Delay in PEZA approvals hampers BPO sector expansion

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EXPANSION of the business process outsourcing (BPO) sector next year may be hampered by the continued delay of the Philippine Economic Zone Authority (PEZA) in approving applications, according to Colliers International Philippines.

The real estate property consultancy noted in a statement that only six PEZA applications have been approved in the first nine months of 2018, with no approvals seen in the fourth quarter.

Since President Rodrigo R. Duterte started his term in 2016, only 36 out of 78 PEZA IT Center and Park applications have been approved, or an approval rate of 46%. The most number of approvals were seen in the fourth quarter of 2017 at 11 PEZA applications, which prompted an increase in take up of office spaces in 2018.

“Colliers believes that a major reason why office demand from outsourcing firms picked up in 2018 is the accelerated PEZA proclamation of office spaces in 2017 which are now about 70% occupied,” the company said.

PEZA-accredited buildings include Megaworld Corp.’s McKinley Hill, Filinvest Land, Inc.’s Northgate Cyberzone, Robinsons Land Corp.’s Bridgetowne, and Ayala Land, Inc.’s Vertis North, among others.

“Colliers encourages the government to expedite the approval of PEZA applications. We believe that a couple of applications can still be approved before the end of the year, which should contribute to a stronger pre-leasing of office space due to be completed in 2019 and 2020,” it said.

As of the third quarter of 2018, there are 821,742.31 square meters (sq.m.) of office spaces with pending PEZA applications in the country, 637,630 sq.m. of which are in Metro Manila. Provincial sites with pending PEZA applications include Bataan, Benguet, Cavite, Cebu, Davao del Sur, Iloilo, Laguna, and Negros Occidental.

Next year, about 41% of the buildings to be completed have already been granted PEZA accreditation.

The proclamation of more PEZA buildings could further ease fears of the enactment of the second package of the tax reform law, or the Tax Reform for Attracting Better and High-Quality Opportunities (TRABAHO), which diminishes tax incentives given to PEZA locators.

Colliers noted that a number of BPO firms have already adapted a wait-and-see stance due to the TRABAHO bill.

The BPO sector contributed the largest share of Metro Manila office space transactions in the first nine months of 2018, at 42% of the total 1.14 million sq.m.

While the BPO sector has been the primary driver for office demand in the previous years, Colliers encouraged developers to start targeting traditional and non-BPO firms that have been expanding in Metro Manila, citing the country’s strong economic growth.

“The country’s economic managers are expecting a GDP growth of 6% to 6.5% this year and 7% to 8% from 2019 to 2022 and a strong macroeconomic backdrop should support the expansion of these businesses. This should eventually compel firms to occupy larger office space,” Colliers Director for Office Spaces Dom Frederick Andaya said in the same statement. — Arra B. Francia