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Strong BPO industry continues to drive PH office building market

) Allan Tripon |

For the past 15 or so years, the Information Technology Business Process Outsourcing (IT BPO) industry in the Philippines has been one of the country’s fastest growing sectors — growing at a compounded annual growth rate (CAGR) of 20% year on year from 2004 until 2016. Today, the country is known to be the BPO capital of the world, with an IT BPO industry worth around ₱40 billion (SEE: Forecasts for Philippines Business Process Outsourcing, Workspace in Asia), which currently employs more than one million people in the country (SEE: The Philippines — Poised for Growth through BPO, DCR Workforce). With the sector accounting for such a significant portion of the country's workforce, it should no longer be a surprise that the rapid growth of the BPO industry was also accompanied by an equally rapid increase in the demand for office buildings and spaces in the National Capital Region (NCR).

Growth Prospects for the IT BPO Industry
The upward trend of the business process outsourcing sector is expected to continue for the next five to ten years, on the back of a strong and vibrant Philippine economy. In 2018, the country’s gross domestic product (GDP) was worth around $330 billion (₱17 trillion). This figure is expected to double to $672 billion (₱35 trillion) — after just seven years — by 2026 (SEE: GDP seen doubling by 2026 as Philippines “set for dynamic growth”, The Philippine Star) and is even forecasted to breach the $1 trillion (₱52 trillion) milestone — in just 13 years — by 2032 (SEE: IHS Markit: Philippines to be a trillion dollar economy by 2032, The Philippine Daily Inquirer). The forecasted rapid growth of the Philippine economy is expected to be supported by three main factors: (1) A large available labor force within the country, (2) A renewed focus on infrastructure spending by the Duterte administration, and (3) An expansionary monetary policy by the Bangko Sentral ng Pilipinas (BSP).

The Country’s Demographic Sweet Spot
The first factor is the country’s large available labor force, as the Philippines enters what is known to be a demographic sweet spot. This demographic sweet spot (also known as the demographic golden age) is defined to be a period of time wherein the majority of a country’s population will be of working age for at least the next two decades.  It is often during these sweet spots when a country experiences large growths in productivity, GDP, and disposable income (SEE: Our demographic sweet spot, Business Mirror).

The Duterte Administration’s Build Build Build Program
The second factor is the Duterte Administration’s focus on the country’s poor infrastructure. The government plans to spend at least one trillion pesos for its Build Build Build initiative for 2019 alone (SEE: P909.7 B allocated for “Build Build Build” program in 2019, Philippines News Agency). These projects are expected to improve the ease of doing business in the country. It is estimated that, through these infrastructure initiatives, billions of pesos worth of economic activity — which was previously lost to traffic — will be unlocked.

The Bangko Sentral’s Expansionary Monetary Policy
The third factor is the Bangko Sentral’s expansionary monetary policy. Just recently, the BSP cut its key policy rates and reserve requirement ratio in an effort to infuse liquidity into the markets (SEE: BSP cuts key rates; more to come in the near future, PropertyAccess). These rate cuts are expected to stimulate more private investment in the Philippine economy (SEE: Accommodative monetary policy supports Philippine economy — think thank, The Philippine Star).

The IT BPO Industry Moving Forward
The combination of the human and physical capital — along with the conducive macroeconomic environment — helps ensure that the country will hit its ambitious long term growth targets. The attractive prospects of the Philippine economy will then, in turn, help lure more and more foreign direct investments into the country — thereby leading to an even bigger IT BPO industry. In fact, industry experts estimate that the BPO sector will continue to grow at a rate above 20% for the next five year.

Effects on the Office Space Market
In response to these positive developments in the IT Business Process Outsourcing industry, the major real estate developers in the country — such as the Megaworld Corporation (MEG), SM Prime Holdings (SMPH), Ayala Land Inc (ALI), and Robinsons Land Corporation (RLC( — remain optimistic regarding the prospects of the office space segment of the real estate industry (SEE: Megaworld bullish on PHL office market, Business Mirror). In fact, all of these companies are constructing new office buildings left and right at a rapid pace (SEE: Rapid 1Q growth by industry leaders; A sign of things to come for the real estate industry,)

It is estimated that the total leasable space in the country will grow by one million square meters per year for the next three years. By 2022, total leasable area would stand at 13 to 15 million square meters — around 40% higher than the 2018 figure (SEE: NCR office growth seen at 1 million square meters per year, Business World).

The impact of the rise of the BPO industry is not limited to the absolute demand of leasable area in terms of square meters, either. In fact, BPO companies now are actually looking for more luxurious and prestigious office spaces — putting a huge emphasis on large open common areas where employees can interact (SEE: BPOs upgrading to more prestigious office spaces). This trend explains the emergence of high end and high prestige office buildings, especially in the Bonifacio Global City (BGC).

Effects on the Housing and Lifestyle Segments of the Real Estate Industry
The positive effects of a growing business process outsourcing sector will also be felt by the housing and lifestyle sectors of the real estate industry. As the demand for office spaces and buildings go up, condominiums and other housing units in the urban metro areas become more and more valuable. This phenomenon will eventually lead to higher property values and rental rates all around Metro Manila.