Quarterly Property Market Report
PHILIPPINES 2Q 2016
August 9, 2016
The Philippine economy accelerated by 6.9% during the first Buoyant economy drives quarter of the year, the fastest in East Asia. The expansion is primarily attributed to sustained growth in investments and growth in property sector household expenditures complemented by ramped up public infrastructure spending. The prospects for economic growth in Julius Guevara Director | Research & Advisory the second half of the year remain rosy given the benign inflation environment, continuously improving job situation, modest increase in overseas Filipino workers‘(OFW) The accelerated economic growth during the second remittances, and higher foreign direct investment (FDI) inflows. quarter was echoed by the office property market, where high occupancy levels have been sustained by the BPO Office. An estimated 75,000 sq m of new office net usable area industry. An increase in tourist arrivals failed to uphold the was completed in the second quarter of this year, bringing Metro hotel market, where a softer gaming market and new Manila’s office stock to around 7.7 million sq m. Makati CBD’s completions will suppress occupancy rates in the short office market remains tight due to the lack of new supply. term. The resurgence of the manufacturing sector has led to Vacancies in Fort Bonifacio should remain low over the next increased demand for industrial space, with a further boost set to come from the implementation of vital infrastructure twelve months due to sustained demand from outsourcing firms projects. Meanwhile, the outlook for the residential which tempers the significant amount of additional office space condominium sector remains subdued amid oversupply being completed in the area. concerns. Residential. Six projects were originally slated for delivery in 2Q 2016 but only one was completed. The delay in completions is Forecast at a glance attributed to the acute lack of skilled labor in construction. Rents in the major CBDs continue to correct amid heightened levels of unit completions in the outskirts.
Demand Hotel and Leisure. More than 900 new hotel rooms were The BPO market continues to lift the office completed in Metro Manila during the first six months of 2016. market, with no sign of letting down. Hotel occupancy rates in Metro Manila declined marginally despite higher tourist arrivals and expenditures. International tourist arrivals have steadily been growing since 2010 and the Philippines has the potential to become a major tourist Supply destination in the region but the country lacks the necessary Construction delays due to the lack of skilled infrastructure to compete with other ASEAN destinations and labor will continue to affect the new supply to attract more tourists. Developers should continue to invest in be delivered for all sectors. hotels in the near term but watch out for oversupply of casinos in the medium term.
Vacancy rate Residential condominiums in the core areas Industrial. Total industrial stock in the Cavite-Laguna-Batangas will continue to see rising vacancies amid a area reached almost 6,900 hectares as of 1H2016. Colliers deluge of new supply in the fringe areas. sees supply in the area increasing over the near- to medium- Meanwhile, delays in office completions will term due to the government’s push to attract more lead to even lower vacancies for office manufacturing investments. The current administration’s thrust to buildings. aggressively implement infrastructure projects outside Metro
Manila bodes well for the thriving industrial sector in the fringe Rent Rates for condos are still seen to continue to provinces. The government’s efforts to attract more soften because of the new supply coming manufacturing investments should lead to higher demand for up. While office demand is strong, all-time industrial lots and this, coupled with limited supply, should raise highs in office construction will rein in sharp land values in the region. upward rental rate movements. Meanwhile, improvements in industrial rents will continue.
