BPO firms shift to provincial hubs as Metro Manila wages climb, says PRIME Philippines

Rising labour costs and recruitment competition in Metro Manila are driving BPO firms to expand into provincial cities in the Visayas and Mindanao, according to real estate consultancy PRIME Philippines. The shift is constrained by limited Grade A office supply and infrastructure gaps in smaller mar

Business process outsourcing (BPO) firms are expanding into provincial cities in the Visayas and Mindanao as rising labour costs and recruitment competition in Metro Manila push occupiers to consider lower-cost locations, according to real estate consultancy PRIME Philippines.

During the consultancy’s third-quarter market briefing, PRIME Philippines Manager for Research and Advisory Sean Grantley Chua said successive wage increases in the National Capital Region (NCR), including the latest P60 adjustment, are adding to operating costs for information technology-business process outsourcing firms. “If you take a look at the past five years, the wage hikes for NCR were between P20, P30, P40, and now P60. So, how do you mitigate that as an expanding BPO firm? You go to areas that have cheaper labour, for lack of a better way of saying it,” Mr. Chua said.

He said labour competition in established BPO hubs was also influencing site selection, as companies seek locations where they can recruit workers at lower cost. “When you are in a city with multiple BPO players, of course you compete with the recruitment, you have to offer more attractive competitive packages. So in other words, the selection of sites for many BPOs, especially the ones that have been operating in the Philippines for some time already, they’re already looking at the cost of labour basically,” Mr. Chua said.

PRIME Philippines Senior Head for VisMin Markets Hannah Yoshida said BPO firms were also looking to establish an early presence in emerging markets to gain access to local talent pools. “Aside from that of the competitive cost of labour, of course the movement of the BPOs are also centred on being first movers in the market. With that, they are able to capture the labour pool that is available wherein that will grow with them, become their leaders, and then from there, are able to strengthen their foothold within that certain area,” Ms. Yoshida said.

PRIME said expansion into smaller provincial markets remains constrained by limited Grade A office supply, infrastructure gaps, and inconsistent access to utilities such as electricity and internet connectivity. Mr. Chua said some BPO firms in cities such as Zamboanga and Dumaguete were occupying nontraditional office spaces, including upper floors of commercial arcade buildings. “What I have seen visiting some of these Tier 3 cities, such as Zamboanga and Dumaguete, is that a lot of the BPO firms, although not as big in terms of floor take-up compared to those in NCR, are occupying these commercial arcade buildings, usually at the top floors,” he said.

PRIME said demand for higher-quality office space was also emerging in some provincial markets as new commercial developments were completed. Mr. Chua cited Robinsons Land Corp.’s Robinsons Cybergate in Dumaguete, where he said a newly completed office building adjacent to the mall had been fully taken up by a single BPO firm that expanded from a smaller one-storey facility. He added that another BPO firm in Dumaguete was negotiating to occupy five to six floors of office space. “There is still demand that needs to be met in these Tier 3 to 4 cities, although maybe the scale won’t match that of the zone like in Makati or central business districts,” Mr. Chua said.