Davao Office Market Update

Davao is turning itself into an even sweeter spot for BPO ventures and foreign investments, catching up to the top outsourcing and offshoring destinations in the country. As Metro Manila quickly fills to the brim and runs low on premium-grade office supply due to the constant high demand, the city in the south is more than ready to absorb the spillover of opportunities from the metropolis. Investors and firms that are looking to break away from the country's capital could find the city a viable investment destination aside from Cebu. As Davao opens its doors to urban development and a buoyant real estate market, it offers a great blend of a corporate environment mixed with laid-back countryside living in a tourist hotspot. Industry experts can see so much potential in Davao as an emerging top IT-BPO service destination. The wealth of opportunities that can be tapped here, however, are not without some challenges. Here's a more in-depth look into Davao's office market:

Office market strengths and developments

The completion of the Abreeza Corporate Center put Davao in the investment map as an emerging BPO location outside Metro Manila. About 3 years after developers have seriously considered the city's potential for office development, numerous microdistricts have been established (Lanang BizPark, Damosa IT Park, SM Lanang Premier, Davao Finance Center, Abreeza Complex, Pryce Business Park, Filandia IT Center, Matina IT Park, Matina Town Park, Felcris Centrale), along with various PEZA zones.

With several BPO hubs and business districts developed throughout Davao, various contact centers have been set up in the city. The BPO sector's services have then expanded into data entry/transcription, software, graphics, and content development, as well as engineering and design. The service expansion has helped sustain the growth momentum for BPO and KPO as well.

Top BPO companies such as Convergys, Concentrix, Ibex Global, and VXI Global have already set up their offices in the city. Other key players in the industry who may be interested to consider entering the Davao office market soon include the top guns such as Accenture, JP Morgan Chase, SPi Global, and TeleTech.

The BPO office supply in 2013 came to approximately 66, 600 sq m., and it has since grown steadily. Currently, the available BPO office space is about 92,400 sq m. Considering the high demand and robust market activity, about 47,000 sq m. of office supply will be added to the existing stock within the next 2 years. By 2017, the BPO office supply is anticipated to grow to as much as 139, 800 sq m. With this expansion in Davao's office market, the city is poised to become a new BPO frontier.

For the second half of 2014, office vacancy in Davao was rated at 2.07%. The vacancy rates quickly rose to 15.89% just in the first half of 2015, with the completion of new office spaces. Upcoming office supply and major office developments include the 4,810-sq m. Ayala Business Center at Matina Town Square (Q1 2016), the 14,000-sq m. Matina IT Park Building 2 (Q3 2016), and the 28,620-sq m. Davao Finance Center at the Davao Park District (Q4 2017).

Aside from Davao's expanding office supply, what makes the city a good location for BPO and other investments is not just the lower cost of living here but also the lower cost of doing business in this city. The business cost isn't just significantly lower than Metro Manila rates. Upper net rental prices in Davao (PhP 480/sq m.) are, in fact, far more enticing than Cebu's ongoing rates of PhP 695/sq m. The lowest net rental rate in Davao is at PhP350/sq m.

With low crime rates, Davao is hailed as one of the safest places in the country, thanks to good governance and outstanding public service. Aside from being a peaceful location with clean water and fresh air, the city is also known for its tropical climate and predictable weather, as it is barely visited by typhoons and is mostly safe from natural disasters.

The city offers not just quality office spaces and an amiable corporate environment but also a pool of highly educated and talented workers. The city is a reliable source of graduates specializing in various fields of studies such as engineering, IT, business administration, and medicine.

Opportunities and challenges

Landlords looking to building Davao should focus on building BPO-ready office spaces, which won't only cater to BPO firms but will also be attractive options for other investments and businesses. These offices are designed to meet the modern business needs and match the current office trends, focusing more on efficiency instead of the traditional setup.

Developers should not just build offices with modern business amenities and 24/7 support facilities but should also aim to create a live-work-play environment. Putting together various residential options, office spaces, shopping outlets, and leisure venues just in one easily accessible area would make Davao a forward-thinking BPO destination.

The local government should not just maintain peace and order but should also enforce and create business-friendly policies to make Davao more competitive as a BPO location. Landlords should capitalize on PEZA zones that offer more than a few benefits of their own, including tax incentives.

To maintain the BPO growth momentum in the area, key BPO standards and requirements should be met. A reasonable cost infrastructure should be maintained. Connectivity should be improved through fiber optics, along with other telecommunications facilities. Aside from having improved infrastructure, workforce availability through education and training and an amiable business environment through accessibility and efficiency should be the main priority as well.  

All in all, it's not anything new that Davao is already being considered as an alternative BPO and office destination. What remains to be seen is if Davao can sustain this interest by delivering quality infrastructure and support services to keep key players coming.