BPOs fuel the resurgence of the office real estate market

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The business process outsourcing (BPO) industry has regained ground amid the disruption caused by the COVID-19 pandemic since 2020, fueling what appears to be the start of the rebound in the office real estate segment.

Thanks to these BPOs, the Philippine office real estate market “now looks set to take off and resume its prepandemic growth path,” according to Q2 office real estate research from real estate consultancy Leechiu Property Consultants (LPC).

With the stabilization of Western markets, outsourcing and offshoring activities also improved, bringing new BPO demand for offices in the Philippines to 92,000 square meters (m²) in the second quarter of this year, up 160 % compared to only 35,000 m² in the first quarter.

BPO demand accounted for 54% of total office demand in the second quarter, offsetting the shortage of demand from Filipino online gaming operators (Pogos), who had been hit by travel restrictions during the pandemic alongside nervousness fiscal.

David Leechiu, president of LPC, said aggregate second-quarter office demand was the highest since the start of the pandemic, bringing total first-half demand to 291,000 m². “This already represents 75% of the demand for all of 2020. There is no doubt that the Philippines is back on the radar of global occupiers,” Leechiu said.

Fundamentals

“Even though they were relatively calm in 2020, BPOs are back,” Leechiu said. “The same fundamentals that attracted BPOs to the Philippines during the 2008 financial crisis are working again for us. “

Demand was primarily from BPOs expanding their operations in the country, whose favorable demographics, given its predominantly English-speaking population, have remained attractive to global BPO locators.

Improve feeling

LPC noted that investor sentiment has improved with the nationwide rollout of COVID -19 vaccines and the passage of Senate Bill 2232, which clarified Pogo’s tax regime.

Under the bill, all offshore gaming licensees, whether based in the Philippines or elsewhere, will be required to pay a 5% tax on gross gaming revenue or revenue from their gaming operations. Foreigners employed by offshore gaming licensees and service providers will be subject to a 25 percent withholding tax.

Pogos’ collections are expected to reach 28.7 billion pesos in 2021 and 32 billion pesos next year once the bill is passed. President Duterte certified this bill as “urgent”.

With the reopening of international borders, LPC expects Pogos to rekindle its interest in the Philippine office market and further initiate the country’s economic recovery.

All of these events have aligned to support the Philippine office market. Its resurgence this quarter is a strong and clear indicator of recovery, the study concludes.

The BPO industry in the Philippines generated $ 26.7 billion in revenue in 2020, up from $ 26.3 billion in 2019. The industry employed 1.3 million people last year.

Due to the BPO sector, the local office real estate market has shown greater resilience compared to the hospitality / tourism and commercial real estate segments.

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