THE BUSINESS process outsourcing (BPO) industry remains positive about expanding in the Philippines despite the removal of tax incentives in the proposed second package of the Tax Reform for Acceleration and Inclusion (TRAIN 2) law, according to real estate consultants Colliers International Philippines.
Colliers Senior Research Manager Randwil Dinbo U. Macaranas said that while BPO firms may take a hit from the approval of TRAIN 2, the sector takes into account more than just cost efficiencies when selecting locations.
“They do recognize that tax reform has a significant impact, but there are lots of other factors that come into play such as cultural affinity, skills, comfort, how well established they already are in the local market,” Mr. Macaranas told reporters after the company’s first-quarter property market briefing in Makati City yesterday.
Under the proposed TRAIN 2, economic zone locators will be taxed 15% of their net taxable income, compared with the current 5% tax on gross income earned. Income tax holidays will also be limited to four years with no extension, against the current regime of four years, extendable to six years.
Mr. Macaranas noted that as far as Colliers clients are concerned, the BPO industry will continue to drive demand for office buildings in the next five to 10 years.
“They’re continuously expanding even over a 10-year timeline… And it will really be a more diversified tenant mix. Previously the market was basically overly reliant on BPOs but today there are also lots of other industries that are also driving the market,” Mr. Macaranas said.
Last year, fears of the removal of tax perks under the tax reform law resulted in a slowdown in the expansion of BPO firms. It was the entry of Philippine Offshore Gaming Operators (POGOs) that helped fill out the space intended for the BPO sector.
Colliers also noted that it closed deals with local units of multinationals Amazon, Google, Accenture and ING, among others, in the first quarter of 2018, representing 28% of office transaction volume for the quarter.
Colliers’ first-quarter property report showed that a total of 470,000 square meters (sq.m.) of office spaces were completed for the first three months of the year, the highest recorded in history. This is close to the 525,000 sq.m. of new office space expected to be completed for the rest of 2018.
The consulting firm said a majority of the space to be completed for 2018 has been leased out.
At the end of March, Metro Manila’s total office stock was 10.2 million sq.m.
Vacancies were at 5.8% for the quarter, rising half a percentage point from the fourth quarter of 2017.
An average of 900,000 sq.m is expected to be added every year from 2018 to 2020, most of which will be located in Fort Bonifacio in Taguig City. By then, vacancies may rise to as high as 9%, according to Colliers.
The rate of office completion is expected to normalize at the end of that period, with around 560,000 sq.m to be completed in 2021. Vacancies will also correct back to around 6% by this time. — Arra B. Francia
