COLLIERS International Philippines (Colliers) is calling on government to fast track the approval of Philippine Economic Zone Authority (Peza) applications to sustain the growth of the outsourcing sector.
Colliers said it observed delays in Peza proclamations in the first three quarters of the year, which might impede the expansion of the outsourcing sector in 2019.
It noted that the current administration has approved 36 out of the 78 Peza information and technology (IT) center and park applications, so far.
“Colliers believes that the robust demand will be sustained by an ample supply of Peza-proclaimed IT parks and buildings,” the real estate consultancy and research firm said, in a statement.
Outsourcing companies’ office space absorption has accelerated in the first three quarters of 2018.
The business outsourcing management (BPM) firms, including call centers and knowledge process outsourcing (KPO)--which provide higher-value services, accounted for 42 percent of the 1.14 million square meters (sq.m) of transactions recorded from January to September 2018.
Colliers Philippines said the bulk of these companies are the same firms that held off expansion plans in 2017 due to factors like safety and security issues, US President Trump’s anti-outsourcing rhetoric, and concerns on the availability of Peza-proclaimed office buildings.
But the research firm noted that the aggressive approval of Peza applications toward the end of 2017 resulted in a strong take up of office space from outsourcing firms.
However, the current Peza approval this year only represents an approval rate of 46 percent.
“Peza accreditation of buildings or parks are important, since it will assure the locators that they will enjoy the incentives given by Peza if they locate in accredited areas,” said Wilfredo Sa-a Jr., managing director of Cebu IT BPM Organization (CIB.O), in an interview on Monday, Dec. 10.
In 2016, a total of four Peza applications were approved. Last year, some 26 applications were approved, with 11 proclamations released in the fourth quarter alone.
In the first nine months of 2018, however, only six applications were approved. Not a single application is yet to be approved in the fourth quarter this year.
Of the 36 buildings and IT parks granted Peza status, 21 are in Metro Manila while the remaining 15 are in areas outside of the country’s capital, such as Cebu, Bataan, Bulacan and Laguna.
Besides the external factors, Colliers said a number of BPM firms have taken a wait-and-see stance, as they await the planned enactment of Tax Reform for Attracting Better and High-Quality Opportunities (Trabaho) bill, which purges tax incentives provided to Peza locators.
“In our opinion, this will be exacerbated by the lack of Peza-approved office spaces,” said Colliers.
Dom Fredrick Andaya, director for office services at Colliers, encouraged developers with pending applications to start targeting traditional and non-BPM firms.
Andaya noted that the country’s gross domestic product projections of six percent to 6.5 percent this year, and seven percent to eight percent from 2019 to 2022, respectively, plus the strong macroeconomic backdrop, should support the expansion of these outsourcing businesses.
Andaya said these factors would eventually compel firms to occupy larger office spaces.
Moreover, Colliers said BPM tenants have been looking for Peza-proclaimed spaces in areas outside Metro Manila to continuously enjoy tax and non-tax incentives.
Among the more viable alternative sites are Cebu, Bacolod, Iloilo, Clark and Davao. These locations offer a combined 1.4 million sq.m of Peza-proclaimed space, about a 10th of which is yet to be occupied.
“Colliers also recommends a more accelerated approval of Peza applications in the provinces to disperse BPM activities outside of Metro Manila and bolster employment opportunities in the countryside,” Andaya stressed.
Among the provincial sites with pending Peza applications are Bataan, Benguet, Cavite, Cebu, Davao del Sur, Iloilo, Laguna, and Negros Occidental. Five of the eight locations are in Tholons’ list of Top 100 global outsourcing hubs.
Under the Philippine IT-BPM Roadmap for 2016 to 2022, the industry is targeting 1.8 million direct jobs, 7.6 million direct and indirect employment, half a million jobs outside of National Capital Region, 73 percent middle-to-high-value jobs, $40 billion in revenues, and a 15-percent global IT-BPM market share.