Rising wages and intensifying recruitment competition in Metro Manila are driving business process outsourcing (BPO) companies to expand into provincial cities across the Visayas and Mindanao, where labor and operating costs remain lower, according to real estate consultancy PRIME Philippines. The trend underscores how staffing costs are increasingly shaping office location decisions well beyond the capital.

Speaking at 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 (IT-BPO) 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 labor, for lack of a better way of saying it," Mr. Chua said. For labor-intensive BPO operations, those repeated adjustments compound across large payrolls, magnifying their effect on operating budgets.

Competition for workers in established BPO hubs is also shaping site selection, he added, as companies look for locations where they can recruit staff 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 labor basically," Mr. Chua said.

Hannah Yoshida, senior head for VisMin markets at PRIME Philippines, said BPO firms are likewise moving to establish an early presence in emerging markets to secure access to local talent pools.

"Aside from that of the competitive cost of labor, of course the movement of the BPOs are also centered on being first movers in the market. With that, they are able to capture the labor 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.

According to PRIME, expansion into smaller provincial markets remains constrained by a limited supply of Grade A office space, infrastructure gaps, and inconsistent access to utilities such as electricity and internet connectivity. In practice, those gaps have pushed occupiers toward unconventional spaces rather than stalling expansion altogether.

Mr. Chua noted that in cities such as Zamboanga and Dumaguete, some BPO firms are occupying nontraditional spaces, including the 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 is also emerging in some provincial markets as new commercial developments are completed. Mr. Chua pointed to Robinsons Land Corp.'s Robinsons Cybergate in Dumaguete, where a newly completed office building beside the mall has been fully taken up by a single BPO firm that expanded from a smaller one-story facility. Another BPO operator in the city, he added, is negotiating to occupy five to six floors of office space. How future provincial office completions are absorbed will be worth tracking as a gauge of how much unmet demand remains in these markets.

"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.

The variables to watch from here are future NCR wage decisions and the pace of infrastructure and utility improvements in provincial cities — the same factors PRIME identified as driving and constraining the shift.

— Juliana Chloe A. Gonzales

Source: BusinessWorld