BPO to continue driving demand for office units

CEBU, Philippines - The business process outsourcing (BPO) sector is expected to continue to drive the demand in the office market, a real estate consulting firm said.

In its Cebu office market report for the second quarter, KMC MAG Group said: "The outsourcing sector is still expected to drive demand, but we have observed that non-outsourcing players have entered certain submarkets which have started diversifying Cebu’s sources of demand."

KMC, a local affiliate of London-based property consultant Savills said it has yet to factor these in its estimates but may provide substantial upside to its forecast.

In the second quarter, the overall vacancy rate in Cebu jumped to 8.2 percent from the previous quarter’s 6.9 percent.

KMC attributed this to the significant additions to the office stock such as the Philam Life Cebu and AD Gothong IT Center.

Despite the Cebu Fringe – which KMC refers to office spaces outside Cebu's main business districts such as IT Park and Cebu Business Park – maintaining relatively high vacancies, the vacancy rate has slowly declined due to improving demand conditions.

Meanwhile, it noted that the very tight supply conditions were sustained in Cebu IT Park with vacancies held at 1.6 percent of stock.

According to KMC, Cebu’s office rental performance also improved to 1.4 percent year-on-year in the second quarter.

"Cebu IT Park led the resurgence in overall rents after outperforming other submarkets with an impressive 4.3 percent YoY increase," the consulting firm said in the report.

However, the declining occupancies in Cebu Business Park dragged rental performance after decreasing by -0.3 percent year-on-year, it added.

Although the upcoming 100,100 square meters of additional office spaces in Cebu is expected to push vacancies upward in the remaining quarters, KMC still expects the overall vacancy rate to hit slightly above 10 percent by the end of 2017.

Cebu is one of the Philippines' growing central business districts (CBDs) and is host to various BPO companies with its low rental rates, consistently growing economy and large pool of talent.

Cebu's real estate sector is benefiting from the investors' positive sentiment, as local players implement their massive capital expenditure plans to cover new launches and ongoing developments in the city.

The Cebu office market follows the national trend where the BPO industry heavily drives the market.

At present, there are more than 120,000 employees in the Cebu BPO industry or approximately 10 percent of the total BPO employees in the country.

The Philippine BPO industry grew by an annual average of 20 percent in the past decade. In the next five years, industry experts are forecasting a growth range between 12 percent to 18 percent.

Nationwide, the BPO industry still accounted for the largest share in demand for the office market. (FREEMAN)