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Policy uncertainty affects BPO office demand

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THE uncertainty surrounding the proposed tax reform measure and the current moratorium on new economic zones in Metro Manila is weighing on demand for new offices spaces from business process outsourcing (BPO) companies.

“Definitely I think (office space demand is) going to take a hit. What is important now for the stakeholders is clarity about what is going to happen now because up until now, wala pa naman (there is still no) major decision in terms of what are the final regulations, what are the final incentives,” Jones Lang LaSalle (Philippines), Inc. (JLL) Head of Research and Consulting Janlo de los Reyes said after the company’s third quarter market briefing last month.

Outsourcing firms are worried over the transition timeline of changes in fiscal incentives proposed in the Comprehensive Income Tax and Incentive Rationalization Act (CITIRA) bill.

Also, the BPO companies who want to expand in Metro Manila are faced with the challenge of looking for office buildings that have been accredited by the Philippine Economic Zone Authority (PEZA) in order to avail of incentives.

President Rodrigo R. Duterte signed Administrative Order No. 18 last June, banning new economic zones in Metro Manila to encourage the development of special ecozones in the countryside.

For now, Mr. De los Reyes noted that outsourcing firms are still the top demand driver for office spaces, just ahead of offshore gaming operators.




JLL data covering the fourth quarter 2018 to third quarter 2019 showed about 44% of office space demand is from BPO firms, while offshore gaming companies account for about 32%.

“Smaller (outsourcing) companies who would want to set up businesses in the Philippines, they are still very optimistic about the Philippines,” Mr. De los Reyes noted.

“From what we’ve seen also definitely there has been a slowdown in terms of new entrants, so most of the activities really come from the ones present here, but we’re still seeing growth in terms of the small to medium enterprises,” he added.

Mr. De los Reyes projects that demand from offshore gaming firms may soon exceed demand coming from BPOs by the fourth quarter, despite government’s efforts to regulate players in the industry.

“I think it’s also good that there was a stop in issuance of licenses because now the government, like what they’ve been doing, examining a lot of these players to see if they are really compliant,” Mr. De los Reyes said. — Vincent Mariel P. Galang

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