PH economy up 6.9% in 1Q; conditioning units (+49%) and office machines and other data processing equipment (111%). The services indicators point to faster 2Q growth sector, which expanded by 7.9% from January to March The Philippine economy expanded by 6.9% during the of this year, was propelled by real estate, renting, and first quarter of the year. During the period, the country business activities (RERBA); transportation, storage, registered the fastest GDP growth amongst the major and communications; banking and finance; and retail economies in East Asia. For the first time in nearly three trade. The Other Services subsector which includes decades, the Philippines outpaced China’s growth. hotels, restaurants, and other tourist-related services rose by 8%. Agriculture continues to underperform, The economic expansion is primarily attributed to declining by 4.4% due mainly to the adverse effects of sustained growth in investments and household the El Niño phenomenon. expenditures complemented by ramped up public infrastructure spending. Gross fixed capital formation, The prospects for economic growth in the second half of which refers to combined domestic and foreign the year remain rosy given the benign inflation investments, grew 26% during the quarter. This is the environment, continuously improving job situation, highest growth recorded in the past 23 quarters and modestly increasing in OFW remittances, and higher indicative of rising investor confidence in the country. foreign investment inflows. Household consumption increased by 7% due to low- to Inflation during the second quarter of the year rose to stable prices, improved employment figures (January 1.5% from 1.1% posted in the previous quarter. Average 2016 unemployment of 5.8% is the lowest in 10 years), inflation recorded for the first half of the year is 1.3%, modest growth in overseas Filipino workers (OFW) well below the government’s range target of 2-4% for remittances, and a windfall from election-related 2016-2018. A poll conducted by the central bank in June spending. The latter also propelled public infrastructure showed that private sector economists are projecting an expenditures which grew by almost 40%, a turnaround average inflation of 1.8% for the year due to low oil from a 23% decline posted in the first three months of prices, cheaper utility rates, and sluggish global 2015. Despite uncertainties in the global economic economic growth. landscape, exports still managed to grow by 5.2% in the first quarter of the year. Semiconductor exports, which The April 2016 Labor Force Survey (LFS) showed that account for 40% of the country’s merchandise exports, employment improved to 93.9% from 93.6% recorded in grew by 15%. the same period last year. The total number of employed Filipinos rose to 39.9 million from 39.2 million The industry sector rose by 8.7% from 5.3% in the first a year ago. The agriculture sector lost 1.5 million jobs quarter of 2015. The growth was driven by construction but this was offset by additional jobs generated by (+10.8%) and manufacturing (+9.1%) subsectors. Private Industry (+840,000) and Services (+1.41 million) construction recorded a 7.1% growth complemented by sectors. increasing demand for office equipment such as air-
Economic Indicators Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015* 1Q 2016 Gross National Product 6.1 6.0 6.5 8.4 3.2 6.4 7.5 5.8 5.8 7.6 Gross Domestic Producta 6.6 4.2 1.1 7.6 3.9 6.8 7.2 6.1 5.9 6.9 Household Final Consumption Expenditure 4.6 3.7 2.3 3.4 6.1 6.6 5.7 5.4 6.3 7.0 Government Final Consumption Expenditure 6.9 0.3 10.9 4.0 1.0 15.5 7.7 1.7 7.8 10.0 Capital Formation -0.5 23.4 -8.7 31.6 8.1 -5.3 29.9 5.4 15.1 23.8 Exports 6.7 -2.7 -7.8 21.0 -4.2 8.5 -1.1 11.3 9.0 6.6 Imports 1.7 1.6 -8.1 22.5 0.2 4.9 5.4 8.7 14.0 16.2 AHFFb 4.7 3.2 -0.7 -0.2 2.7 2.8 1.1 1.6 0.1 -4.4 Industry 5.8 4.8 -1.9 11.6 2.3 7.3 9.3 7.9 6.0 8.7 Services 7.6 4.0 3.4 7.2 5.1 7.4 7.2 5.9 6.8 7.9 Average Inflationc 2.9 8.3 4.1 3.9 4.6 3.2 3.0 4.1 1.4 1.1 Budget Surplus/Deficit (PHP Bn) -12.4 -68.1 -298.5 -314.4 -197.7 -242.8 -164.1 -73.1 -121.70 -112.49 PHP:USD (Average) 46.1 44.7 47.6 45.1 43.3 42.1 42.5 44.4 45.4 47.3 Average 91-Day T-Bill Rates (%) 3.4 5.2 4.0 3.7 1.4 1.6 0.3 1.2 1.8 1.6
