Philippines still a cheap site for BPOs

BusinessWorld Philippines

10 November 2011

By Franz Jonathan G. de la Fuente

THE PHILIPPINES remains an attractive destination for business process outsourcing (BPO) investments despite increasing lease rates and declining vacancies, a property consultancy yesterday said, pointing to cheaper operations costs in business districts here.

“The Philippines is one of the most cost-effective real estate markets in Asia,” Rick M. Santos, chairman and chief executive officer of the local arm of CB Richard Ellis (CBRE) said at the company’s yearend press briefing.

He conceded that rental costs here have grown. Rents in leading business districts such as Makati City, Fort Bonifacio, Ortigas, Alabang and Quezon City stood at an average of P628.14 per square meter in the third quarter, rising by 7.84% from an average of P582.44 recorded a year ago.

The rise was attributed to more pronounced rental growth among BPO buildings and stronger demand from local companies, CBRE Philippines said.

Nevertheless, Manila is the third cheapest city for BPO operations in Asia, with lease rates at a $19.10 per square feet per annum, he said.

Makati City was further deemed as the country’s top office space provider with nearly a million square meters, followed by Quezon City at 784,308 square meters.

“[The Philippines] is still significantly less expensive than Hong Kong and Singapore which is around 12 times more expensive. This is also why the demand in office services sector in terms of BPO and KPO (knowledge process outsourcing) expansion has been growing in the country,” Mr. Santos said.

New Delhi, India ranked the cheapest at $12.70, followed by Jakarta, Indonesia at $16.30, according to a recent study conducted by CBRE Philippines among 16 central business districts across the continent.

Further, the economic uncertainty in Europe and the United States is boosting BPO and offshoring demand for office space in the country, and expansions are accelerated by US and European financial institutions, he added.

The Philippines ranks second in Asian office rental yields in Asia at 10% compared to India’s 11%, with the regional average being at around 6%, he added.

This was reflected in a robust take-up of BPO office supply in Metro Manila, which amounted to approximately 3.6 million square meters in leasable area this year.

The BPO industry is projected to hike its full-year revenues this year by 20% to $11 billion, while employees are also expected to grow by 21% to 640,000 this year from 525,000 in year-ago levels, according to the Business Processing Association of the Philippines.

For the next year, CBRE Philippines expects the BPO industry to continue to prosper amid the Western countries’ economic woes, with BPO firms continuing to expand in Metro Manila and labor-rich urban centers across the country.

Business investments will also be reportedly encouraged by the development of the Diosdado Macapagal International Airport in Clark, Pampanga.

“We see continued expansionary demand from multinational companies…,” Mr. Santos said.

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