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News & opinion

2 DEC 2019

What we can learn from: Futureproof urban centres

To accommodate its increasing popularity as a global outsourcing hotspot, the Philippines is creating smart, green, disaster-resilient cities. Claro Cordero Jr, Director of Research, Consulting and Advisory Services at Cushman & Wakefield, Philippines, explains why.

The Philippines has fortified its position as the call-centre capital of the world. It has replaced India as the top voice-based market in 2010, and is second only to India in non-voice complex services. These successes are creating the need for new forms of office space in new markets.

The rise of information technology-business process management (IT-BPM) has made the Philippines the top destination for business-process outsourcing. It has also made the Philippines a leading hub for global in-house centres, where a multinational chooses to centralise some of its services in a skilled but lower-cost location.

The country has a young, English-speaking, educated workforce, with neutral accents and a close affinity to Western culture. IT-BPM operations initially crowded in Metro Manila, where university graduates are plentiful. The capital also has high-grade real estate that's still cheaper than many regional peers, first within the established commercial business districts, and increasingly the emerging planned urban developments that surround Metro Manila.

Due to growth in outsourcing, the consolidated Grade A office stock in Metro Manila is currently 82m ft2 (7.6m m2) and will grow close to 96.9m ft2 (9m m2) in the next two years. The Manila office market is one of the best-performing markets in Southeast Asia, with steady growth in office rents, despite a huge jump in development completion. Yields still enjoy a relatively good spread over borrowing costs, at an annual average of 250 BPS over the past 10 years.

IT-BPM firms are now searching for space outside Metro Manila, and some are outsourcing and offshoring services in more advanced fields such as accounting, engineering, healthcare and financial services. The expansion of functions requires a strategic growth plan for IT-BPM companies.

This is changing the landscape of urban design and commercial planning in the Philippines. New urban centres are being developed in areas such as Metro Cebu and Metro Davao to accommodate industries related to the IT-BPM sector. Most are being redesigned to form smart, green, disaster-resilient cities that will address the limitations and obsolescence of Metro Manila's urban design. These emerging cities are intended to attract not just the IT-BPM sector but also alternative growth sectors that will provide sustainable development. One such forward-looking initiative is the long-term development plan of the 360 km2 (139 square mile) New Clark City.

For now, the weak global economic recovery means more demand for outsourcing, as companies look to trim costs. Multinationals are also looking to diversify location as a risk-mitigation strategy at a time of geopolitical instability, which will further drive activity in emerging markets such as the Philippines.

The proponents of these new growth cities should remember that a superior infrastructure backbone is necessary. A strong public transport system, good road connections, ample housing, advanced telecommunications, and essential utilities such as water and power will be required. The correct delivery of those assets and services will create futureproofed urban centres.

This article originally appeared in Modus Asia edition Q4 2019, under the headline What We Can Learn From Futureproof Urban Centres

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Annualised growth in asking rent in Manila