Office space dwindles in financial district

With the continued expansion of call centers and business process outsourcing (BPO) firms, available office space in the country’s premier financial district slipped to an average of 4.30 percent in the first quarter this year from 4.94 percent in the fourth quarter, according to real estate service firm CB Richard Ellis Philippines Inc.

CBRE Phils. noted that some prime/grade A buildings reported no vacancies or no available large or contiguous floor space.

With declining vacancy levels, rental rates for office space in some prime Makati CBD buildings rose 6.1 percent from P575 per square meter to P610 per square meter.

With this development, rental rates for office space are expected to continue their double digit growth through 2007 as more major multinational corporations continue to outsource their call center and other back office functions in the Philippines.

"We likely see two more years of growth. We’ll probably see 12 percent -15 percent growth (in rental rates) this year, and next year we think demand will exceed the 200,000 (square meters) in new supply," said Trent Frankum, CB Richard Ellis director for investments.

Despite rising CBD rents and falling vacancies, real estate costs in the Philipines remains competitive in comparison to the costs of real estate in other locations. On top of this, the Philippines offers a well-educated English speaking workforce that is able to provide high quality customer service, especially to North American based clients.

"The call centers/BPOs are coming to the Philippines not just because of the low cost of doing business here, said Rick Santos, chairman of CBRE Phils. "They are coming here because their clients demand it."

CB Richard Ellis estimates that business process outsourcers should generate around 80,000 more agent seats – with each seat translating into at least two new jobs – into 2007, requiring around 400,000 square meters of office space compared to an expected total supply of around 300,000 square meters.

For this year, the BPO industry is expected to create a minimum of 100,000 new jobs and have at least 50 percent revenue growth for 2006. This will mean increasing demand for prime/grade A office space, higher hotel and serviced apartment occupancy rates and a much larger middle class who will need more housing, retail, entertainment and tourism options, CBRE Phils. said.