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 (7.6 million square feet) 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.
“While demand is seen to keep growing, the unprecedented level of new supply will exceed forecast demand, and it may take time to absorb that supply,” Julius Guevara, research director at Colliers in Manila, 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.
Non-Voice Services
Of about 80 percent 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.
American Express this month opened its first Philippine outsourcing center for credit and fraud services, joining companies like JPMorgan Chase & Co. and IBM, which have placed jobs other than answering phone calls in the country.
About half of Megaworld’s 200,000 square meters of work space planned for the next two years is reserved, Go said. The demand prompted the company to increase its recurring revenue target by 1 billion pesos to 11 billion pesos for 2016, he said. LT Group’s property unit is adding at least 200,000 square meters of office space for the next five years, said Eton Properties’ Lucas.
“Take-up of buildings we opened in 2015 has been very positive” and unveiling of new work space this year is “on track,” said Jose Emmanuel Jalandoni, senior vice president at Ayala Land Inc.