Source: Philippine Statistics Authority, Bangko Sentral ng Pilipinas, Bureau of the Treasury aat constant 2000 prices bAgriculture, Hunting, Forestry, Fishing cat constant 2006 prices
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OFW Remittances* Housing licenses continue to 30 rebound 25 Applications for licenses to sell for housing continued to
20 increase in 2016, after a net decline at the end of 2015. The total number of licenses issued by the Housing and 15 Land Use Regulatory Board (HLURB) for the first five
billion billion USD 10 months of the year reached 144,753, up 52% from the 95,532 units issued during the same period in 2015. The 5 growth was driven by the more than four-fold increase in - the number of units applied for by developers to comply
with the balanced housing unit requirement of the
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 government. For the past two quarters, developers have 1Q 2Q 3Q 4Q become more aggressive in complying with the
*as of May 2016 government’s requirement of developing an area for Source: Bangko Sentral ng Pilipinas socialized housing equivalent to at least 20% of the total Remittances from OFWs for the first five months of the subdivision area. year reached USD12 billion, up 2.7% year-on-year. The Open Market Housing posted a 70% growth with the bulk of the remittances came from the United States, number of new applications reaching 14,859 from 8,745. Saudi Arabia, the United Arab Emirates, Singapore, Licenses applied for under the mid-income and Japan, and Qatar. The central bank attributed the economic housing segments grew by 60% and 18%, continued growth in remittances to steady inflows from respectively. Mid-income housing remains a growth land-based OFWs; initiatives of banks and non-bank area, having posted a 97% growth during the first three remittance service providers to expand their international months of the year. The Socialized Housing segment and domestic market coverage; and sustained demand recorded an 11% growth, slower than the 81% increase for OFWs. posted from January to March 2016. Foreign direct investments (FDI) for the first four months of the year totaled USD3.5 billion, almost triple the USD1.23 billion in FDI inflows posted during the same HLURB Licenses to Sell* period in 2015. The fresh investments were infused mainly to finance and insurance; construction; 500,000 80% 450,000 accommodation and food service; real estate; and 60% 400,000
manufacturing activities. 350,000 40%
The country’s economy is generally believed to have 300,000 20% grown by at least 7% in the second quarter owing to the 250,000 0% additional boost provided by election spending which 200,000
number number of units 150,000 usually peaks in April, a month prior to elections. But the -20% 100,000 -40% country’s economic managers have reduced the 2016 50,000 GDP growth target to 6-7% from the previous 6.8-7.8% - -60%
goals set by the Aquino administration as they expect
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 slower growth for the second half of the year. The inter- 1Q 2Q 3Q 4Q YoY Change (RHS) agency Development Budget Coordination Committee (DBCC) said the drag will come from weak agricultural *as of May 2016 Source: Housing and Land Use Regulatory Board output, dampened external demand, and the tapering-off of election-related spending. Strong macroeconomic fundamentals continue to push the demand for real estate loans, with banks’ exposure in the property market growing to PHP1.331 trillion as of March 2016 from PHP1.09 trillion in the same period the previous year. Real estate loans for commercial use account for 65% of the total or PHP869 billion while residential loans represent the remaining 35% or PHP462 billion.
