CONTRARY to predictions of a slowdown in business process management (BPM), Cebu’s outsourcing industry has stayed vibrant, with existing BPM locators expanding employee count.
“We have a good ecosystem support here from schools, local government units, government agencies and private sector associations all helping the industry grow. I believe this has shielded us from the anticipated slowdown,” said Cebu IT-BPM Organization (CIB.O) managing director Wilfredo “Jun” Sa-a.
There were concerns the sector could experience a slowdown, triggered by the United States’ anti-outsourcing stance, perceived decline in the peace and order situation in the country and the delay in the proclamation of Philippine Economic Zone Authority (Peza) buildings.
According to Sa-a, at least five existing BPM locators in Cebu have silently expanded their operations, increasing existing employee headcount by 20 percent to 30 percent.
“The interest of locating in Cebu has not stopped among BPM players. Investors are still eyeing to locate here, especially with the ongoing developments such as the opening of the Terminal 2 of the Mactan Cebu International Airport,” said Sa-a.
Colliers International Philippines said Metro Cebu’s outsourcing sector, which includes call centers and knowledge process outsourcing (KPO) companies that provide higher-value services such as medical coding, legal transcription, software engineering, and finance and accounting remains robust.
Based on its latest industry study, Colliers recorded about 58,000 square meters in office transactions for the first half of the year. Transactions in the business and knowledge process outsourcing accounted for a combined 74 percent.
Among the large BPM and KPO companies that occupied space in Cebu during the first semester of the year are Shearwater Health, Cresco Shared Services, Convergys, Wipro and Teledirect. They primarily provide healthcare, information technology (IT), and customer support services.
Traditional and non-outsourcing firms covered about 12 percent of total transactions during the first half with remittance centers, insurance companies and educational services occupying space.
Offshore gaming, meanwhile, accounted for the remaining 14 percent of transactions.
Colliers said it believes that offshore gaming has the potential to become a major plank of the Cebu office market.
“With a more conducive local regulatory environment, we expect offshore gaming to become a major contributor to office space take up in Cebu,” the research firm said.
Moreover, language centers are also seen as a potential demand drivers in terms of office space.
Colliers said firms that provide English as a secondary language (ESL) services will be a major contributor to office space demand.
Existing and new ESL providers are reportedly considering new office space due to be completed over the next 12 to 18 months in Cebu IT Park and Cebu Business Park.
Among the ESL centers already operating in Cebu are QQ English, TOMAS English Training Center, Access E-Talk Plus, Nexseed, and Winkey Online English Academy.
Colliers reported an 8.9 percent overall vacancy for the second quarter in Cebu, lower than the 9.5 percent registered in the first three months of this year.
Cebu Business Park and Cebu IT Park recorded vacancy of between 5.5 percent and 7.4 percent.
Mactan’s vacancy declined to five percent due to strong leasing from the start of 2018 while Mandaue City’s vacancy dropped to 30 percent.
“Overall, Colliers expects Metro Cebu’s office vacancy to hover between eight percent and nine percent by the end of the year,” the research firm said.
Colliers also sees Cebu’s office stock reaching 1.04 million square meters before the end of 2018. This is more than double Metro Cebu’s office stock in 2011.
As of the second quarter, Metro Cebu’s office stock reached 1.01 million square meters, following the completion of three new buildings-–Mabuhay Tower 1 and Filinvest Cebu Cyberzone Tower 2 in Cebu IT Park and Tech Tower in Cebu Business Park—which delivered a combined 53,000 square meters of new leasable office space.
For the second half of the year, Colliers sees a delivery of nearly 30,000 square meters of new leasable office space in the market and expects Cebu Business Park and Cebu IT Park to continue to command the highest lease rates across Metro Cebu.
In the second half of the year, Cebu IT Park recorded the fastest rise in office lease rates, at 11 percent to 13 percent.
“We project average lease rates in these sub-markets to grow between three percent and five percent annually from 2019 to 2021. We still see upward pressure in rent, given the strong demand in these sub-locations,” the firm said.
Lease rates in other districts are also expected to grow at a more conservative two percent to three percent per year from 2019 to 2021.