Though the majority of office stock is currently concentrated across Metro Manila, new growth centres such as Cebu City to the south are becoming increasingly attractive destinations for clients looking for lower rents combined with modern facilities. While the growth in residential properties is being driven by remittances from overseas Filipino workers and access to low-interest loans, demand for office space is supported by the boom in business process outsourcing (BPO) firms. Demand is strong, and the Business Processing Association of the Philippines (BPAP) is targeting an industry-wide total of 1.3m employees by 2016, a major increase on the 646,000 workers currently employed. BPO generated $10.9bn in revenues in 2011, with industry leaders hoping to grow that to $25bn by 2016, taking around 10% of the global market.

MEETING DEMAND: The anticipated 1.3m extra workers will need space to work in, and even with an expected 1m sq metres to be built across Metro Manila by 2013, there are signs this will not satisfy demand. As rents begin to rise in original BPO centres of Fort Bonifacio Global City, built on the site of the former US military base, new BPO centres are forming and include the areas of Pasay and Manila proper. Clients are highly mobile and are looking to quickly source modern facilities with low-cost office rates and good worker access through collocation with major transport hubs.

Although 80% of BPO operations are in and around Metropolitan Manila, growth is also spurring new operations in what are being dubbed the Next Wave Cities in the Philippines. Supported by the BPAP and largely in an attempt to reduce wage inflation and keep the Philippines competitive, more than 30 new cities have been identified as potential destinations for BPO operations. These will all require modern office space.

The government’s Technical Education and Skills Development Authority (TESDA) is supporting the strategy with an investment of P50m ($1.1m) for training of call centre agents in the city of Bacolod, to ensure a steady supply of skilled workers outside of Manila.

Cebu City is a major destination for BPO. Figures from real estate firm Colliers International show that office stock has grown at a rate of around 30% over the past three years, and expansion is forecast to remain high at 16% between 2011 and 2012. The major growth location is the Asiatown IT Park, home to operations by Globe Telecom, Convergys and IBM. The park supplies 36% of all office space in Cebu City. Rents are stable at P430 ($9.80) per sq metre, close to half those of Makati central business district (CBD), despite new entrants coming to the market soon, including Hewlett Packard, Fluor Daniels, Dell and JP Morgan Chase.

HIGH-END: For other business sectors clients are increasingly searching out quality space with high-end facilities and infrastructure. According to forecasts from Colliers, rental rates for grade-A and B office space in Makati CBD are expected to rise by 10% between 2011 and 2012. Vacancies should level off at around 3% for premium to grade-B space. Capital values are also expected to increase, with premium office space rising by 10% year-on-year to mid-2012, followed by grade-A at 8.2% and grade-B at 2.5%. As large quantities of office stock start to age and fall behind facilities offered by new-builds, some less-than-optimal offices in the CBDs could be rendered obsolete.

The forecast growth in office space across Manila and the Next Wave Cities will have knock-on effects for the residential and retail sectors. BPO workers typically earn middle-income salaries, enough to buy a small apartment close to work. This should spur demand for high-concentration condominiums. If the work-live-shop model typical of Manila is to be replicated across the country, many new developments will also include integrated malls, adding much-needed retail space to the regions. The fundamental drivers underpinning the expanding office market look relatively stable, and with economic growth expected to be around 5% for 2012, office space should remain an attractive option for investors. Developers have historically managed new supply well and rents should continue to rise slowly.