Call centers seen leaving Makati (BusinessWorld)

Published in the January 17, 2007 issue of BusinessWorld

By JENNEE GRACE U. RUBRICO, Sub-Editor

Call centers seen leaving Makati

Contact centers could begin moving out of the Makati Central Business District in two to five years as rents continue to escalate and qualified labor increasingly becomes a constraint, experts said.
Property analysts polled by BusinessWorld said cost-sensitive call centers may start their exodus when office rents go beyond a historical high of P1,000 per square meter.
But Makati’s loss will be other cities’ gain, as these call centers will likely relocate in alternative business districts, they added.
"A lot of call centers and support services type of operations ... got favorable rents [when they came in after the Asian financial crisis] and then suddenly, rates will be doubling. These guys are natural candidates [for leaving]," said David Young, managing director of Colliers International Philippines.
"They don’t need to be in the best quality buildings in Makati, they can happily function on any location in Manila as long as infrastructure services get to them."
Mr. Young said he sees these firms leaving the central business district in two to five years because lease contracts usually run this long.
In its third quarter 2006 market report, Colliers said premium grade space in the Makati CBD hit P798 per square meter per month, approximating early 1996 levels. It also predicted that by this year, office rental in the business district will breach P1,000 per square meter per month, the going rate just before the 1997 Asian financial crisis.
Four years ago, rental rates were at P350 per square meter per month, Asian Institute of Management Professor Danilo A. Antonio told BusinessWorld.
Call centers, the property analysts said, could transfer to cheaper business districts like Eastwood in Quezon City, Fort Bonifacio in Taguig, Filinvest in Muntinlipa or the periphery of Makati if their only concern is high rent.
If the concerns are expanded to include labor shortage, they will be looking at other areas in the region, said Paul Ryan L. Isip, associate director for global corporate services of CBRE Philippines
"This [labor] is a constraint," he added.
Even if costs escalate, however, a few call centers will remain in the central business district, experts said.
"Call centers might just stay [in Makati] since moving costs can be too high," Mr. Antonio said.
Mr. Isip said some outsourcing companies will stay "as not all outsourcing companies have the same cost structure."
But Makati, said Business Process Association of the Philippines president Danilo Reyes, is still the place to be for contact centers that want to establish their presence.
"Some will stay because they need to have presence while others will go once their rents double up," he said.
Colliers Research director Richard Raymundo also said that while P1,000 per square meter per month is a historical high in peso terms, this does not approximate 1997 rental rates in dollar terms.
"The dollar is now around P50. In 1997, it was at around P26. You will not go back to those rates. So rental rates are still much cheaper now if you consider it in dollars," he said.
Analysts said the vacancies resulting from the transfer of call centers will be taken up by multinational firms that want to either establish a presence in the country or expand current operations.
"At the same time that [call centers] are coming under cost pressure, we are seeing a general increase in demand for space other segments of the office market. Commercial services and the banking industry are doing well, and companies to support these industries are doing well," Mr. Young said.
He also noted that multinationals are "looking to put back office functions" in the country.
"Technically, this is business process outsourcing. We’re seeing that demand from multinationals," he added.
Mr. Young also said demand for space not necessarily in the Makati central business district is also coming from call centers abroad.
"It’s not just jobs in America, Canada, Europe. There is incredible interest in India. Traditionally, Bangalore has been the hub for call center business. Bangalore is now coming under cost pressure, they’re coming under labor constraints so we’re seeing companies operating in India now looking to the Philippines to secure their needs," he said.