BIG, but slow-footed real estate brands like Megaworld, SM Prime and Ayala Land, watch out. A new wave of office developers are “muddying up the waters”, so to speak, at least for the burgeoning work space needs of the BPO industry, which real estate analysts bet is going to expand even more for the rest of the decade.
Far from slowing down, the BPO industry’s number of full time employees (FTEs) grew from 1 million in 2014 to 1.2 million in 2015, and is seen to expand to a projected 1.3 million in 2016, according to data provided by JLL Philippines, a real estate analyst firm.
Sheila Lobien, JLL national director, said that 1.2 million FTEs would require an estimated office space of 4.8 million square meters. The projected 1.3 million FTEs in 2016 would need a total of 5.2 million square meters or an additional 400,000 sqm. from the 2015 level.
Niche developer Panorama Development Corporation, which previously focused only on residentials and warehouses, now has an office portfolio of close to 70,000 sqm. spread over three towers. More than half of its inventory has been leased even if the third building is still to be completed this year. In early 2015, Morning Star’s three buildings offering a total 66,775 sqm. were fully leased.
Glut looming ahead?
The market has been favorable to those who invested in the office segment five or six years ago, said Lobien. But following an estimated supply glut of close to 800,000 sqm. by the end of this year, new real estate players are forewarned to strategically time building completions, and to avoid adopting a herd mentality to avoid vacancies.
No worries, said JLL head of research, consulting and valuation Claro Cordero. He assured that BPO demand, which has been driving the Philippine office market for over a decade, is expected to continue growing.
“Supply spiked in 2015 and again is most likely to peak in 2016. Building completions in 2017 and 2018 have been projected to decline,” he said.
He expressed confidence that oversupply will be fully absorbed in the next two years. The rate of growth in supply has simply been higher than the rate of growth of demand.
Recurring income streams offered by rental leases continue to be attractive to businesses with more cash than they need at the moment. According to Cordero, most of these boutique office players appear to be investing in real estate as a means of diversification. “You don’t want to be exposed only to one segment of the economy. You plan for the rainy day by venturing into property,” he said.
A JLL global report reinforced this view, noting that “there is a greater propensity to save and a greater proportion of these savings are expected to target real estate.” In addition to providing stable cash flows, office properties occupy land that appreciates over time.
Boutique office players also seem to provide lessors more options than established office developers. They are willing to offer options like energy efficient spaces with LEED certifications in a bid to attract the attention of office occupiers.