Growth in the O&O Industry Driving Demand in the Office Sector

Locations outside the CBD area eyed by expanding service providers


The steady growth of the offshoring and outsourcing industry will continue to drive demand in the office sector with property developers eyeing locations outside the Metro Manila Central Business Districts for expansion, said CB Richard Ellis Philippines Vice Chairman Joey Radovan at Shared Services Week Asia 2008 in Singapore. Radovan, as head of the Global Corporate Services group, promoted the Philippines as an offshoring location to an audience that included Shell, Diageo, CITI Bank, Hewlett Packard and Rolls Royce.

The O&O industry in the Philippines expanded 50% annually from US$1.47 billion in 2004 to US$7 billion in 2007. In response to sustained demand for office space in the industry, 34 projects with a total floor area of 731,871 square meters are to be completed in 2008. At the end of 2007, call centers and other O&O companies occupied 1,080,000 square meters of space, a substantial increase from 750,000 square meters in 2006.

According to Radovan, investment in non-voice back office services is expected to increase, compensating for slower growth in the contact center sector.

“We see foreign investors investing in Bonifacio Global City, Makati CBD, UP North Science and Technology Park, and Alabang,” said Radovan.

Provincial urban centers are also becoming more attractive for O&O services providers that are considering expansion.

“BPO companies that have been in the country for three to four years are looking at the provinces to leverage the large labor pools in these areas and to leverage the benefits of lower rates for office space and operating costs, and 23 of the 34 projects scheduled for completion by the end of 2008 are located outside the Makati and Ortigas CBDs,” said Radovan.

The emergence of alternate business districts has increased supply of comparable office space, giving O&O companies the choice of moving from Grade A high-rise buildings to new IT buildings with lower lease rates. “We expect O&O services providers to increasingly move to low-cost growth areas as rents in the Makati CBD stabilize in a range of P850 to P950 per square meter,” said Radovan.

For 2008, the outlook for Bacolod, Cebu, Davao, Pampanga, and Naga is promising. O&O investors have been active in these markets this year. Radovan projects that in 2009 and 2010, tier two and three locations such as Laoag, Tacloban, Tagbilaran, Tuguegarao, Kalibo, Legaspi, Roxas, Butuan, Puerto Princesa, Dipolog, Cotabato, and General Santos City further south will benefit from expansion of the O&O industry.

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CB Richard Ellis Group, Inc. (NYSE:CBG), a FORTUNE 500 company headquartered in Los Angeles, is the world's largest commercial real estate services firm (in terms of 2006 revenue). The Company serves real estate owners, investors and occupiers through more than 350 offices (including affiliate and partner offices) worldwide. CB Richard Ellis offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; investment management; appraisal and valuation; and research and consulting. Please visit our Web site at www.cbre.com.ph.