BPO sector to affect developers’ profitability

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Tessa R. Salazar

Philippine Daily Inquirer

2 February 2013

http://business.inquirer.net/105407/bpo-sector-to-affect-developers-profitability

BONIFACIO Global City is one of the top choices of BPO investors in the country

The office and residential segments this year will benefit from the thriving Business Process Outsourcing industry in the country, but large tenants would also mean a renegotiation of lease terms, which could impinge on developers’ profitability.

Enrique M. Soriano III, Ateneo program director for real estate and senior adviser for Wong+Bernstein Business Advisory, says the BPO industry, which has seen impressive growth in the last decade, will continue to fuel the demand for office space and even residential units, while remittances of overseas Filipinos would fuel demand in the low- to mid-range residential market.

Securing better deals

He adds that the influx of new companies and the expansion of existing ones have resulted in a much faster take-up of office space in central business districts.

The downside of this flourishing sector, he pointed out, is that “BPOs are large tenants that have more influence. They leverage their bigness by securing better deals, and in the process affect a developer’s profitability. Brokers are naturally part of the equation and will pursue the deal relentlessly. It’s time to expand the office development portfolio customized to local entrepreneurs.”

Claro dG Cordero Jr., Jones Lang LaSalle’s head of research, consulting and valuation, says the BPO/O&O (offshoring and outsourcing) industry would continue to be the major driver of office demand. The demand for office spaces will be coming mainly from expansion of existing operations and new entries from other high-value O&O services.

“We estimate office demand in 2013 to remain in the 400,000-(unit) level, and as historically suggested, approximately 60 percent of the figure will be coming from the BPO/O&O industry,” Cordero says.

Continue to rise

Colliers International, in its 10 predictions in the property sector, sees the BPO sector to continue to shine, driving the office market. It cited its research arm and the Business Process Association of the Philippines as its sources. BPAP indicates that BPO full-time employees (FTEs) will reach over 1 million by 2016 and will increase annually by 10 percent in the next four years. The number of new BPO FTEs for next year is estimated at 70,000 workers, leading to approximately 250,000 square meters of additional office space.

Rick Santos, CB Richard Ellis Philippines chair, founder and managing partner, says the Philippines is becoming the BPO banking hub of Asia. He adds that the office sector will continue to perform well in Asia Pacific, as it is one of the most cost-effective outsourcing destinations in the region.

CBRE Philippines says that “in the major business districts where office space requirements are on a steady uptake with no signs of a slowdown, demand is catching up with supply. Average occupancy rates during the first quarter hovered at 96 percent.”

CBRE Philippines notes that the demand from the sustained expansion of the O&O industry and the limited tenant turnover continue to put pressure on the already tight supply situation. It adds, “although new supplies of traditional and BPO office space are scheduled to come online in the second half of this year, it is not expected to do much to alleviate the supply situation. Already, of the approximately 583,000 sq m of anticipated new supply for 2013, about 130,000 sq m have been pre-committed as of end 2012. The limited supply continues to put an upward pressure on office lease rates.”

Orion Support Incorporated (OSI)

Dear Rick,

Following up from my initial request to you for support in finding a new office location for our company, Orion Support Incorporated.   Well, we moved in to the LTA Building on Perea Street, fifty meters or so from Paseo de Roxas this weekend, only a 4 minute walk to AmCham and under excellent terms.

While I think you assigned both Morgan Mcgilvray and Sherdil Rana to support our original request; as you know, Morgan was very tied up with his wife giving birth during the period we identified this location and negotiated with the landlord, Mr. Mike Arroyo. Yes, the former First Gentleman. But in my short interaction with Morgan, I can see that he is a solid, young professional.

With regards to Sherdil, I want to tell you that with 35+ years of interviewing hundreds and hundreds of individuals, I was impressed with his professionalism, focused support and “can-do” attitude  from the point of identifying our potential office space, and through the negotiation stages prior to the signing of our 6 year contract.  I was impressed with his considered opinions, insightfulness with regards to Philippine business culture and his sage advice related to our strategy in the negotiation process.  Sherdil was able to negotiate a rental rate per square meter about 150 – 200 pesos less than the going rate in this area, and with only a 7% increase after 24 months. Add to that, he secured for us three parking slots at no additional cost, two months security deposit versus the standard three, and two months advance rent to be applied to the front end of our contract versus the back end as is the case in most rental contracts. And, he got the landlord to repaint the entire office with three coats of mildew resistant paint at their expense.   But best of all, we were given a 6 year lease, with only having to give two months notice and forfeit only our two month security deposit to move out anytime with no additional penalty!

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