Asia-Pacific solidifies position as global offshoring hub: Knight Frank report
LONDON, UNITED KINGDOM — The Asia-Pacific region is solidifying its position as a global offshoring powerhouse, and its compelling blend of cost-effectiveness and skilled labor is attracting businesses worldwide.
A recent report by global real estate agency Knight Frank provides insights into the region’s competitive edge and the dynamic landscape of offshoring.
The Q4 2023 Knight Frank Global Corporate Real Estate Sentiment Index survey revealed a notable shift towards offshoring activities, with projections suggesting an increased reliance on this strategy to manage costs from 2024 onwards.
The global offshoring market is expected to expand from $245.9 billion in 2022 to $544.8 billion by 2032, boasting an 8.5% compound annual growth rate (CAGR). Asia-Pacific is poised to experience the highest CAGR at 10.2%, with its market size projected to more than double from $72.7 billion in 2022 to $185.1 billion by 2032.
Several factors, including rising labor costs, increased demand for skilled workers, and significant digital investments by market participants, drive this surge in offshoring to Asia-Pacific.
Offshoring also emerged as a critical driver propelling office demand across the region, particularly in India, the Philippines, Malaysia, and Vietnam.
Despite a 2.4% decline in overall rents and an increase in the average vacancy rate by 1.24% for 2023, the offshoring industry in Asia-Pacific continues to thrive. Corporate occupiers are increasingly prioritizing offshoring functions as a strategic avenue for achieving growth and innovation at lower costs.
Strategic resource allocation has been crucial in mitigating rental declines in markets such as Vietnam and the Philippines, while rents have strengthened in Malaysia and India despite higher vacancies.
The competitive real estate costs within the Asia Pacific offshoring market present a strong incentive for businesses to pursue consistent offshoring activities. Occupiers stand to save an average of $70.86 per square foot of office space in the four key markets compared to mature markets, translating to a 54% decrease in annual occupancy costs.
These cost advantages are expected to fuel the growth of the offshoring industry in the region as businesses seek to optimize expenses and maintain a competitive edge in the global market.
Knight Frank’s report also identified two emerging offshoring hubs in the region: Cebu, Philippines, and Penang, Malaysia.
Cebu, known as the “Queen City of the South,” saw phenomenal economic growth bolstered by a highly educated workforce, English proficiency, and strong local government support for the offshoring sector. The city’s strategic location, coupled with competitive real estate costs and a vibrant talent pool, makes it an attractive destination for businesses looking to outsource IT-BPM services.
Penang, on the other hand, dubbed the “Silicon Valley of the East,” established itself as a key player in Malaysia’s offshoring market, hosting a significant number of Global Business Services (GBS) companies. The state’s emergence as a major offshoring hub is further facilitated by the government’s initiatives to foster the digital economy, making it an attractive option for companies looking to leverage the region’s technological capabilities and skilled talent pool
As businesses continue to navigate the challenging macroeconomic environment, the Asia-Pacific region stands out as a hub of opportunities and innovative solutions. It enables companies to thrive in the global market while optimizing expenses.
