MANILA – Iloilo City offices continue to attract major occupants such as call centers and legal transcription service providers, with Colliers seeing offices in the city remaining attractive among tenants looking for Philippine Economic Zone Authority (PEZA)-proclaimed spaces.
“Over the next three years, we see outsourcing firms such as call centers occupying much of new office space, especially in the Mandurriao area. We already see some companies offering a mix of call center and higher value outsourcing services such as legal transcription and health information management,” said Kevin Jara, Colliers International Philippines’ senior manager for tenant representation.
Jara added that “Colliers sees more knowledge process outsourcing (KPO) firms from Manila expanding in Iloilo City in the next two to three years. Among the factors that these firms consider is the city’s skilled labor pool. This makes Iloilo City a viable expansion site outside Manila.”
Colliers sees developers targeting non-outsourcing tenants especially for buildings waiting PEZA approval; exploring the viability of building offices on the proposed Iloilo reclamation project; and exploring and developing mixed-use townships outside Iloilo City.
Opportunities at old airport
National developers such as Ayala Land, Megaworld, SM Prime and Robinsons Land have ramped up completion of office space in Mandurriao, the location of the old airport. At present, Mandurriao accounts for 80 percent of Iloilo City’s office stock, representing 87,800 sq. metres (944,700 sq. feet) of the city’s total space of 109,400 sq. metres (1.1 million sq. feet).
Megaworld offers 60,800 sq. metres (654,200 sq. feet) of leasable office space. The developer benefits from having Philippine Economic Zone Authority (PEZA) status, hence all buildings within its Iloilo Business Park are PEZA-proclaimed, enabling outsourcing occupants to avail themselves of tax and non-tax perks. This has also allowed Megaworld to secure major occupiers such as WNS, iQor, Startek, Nearsol, Transcom, and Reed Elsevier.
Only one office project was completed in the entire Iloilo city in 2018, the Two Techno Place Office developed by Megaworld offering 10,500 sq. metres (113,000 sq. feet) of office space. From 2019 to 2021, it plans to complete One Fintech Place, Two Fintech Place, IBP BPO 11 and IBP BPO 12 with a total leasable space of 69,400 sq. metres (746,700 sq. feet).
Ayala Land developed 9 percentof Mandurriao’s office stock, with its Iloilo Ayala Technohub offering of 7,100 sq. metres (76,400 sq. feet) of leasable space. Ayala Land plans to build Atria Park District BPO 1 and 2 that are likely to offer a combined leasable space of 18,400 sq. metres (198,000 sq. feet).
Meanwhile, Robinsons Land also offers 2,000 sq. metres (21,500 sq. feet) of office space thru Robinsons Place Iloilo.
SM Strata Tower 1 is due to be completed this 2019 and should offer about 23,400 sq. metres (251,800 sq. feet) of new space. Other buildings due for completion from 2019 to 2021 include SM Strata Tower Building 2 in Mandurriao with a leasable space of 22,250 sq. metres (239,400 sq. feet).
Overall, Colliers sees Iloilo’s leasable office supply increasing to 242,900 sq. metres (2.6 million sq. feet) by 2021 or an addition of about 44,500 sq. metres (478,800 sq. feet) of office space per year from 2019 to 2021. All of the upcoming supply is likely to be in Mandurriao as developers cash in on the area’s viability as a key outsourcing destination in Western Visayas.
PEZA and flight-to-quality driving demand
Large BPO companies continue to occupy substantial space in the city’s business district. Major outsourcing firms such as iQor, Transcom, Startek, WNS, Reed Elsevier, and Nearsol are already in Iloilo and took space in 2018 especially in Megaworld’s Iloilo Business Park. These companies have taken advantage of PEZA-proclaimed buildings within the business park, availing of tax incentives. Colliers believes that in the next three years, any PEZA-approved buildings in the Iloilo Business Park could easily achieve full occupancy status as there is pent-up demand for PEZA-proclaimed spaces across the city.
SM Strata, according to the firm’s leasing officials, is also receiving queries from a number of outsourcing firms. These companies are awaiting the approval of SM Strata’s PEZA application. A number of traditional and non-outsourcing firms, including insurance companies, have expressed interest in this building. These firms are transferring from old office buildings in the old city centre to newer buildings in the Mandurriao area.
BPO demand to temper vacancy
Despite the completion of 10,500 sq. metres (113,000 sq. feet) of new office space, vacancy dropped to 5.0 percent in 2018 due to strong demand from BPO companies for PEZA-proclaimed in Iloilo Business Park. Colliers recorded pockets of vacancies especially in older buildings in the old city center that are unable to accommodate the large floor plate requirements of outsourcing firms. This makes newer offices in Mandurriao more attractive to new and expanding foreign locators.
Colliers is projecting a sustained demand from 2019 to 2021 in Iloilo. But the lack of PEZA proclamation for office towers due to be delivered over the next three years could raise vacancy. Colliers estimates an annual vacancy of 9 percent per year from 2019 to 2021, up from 5.0 percent in 2018. The vacancy should taper to about 7.8 percent in 2021 once the new office buildings secure their PEZA status. A couple of new office towers are due to secure their PEZA status in 2019 and 2020. The granting of PEZA status should further raise office space demand in the city over the next two to three years, the firm added.
Stable rental growth
In 2018, asking lease rates averaged at P525 (USD 10) per sq. metre, 5 percent higher compared to 2017 rates. Across the city, office space in Mandurriao commands the highest lease rates. From 2019 to 2021, Colliers sees lease rates rising by about 3 percent per year.
Over the next three years Colliers sees more non-outsourcing firms such as insurance companies, law firms, and manpower agencies occupying small offices in the Mandurriao area. These firms should help prop up lease rates in Iloilo City’s business district.
Explore viability of reclaimed property
Colliers encourages developers to look at the feasibility of land on the proposed Iloilo reclamation project. The project is awaiting approval from the national government. The city government plans to build a mixed-use township on the reclaimed property featuring office and residential towers.
Colliers also urges developers to maximize the usability of their properties. Aside from building office towers, developers should explore the viability of featuring residential condominium, malls, hotels, and schools. Local developers with limited experience in developing mixed-use communities should partner with national players such as Ayala Land and Megaworld.
The firm also encourages developers with pending PEZA applications to aggressively look for non-outsourcing tenants such as banks, insurance companies, and manpower agencies. These firms do not require PEZA-proclaimed space.
Tenants to expand in Iloilo
Colliers is encourages tenants to further explore Iloilo City as their expansion site outside of Metro Manila. According to Tholons, an outsourcing consultancy firm, the city is the 92nd most competitive global site for outsourcing operations in 2018. Tholons releases an annual list of the top outsourcing locations in the world based on talent, cost, infrastructure, quality of life, and innovation and in the Philippines alone more than a dozen areas are eyeing a spot in the Top 100 but only six made it to the list. However, maintaining the ranking is likely to be a challenge moving forward.
Colliers International (NASDAQ, TSX: CIGI) is a leading global real estate services and investment management company. With operations in 68 countries, our 14,000 enterprising people work collaboratively to provide expert advice and services to maximize the value of property for real estate occupiers, owners and investors. For more than 20 years, our experienced leadership team, owning more than 40 percent of our equity, have delivered industry-leading investment returns for shareholders. In 2018, corporate revenues were $2.8 billion ($3.3 billion including affiliates), with more than $26 billion of assets under management./PN