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Comparative Land Values (PHP / sq m) LOCATION 1Q 2016 2Q 2017 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY) Makati CBD 378,000 - 668,000 394,000 - 696,000 4.23 448,000 - 793,000 13.85 Fort Bonifacio 315,000 - 574,000 326,000 - 595,000 3.60 367,000 - 670,000 12.57 Oritgas Center 140,000 - 237,000 146,000 - 246,000 4.00 164,000 - 277,000 12.64
Source: Colliers International Philippines Research
Applications for the mid- and high-end condominium Land value appreciation slows segment grew by 64% from a modest 18% registered Land Values from January to March of this year while those under the low-cost condominium category declined by a third to 700,000 1,365 units. Commercial condominium applications reached 1,819 units from January to May of this year 600,000 500,000 from 1,338 units in the same period in 2015. 400,000 Applications under the Commercial Subdivision segment
increased from 103 to 167 while those under the 300,000 PHP / m sq Memorial Park category grew by 39% to 26,371 units 200,000 from 19,019 units. 100,000
Republic Act No. 10884 or The Act Strengthening the 0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q16
Balanced Housing Program lapsed into law on July 17, 1Q16
4Q16F 1Q17F 2Q17F 2016. This amends the law to include provisions to define 3Q16F socialized housing condominiums or medium-rise Makati CBD Fort Bonifacio Ortigas buildings, which were previously not included. This is a Source: Colliers International Philippines Research game changer since it now allows the construction of the lower priced socialized housing in urbanized areas, Makati CBD land values rose by 4.2% in the second where housing has become very expensive, and quarter of the year, slower than the 4.6% rise posted in provides more affordable financing schemes for those 1Q 2016. Fort Bonifacio values increased at a slower that qualify. Furthermore, this amendment lowers the 3.6% to PHP460,865 per sq m. Land value appreciation socialized housing development compliance for in Alabang decelerated to 3.8% from 8% in 1Q 2016. horizontal development from 20% to 15%, while vertical Prices in Alabang averaged PHP132,137 per sq m. developments now have a socialized housing compliance Colliers projects land values in major business districts of 5%, regardless of whether the developer avails of will rise between 13% and 17% over the next 12 months incentives. These amendments will lead to an increase in due to the lack of available land assets coupled by socialized housing developments, where the housing growing investor interest. backlog is the largest.
HLURB Licenses to Sell SEGMENT JAN – MAY '15 JAN - MAY '16 % CHANGE (YoY)
Balanced Housing Compliance Units 3,142 13,542 331 Socialized Housing 9,393 10,439 11 Economic Housing 19,333 22,901 18 Mid-Income Housing 1,460 2,339 60 Open Market Housing 8,745 14,859 70 Low-Cost Condominium 2,052 1,365 -33 Mid- and High-End Condominium 22,980 37,631 64 Commercial Condominium 1,338 1,819 36 Farmlot 40 - -100 Memorial Park 19,019 26,371 39 Industrial Subdivision 126 - -100 Commercial Subdivision 103 167 62 TOTAL (Philippines) 95,532 144,753 52
Source: Housing and Land Use Regulatory Board
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plagued many of the projects now being built, leading to a significant decrease in actual completions. This will Office mean that the market will continue to be tight until 2017, so office developers will not need to worry much about Buildings in fringe areas dominate falling rental rates, at least for the short term. completions in 2Q Makati CBD vs. Metro Manila Office Stock An estimated 75,000 sq m of new office net usable area (NUA) was completed in the second quarter of this year, 16,000,000 12% 14,000,000 bringing Metro Manila’s office stock to around 7.7 million 10%
12,000,000
8% sq m. Polaris in Alabang is the largest building completed 10,000,000 offering an NUA of 23,800 sq m, representing one-third 8,000,000 6% of the total additional space delivered during the period. 6,000,000
NUA (sq NUA(sq m) 4% The completion of Ortigas Technopoint One raised 4,000,000 2% Ortigas Center’s office stock by around 14,500 sq m. 2,000,000
