LEASING DEALS involving business process outsourcing (BPO) companies slowed in the first quarter as new governments in the Philippines and the US put potential tenants in wait-and-see mode, according to property consultancy Colliers International.
In a briefing on Thursday, Colliers said BPOs comprised only 21% of total transactions from January to March, down from the 60% share in the same period last year. These deals accounted for a gross leasable area of 81,400 square meters (sqm) in Metro Manila during the first quarter, 35% lower than the take-up a year earlier.
The market was sustained by other traditional users of office space with a 42% share of transactions, followed by offshore gambling at 30% and government agencies at 9%.
“First off you have political concerns, locally and overseas, and the transition period also from the Trump and Duterte presidencies that has forced some of the tenants to actually take away their position,” Colliers Senior Manager for Research Randwil Dinbo Macaranas said.
While there have been more of protectionism in the US, this has yet to translate to actual policies.
“It’s quite normal for a transitional government where you try to understand first if there will be policy changes. I think even in the US they have been more cautious, but now they’re seeing that they can proceed with business as usual so they’re going back to the table,” Mr. Macaranas said.
Longer processing of PEZA approvals likewise delayed BPO entry into the market, with 40 PEZA applications currently pending with the Office of the President.
The result is additional pressure on rents, with PEZA-accredited buildings seen to gradually hike their rates following the tightening of the market. The emerging central business district (CBD) in the Manila Bay Area for instance has pushed rates up by 5% since the last quarter, while rates in the Makati CBD and Fort Bonifacio have increased by 1.6% and 3.3%, respectively.
Colliers said PEZA Director Charito B. Plaza is “personally following up on the approvals,” in order to fast-track the transactions.
The following quarters are not expected to sustain the first-quarter trend, as Colliers has already seen BPOs signing new deals.
“Some BPO firms are going back to the table right now, so we have new deals... Potentially there will be a rebound, that’s what we’re seeing,” Mr. Macaranas said.
Given the decline in transactions from BPOs, the consultancy advised developers to offer a balanced mix of product for various tenants to take advantage of the growth of non-BPOs.
“The Metro Manila market is characterized by high demand amid shifting tenancy profiles and increasing rents. Non-BPOs are emerging as a significant growth driver for a sector that has been BPO-reliant for years,” Colliers said.
“We see moving forward that developers have to adjust to this to implement more flexible terms and more flexible work spaces to cater to different types of work tenants,” Mr. Macaranas added.
Colliers said the increased demand from offshore gambling comes as no surprise, as the industry took up around 54,000 sqm during the quarter. In a statement earlier this year, Colliers noted that the Philippine Amusement and Gaming Corp. issued 35 gaming licenses in 2016, and is expected to add 25 more this year.
The issuing of licenses indicates potential demand, Colliers said, further adding that offshore gambling could reach 350,000 sqm in office space demand this year.
Other industries, including information technology companies, trading, construction, online shopping, and energy, among others, also have potential to offset any declines by the BPO industry, according to the company. -- Arra B. Francia, Business World