“Trump effect” on Philippine property

February 22, 2017 / By

Trump’s ‘America First’ policy has been at the forefront of the business conversation, and there could potentially be a consequential impact on the real estate market in the Philippines. In an effort to boost employment, President Trump is  determined to bring back jobs that have been outsourced to labour-rich economies such as India, China, Mexico and the Philippines. The Philippines is regarded as the biggest call centre market in the world, beating India two years ago.

The Philippines’ outsourcing & offshoring (O&O) sector grew to approximately 5 per cent of the economy by the end of 2015 and employs more than 1.1 million full-time employees. The growth of the O&O sector has driven the growth of the Philippine office property market, as developers built more than 6 million sq m office space over the last 10 years to meet the needs of these occupiers.

In the context of Trump’s protectionist leanings, the future of the Philippine property market remains uncertain. And with more than 2 million sq m of space expected to complete within the next four years, could a slowdown in the growth of the O&O sector – a consequence of jobs potentially going back to the U.S. – impact real estate in the Philippines?

To understand whether the recent directive will be able to bring back outsourced jobs to the US, it is important to look at the factors that motivated various U.S. companies to outsource these jobs in the first place:.

Labour cost. The disparity in labour costs is one of the most significant factors that attracts global companies to engage the O&O industry in the Philippines. While labour costs in the customer service industry in India are almost on par with similar types of jobs in the US, labour costs in the Philippines have remained competitive. According to the 2015 Total Rewards Survey conducted by Willis Towers Watson, labour costs in the Philippines are still a quarter cheaper than in the U.S.

Attrition rate. Another factor that contributes to lower operating costs is the low attrition rate, which lessens the resources needed to train and retrain the labour force in the O&O industry. In the same Towers Watson survey, the estimated attrition rate in the Philippines is 20 per cent, while attrition rates in both India and the U.S. remain within the range of  25 to 40 per cent.

Outsourcing & offshoring to continue to drive demand for office space
The O&O industry continues to be one of the bright spots in the Philippine economy. In an era of slow global economic activity and recovery, cost flexibility remains a top concern. The Philippines remains an attractive location given its low attrition and labour costs compared to the US. Despite Trump’s policy stance, the O&O industry is likely to grow, driven by strong government support for programmes to enhance the service-oriented skills of the local labour pool. This will continue to drive demand in the Philippine office market.

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