Other buildings that went online from April to June 2016 - 0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
are in the peripheral areas of major business districts, 2000
2017F 2018F 2019F 2020F including MJ Corporate Plaza (16,600 sq m) in Chino 2016F Roces, Makati; UP Town Corporate Center (5,400 sq m) Makati CBD Stock (LHS) Metro Manila Stock (LHS) Total Stock YoY Change (RHS) in Quezon City; and Starmall Las Piñas IT Hub (14,400 sq m) in Las Piñas. The delivery of additional office Source: Colliers International Philippines Research space in the fringe areas indicates the growing demand for office space outside the major business districts. Vacancies in Makati CBD and Fort No building was completed in Fort Bonifacio in 2Q 2016, Bonifacio continue to decline unlike in the previous quarter where the business district Makati CBD’s office market remains tight due to the lack accounted for more than half of the new office space. of new supply. The vacancy rate in Makati CBD for 2Q The completion of Metrobank Center, originally 2016 was almost flat at 1.65%, down by 3 basis points scheduled in the second quarter, has been pushed back from the previous quarter. Vacancies in premium to 4Q 2016. Other office buildings in Fort Bonifacio buildings increased to 0.5% from 0.3% while those for expected to go online this year include Inoza Tower, Grade B buildings rose to 1.3% from 1.1%. The Vista Hub, Citibank Plaza, and W City Center. Fort increases, however, were offset by a decline in Bonifacio covers nearly half of the total amount of office vacancies among Grade A buildings, including Petron space projected to go online this year. We expect One Megaplaza and Tower 6789. Overall vacancy in Makati Felicity Center in Quezon City and Scape in Pasay, both CBD has been declining since 4Q 2015. Colliers initially set for completion in 2Q 2016, to go online in 3Q expects vacancies in the business district to continue to 2016. drop since no new office buildings are coming up until 2018, apart from the reintroduction of the renovated Moving forward, Colliers expects that the volume of new Insular Life Building in 2017. office space completed by the end of 2016 will be much lower than initially projected. Construction delays have
Forecast New Office Supply (Net Useble Area) LOCATION AS OF 2015* 2016F 2017F 2018F 2019F 2020F TOTAL Makati CBD 2,853,034 13,250 37,891 29,962 40,300 183,453 3,157,891 Ortigas Center 1,380,282 14,503 60,617 45,673 236,145 - 1,737,220 Fort Bonifacio 1,170,503 271,412 345,649 224,319 176,893 29,634 2,218,411 Eastwood 300,264 - - - 28,220 - 328,484 Alabang 396,541 35,562 95,658 23,268 70,019 35,010 656,056 Mandaluyong 284,550 - 74,202 50,215 72,900 - 481,866 North EDSA-Triangle 341,855 98,559 69,787 131,098 33,666 39,894 714,861 Pasay City Reclamation 257,422 79,798 55,493 180,496 31,307 159,572 764,089 Other locations** 526,754 41,226 159,618 199,122 153,643 120,343 1,200,706 TOTAL 7,511,205 554,310 898,915 884,152 843,093 567,906 11,259,582
Source: Colliers International Philippines Research *Revised figures **Manila, Pasay, Quezon City, and other fringe locations
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Comparative Office Rental Rates (PHP / sq m / month) Makati CBD (based on net useable area) GRADE 1Q 2016 2Q 2016 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY) Premium 1,120 -1,430 1,130 – 1,440 0.98 1,210 – 1,540 6.86 Grade A 720 – 1,100 720 – 1,110 0.46 800 – 1,220 10.08 Grade B 590 - 840 590 - 840 0.14 620 - 880 4.49
Source: Colliers International Philippines Research
Makati CBD Comparative Office Vacancy Rates (%) Relocations from established CBDs to emerging areas GRADE 1Q 2016 2Q 2016 2Q 2017F such as Aseana City are now being seen, which could be attributed to cost considerations given the lower Premium 0.31 0.46 0.37 rates in these emerging areas. This trend is seen to Grade A 4.58 3.71 3.02 continue moving forward. Grade B & Below 1.05 1.25 1.02 All Grades 1.68 1.65 1.34
Source: Colliers International Philippines Research Stable growth in rental rates across
major CBDs Makati CBD Office Supply and Demand For the second quarter of 2016, premium rental rates in
