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BPO expansion hastens next wave cities growth

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By Emmie V. Abadilla

The Business Process Outsourcing (BPO) industry continues to expand in new growth hubs outside Metro Manila as a more diverse group of BPO tenants invest in “Next Wave Cities,” revealed commercial real estate consultancy Santos Knight Frank.

Overall, the local BPO industry currently employs 1.3 million jobs directly and 4.1 million jobs indirectly. Already, 25% of BPO industry employees are based outside the metropolis, primarily in Baguio, Clark, Naga, Clark, Iloilo, Cebu, Bacolod, Puerto Princesa and Davao.

These provincial operations’ direct hires are expected to grow to 500,000 by 2022.

Significantly, third-party BPOs are the first entrants into Next Wave Cities, while captive and shared-services centers (those that support internal company operations) have traditionally stayed within the more developed hubs of Metro-Manila and Cebu.

“Recently, we have seen an interesting development in which the mix of BPO tenants in the Next Wave Cities is changing. While third-party BPOs and local BPOs have traditionally dominated the provincial markets, captive centers have now begun moving into cities such as Iloilo, Clark and Naga – which is a vote of confidence for those locations,” noted Morgan McGilvray, Senior Director for Occupier Services & Commercial Agency at Santos Knight Frank.

Cost competitiveness, along with the presence of robust and dynamic talent, is a key ingredient to attracting BPO companies.

In terms of cost competitiveness, Metro Manila’s average rental rate of P1,100/square meter/month remains as one of Asia Pacific’s most inexpensive, according to the Knight Frank Asia Pacific Office Rental Index Q2 2019.

By comparison, average rents in “Next Wave Cities” range from P350 to P550/square meter/month in locations such as Iloilo, Bacolod, Clark, Cagayan de Oro and Davao.

Having the right infrastructure and ingredients to attract BPOs has benefited cities such as Iloilo, where at least 69 BPO companies support around 27,000 direct hires.

As one of the city’s biggest employers, the BPO industry has spurred the growth of the office, residential, hospitality and retail sectors across three business districts in the up-and-coming location.

“BPOs help create an ecosystem of growth, and that is especially magnified in the provinces where the industry spurs not only real estate expansion but also economic development. Encouraging decentralization will accelerate urban development in the region and uplift more households into the middle class,” stressed Rick Santos, Chairman & CEO, Santos Knight Frank.

His consultancy firm estimates there’s a demand for at least 360,000 sqm of new office supply in Iloilo, Bacolod, Clark, Cagayan de Oro and Davao City, which would provide a wide array of choices for BPO companies looking at regional expansion.

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