square meters in 2017, broker Colliers International estimates. Each is a record for work space built in a year, and combined represents a fifth of the stock at the end of 2015, according to the broker’s data stretching back to 1990.
“Demand for office space from the outsourcing sector is still very high, and we are answering this demand,” said Josefino Lucas, deputy chief operating officer of Eton Properties Philippines Inc., the real estate unit of billionaire Lucio Tan’s LT Group Inc.
The flood of new office space is designed to meet demand from international corporates looking to place jobs such as auditing and information technology in countries with cheaper labor costs where call centers have traditionally driven the outsourcing boom.

Rents Pressured
The new supply will cap rents and push vacancies higher, according to Colliers. Office rents won’t increase in Manila’s four biggest business districts tracked by Colliers this year, compared with an average rise of about 5 percent in 2015, the broker said. The vacancy rate is seen rising to 5.6 percent in 2016, compared with 3.4 percent last year, it said.
Manila was the number two city for business process outsourcing, known as BPO, last year, behind Bangalore in India, according to New York-based Tholons Capital’s list of top outsourcing destinations. The IT & Business Process Association Philippines, or IBPAP, estimates 2016 revenue at $25 billion, up from about $21.2 billion last year.
Rents in Manila’s central Makati business district average $230 per square meter a year, higher than the $134 per square meter in Bangalore and cheaper than $501 per square meter in Mumbai, according to broker Jones Lang LaSalle Inc.
An increasing number of companies are outsourcing technical and consulting jobs like helping banks manage financial derivatives and improving companies’ supply chains, according to the IBPAP, which forecasts the number of BPO workers to rise to 1.3 million this year from about 1 million in 2014.
“We’re going up the value chain,” Jericho Go, first vice president at Megaworld Corp., said. “There’s a substantial increase in non-voice or IT and other services that require bigger work space.” Of about 80% of office space taken up by outsourcing tenants of Megaworld, the Philippines’s largest office landlord, at least 30 percent is occupied by call centers, according to the company. Voice-related services accounted for 60 percent of office space a decade ago.