200,000 20% Makati CBD reached PHP1,293 per sq m a month, up 18% by 1% QoQ. Rents also grew faster among Grade A 150,000
16% buildings, with average rent reaching PHP 919 per sq m
100,000 14% 12% from PHP915 per sq m a month, representing a 0.4% 50,000 10% rental rate growth. Rents for Grade B buildings were 8%
NUA (sq NUA(sq m) - 6% essentially flat at PHP843 per sq m. Rates in Makati (50,000) 4% CBD continue to rise due to the lack of available office 2% space coupled with sustained demand from both BPO (100,000) 0%
and non-BPO companies. Colliers sees rents in the
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2017F 2016F business district rising between 5% and 10% over the
New Supply During Year (LHS) Take-up During Year (LHS) next twelve months. Vacancy at Year-End (RHS) In Fort Bonifacio, Grade A office rents averaged Source: Colliers International Philippines Research PHP897 per sq m a month, up by 0.3% QoQ. Grade B rents rose 1.8% QoQ to PHP782 per sq m. Colliers expects rents in Grade A buildings to accelerate by 8% Vacancies among Fort Bonifacio office buildings dropped to 10% over the twelve months. from 2.6% to 1.7% due to strong leasing in Grade A buildings such as Net Park, SM Aura, One World Square, Average rents in Grade A buildings in Ortigas Center and Net-1 Center. The strong take-up among Grade A reached PHP667 per sq m from PHP663 in the first buildings more than offset the rise in vacancies in Grade quarter, representing a 0.5% growth QoQ. Grade B B buildings. Fort Bonifacio has long established its rents rose 0.6%. We project that rents in Ortigas Center position as the country’s major hub for higher value will increase by 6-10% over the next twelve months. Knowledge Process Outsourcing (KPO) services. Colliers predicts vacancies in Fort Bonifacio will remain at around 1.7% over the next twelve months due to sustained demand from outsourcing firms, which should temper the significant amount of additional office space being completed in the area. In the past few years demand has usually picked up during the second half, thus it could be surmised that availability would continue to tighten by the end of the year. Colliers has also observed strong pre- leasing activity in some of the buildings that will only be completed in the next 12 months.
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Comparative Office Capital Values (PHP / sq m / month) Makati CBD (based on net useable area) GRADE 1Q 2016 2Q 2016 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY) Premium 161,000 - 188,000 165,000 - 193,000 2.51 178,000 - 208,000 7.79 Grade A 95,000 - 135,000 98,000 - 139,000 3.01 110,000 - 157,000 12.97 Grade B 69,000 - 100,000 71,000 - 103,000 2.85 75,000 - 109,000 5.11
Source: Colliers International Philippines Research
Capital value growth continues to exceed rental rate growth Premium office space in Makati CBD yielded an average price of PHP179,163 per sq m, a 2.5% increase from to the first quarter of 2016. Values for Grade A buildings increased by 3% to end up with an average value of PHP118,450 per sq m. Grade B buildings posted a 2.9% growth QoQ to PHP87,082. Colliers sees Makati CBD capital values growing between 5% and 13% over the next twelve months. Grade A capital values in Fort Bonifacio averaged PHP133,175 per sq m, up 1.4% QoQ. The growth recorded is slower than the to 4.6% increase in the first quarter of the year. Grade B capital values rose 2.8% QoQ. Colliers projects capital values for Fort Bonifacio buildings will grow between 7% and 12% over the next twelve months. In the short term, Colliers sees both land and constructed office space capital values increasing at a faster pace compared to rental rates, leading to a further yield compression. Interest rates are not seen to significantly increase in the near future due to global conditions, giving developers and investors continuous access to capital for their acquisitions. This yield compression will push developers to look into developing in emerging CBDs such as Aseana City and Arca South, where land values are still much lower and more attractive yield-wise compared to Makati CBD and Fort Bonifacio.
