The business process outsourcing (BPO) sector has regained ground amid the disruptions brought about by the COVID-19 pandemic since 2020, fueling what appears to be the start of the office property segment’s rebound.
Thanks to these BPOs, the Philippine office property market now “appears ready to take off and resume its prepandemic growth trajectory,” based on the second quarter office property research from property consulting firm Leechiu Property Consultants (LPC). With Western markets stabilizing, outsourcing and offshoring activities have likewise improved, bringing new BPO demand for office space in the Philippines to 92,000 square meters (sq m) in the second quarter of this year, up by 160 percent from only 35,000 sq m in the first quarter.
Demand from BPOs accounted for 54 percent of total office demand in the second quarter, making up for the dearth in demand from Philippine online gaming operators (Pogos), which had been affected by travel restrictions during the pandemic alongside taxation jitters.
David Leechiu, president of LPC, said overall office demand in the second quarter had been the highest since the start of the pandemic, bringing total demand in the first semester to 291,000 sq m. “This is already 75 percent of the demand for the entire 2020. There is no doubt that the Philippines is back on the radar of global occupiers,” Leechiu said.
Fundamentals
“Even if they were relatively quiet in 2020, BPOs are back,” Leechiu said. “The same fundamentals that attracted BPOs to the Philippines during the financial crisis of 2008 are once again working for us.”
Demand mostly came from BPOs that are expanding operations in the country, whose favorable demographics—given its mostly young English-speaking populace—remained attractive to global BPO locators.
Improving sentiment
LPC noted that investor sentiment had improved with the domestic rollout of COVID -19 vaccines and the passage of Senate Bill No. 2232, which clarified the Pogo tax regime.
Under the bill, all offshore gaming licensees, whether they are based in the Philippines or elsewhere, will have to pay a 5-percent tax on gross gaming revenue or receipts derived from their gaming operations. Foreigners employed by offshore gaming licensees and service providers will be subjected to a 25-percent withholding tax. Collections from Pogos are projected to reach P28.7 billion in 2021 and P32 billion next year once the bill is passed. President Duterte certified this bill as “urgent.”
With the reopening of international borders, LPC expects Pogos to revive their interest in the Philippine office market and further prime the country’s economic recovery. All these events have aligned to support the Philippine office market. Its resurgence this quarter is a strong and clear indicator of recovery, the study concluded.
The BPO sector in the Philippines delivered $26.7 billion in revenues in 2020 compared to $26.3 billion in 2019. The sector employed 1.3 million people last year. Because of the BPO sector, the local office property market has shown more resilience compared to hotel/tourism and retail property segments.
