Meanwhile, the Philippines corners 15% of the global BPO market with the sector accounting for nearly 7% of the Philippines' GDP to date, compared with just 0.08% in 2000. This share is expected to keep rising. According to the World Bank, labor costs in the Philippines are only 16% of those in the US. It is not just about lower labor costs; the Philippines has a large pool of highly qualified, English- speaking professionals, with an improving and welcoming policy and regulatory environment. There has been a push into higher-value-added services, including accounting, bookkeeping and software development, that are less susceptible to automation. Overall, the BPO expansion has brought about a structural change in commercial property that will continue to drive future growth. We estimate that the BPO industry will account for 70-80% of the annual average oŸce space demand over the next five years, of which banking-related o¥shoring activities will comprise 30%. The industry’s expansion is not confined to just one location. Most BPO firms do not necessarily require central CBD locations, although accessibility to transport, retail outlets, and other support businesses like banks, hotels, and entertainment are important. This has resulted in resurgence of existing major business districts and the emergence of

alternative oŸce locations or business districts in Metro Manila that feature mixed-use developments. Other cities, like Cebu, Davao and Iloilo, where most major developers are currently expanding, are also benefiting from alternative location movement. The IT and Business Process Association of the Philippines (IBPAP) notes that while Manila and Cebu are mature BPO locations already, continued expansion should pave the way for next-wave cities in other provincial areas. The association projects a total full-time BPO employee count of 2.6 million by 2020, more than double current levels. If this target is reached, then the BPO industry alone would likely need at least another 50 msf in leasable space from 2017 to 2020. Other countries in Southeast Asia, such as Malaysia, Indonesia and Vietnam are gradually establishing themselves in the global outsourcing landscape, with Kuala Lumpur (Malaysia) and Ho Chi Minh City and Hanoi (Vietnam) being ranked amongst the top 25 outsourcing destinations in the world. In addition to Kuala Lumpur, where Indian IT major Tech Mahindra is launching a center of excellence for Google Technologies, Malaysia has developed a major o¥shoring hub in Penang, where a new IT-BPM park is being built to house as many as 21,000 new jobs by 2020.

THE DAWN OF A NEW ERA The shift in consumer behavior, emergence of fintechs, rising costs, and new regulations are all factors making banks rethink their strategies. Consequently, we expect to see the emergence of a new wave of financial and insurance companies supercharged with eŸciency and sophistication. While volatility is expected to persist in the macro landscape, we anticipate the BFSI sector to remain a growth catalyst across the region, with the potential to add about 350,000 jobs per year across major cities in the region. In real estate, this would translate to an additional 130 msf of oŸce space requirements in major cities through 2020. Even the BPO sector faces imminent disruption as back-oŸce operations become more eŸcient through automation and specialization. However, both India and the Philippines are well positioned as the industry rides the waves of these technological breakthroughs. Notably, both countries have the requisite soft skills, aside from traditional BPO skills, that should drive BPO sector growth in the future. We estimate the BPO sector will generate another 100 msf of oŸce space requirements in these hubs through 2020, of which 30-40% will be attributed to banking-related o¥shoring activities. Ultimately, the beneficiaries in this new environment will be the consumers, who will see a higher quality of service from BFSI institutions. As end-users of back-oŸce services, BFSI companies will see more eŸcient solutions that will reduce costs, and allow them to focus on their competitive advantages.

SIGRID G. ZIALCITA Managing Director Research and Investment Strategy, Asia Pacific T: +65 6232 0875 sigrid.zialcita@cushwake.com


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