Makati CBD Office Capital Values
250,000
200,000 150,000 100,000
PHP / m sq / month 50,000
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1Q16 2Q16
3Q16F 4Q16F 1Q17F 2Q17F
Premium Grade A Grade B/B-
Source: Colliers International Philippines Research
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Makati CBD, Fort Bonifacio Residential vacancies continue to rise Delays in condo completions Makati CBD Comparative Resi. Vacancy Rates (%) suppress supply levels GRADE 1Q 2016 2Q 2016 2Q 2017F Luxury 8.33 9.79 11.90 Only one of the six projects originally slated for delivery Others 9.76 10.41 11.84 in 2Q2016 was completed – the Alphaland Makati Tower All Grades 9.58 10.33 12.29 with 480 units. This represents a delay of more than
2,300 units from being added to the condominium stock. Source: Colliers International Philippines Research The delay in completions is attributed to the acute lack of Makati CBD Residential Vacancy skilled labor in construction. General contractors are feeling the pinch in the lack of labor, given the high 18% number of construction projects being pursued not just in 16% Metro Manila but all over the country. Delays are also 14% 12% seen in all property sectors, with residential and office 10% being the most affected. The problem in skilled labor is 8% also exacerbated by the desire of these laborers to seek 6% higher paying jobs abroad, lowering the number of 4% employable labor in the country. 2% 0%
Apart from the six projects that have been delayed, some
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1Q16 2Q16
4Q16F 1Q17F 2Q17F of the projects that are likely to be completed over the 3Q16F remainder of the year are The Stratosphere and Park Makati CBD Residential Vacancy terraces Tower 3 in Makati CBD; the Avida CityFlex
Towers BGC Tower 2 and The Venice Luxury Source: Colliers International Philippines Research residences-Emanuele in Fort Bonifacio; and Sonata Premiere Residences in Ortigas Center. During the second quarter of 2016, residential condominium vacancies in Makati CBD grew from 9.6% Makati CBD Residential Stock to 10.3%. The Premium segment posted the largest increase in vacancy to 9.8% from 8.3%. Vacancies in 30,000 25% Grade A units also rose to 7.7% from 7.4%. Among the
25,000 20% major contributors to increasing vacancies in Makati
20,000 CBD is the delivery of new units in its fringes and other 15% major CBDs like Fort Bonifacio. 15,000 10% Overall vacancy in Fort Bonifacio rose to 9.2% from 10,000 number number of units 8.6% as vacancies increased across all segments. 5,000 5% Vacancies in Premium buildings rose to 9% from 8.7%
- 0% while those in Grade A and Grade B segments rose to
8.5% and 10.5%, respectively. Colliers sees a
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1Q16 2Q16
4Q16F 1Q17F 2Q17F 3Q16F significant rise in vacancies in Fort Bonifacio residential
Residential Stock (LHS) YoY Change (RHS) buildings given the completion of a significant amount of condo units. We project that vacancies in Fort Bonifacio Source: Colliers International Philippines Research will swell to 11.1% from 9.2% over the next twelve months. Nearly 60% of the total number of additional
Forecast Residential New Supply LOCATION AS OF 2015 2016F 2017F 2018F 2019F TOTAL Makati CBD 19,337 3,660 3,100 1,072 598 27,767 Rockwell 4,159 - 346 492 269 5,266 Fort Bonifacio 22,206 6,730 4,125 2,311 2,075 37,447 Ortigas 16,250 1,355 899 422 570 19,496 Eastwood 7,548 - 988 - 632 9,168 TOTAL 69,500 11,745 9,458 4,297 4,144 99,144
Source: Colliers International Philippines Research
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Metro Manila Residential Condominium Comparative Luxury 3BR Rental Rates (PHP / sq m / month) LOCATION 1Q 2016 2Q 2016 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY) Makati CBD 590 - 1,140 580 - 1,130 -1.22 550 - 1,070 -5.08 Rockwell 810 - 1,100 800 - 1,100 -0.38 790 - 1,080 -1.61 Fort Bonifacio 670 - 1,070 660 - 1,050 -1.48 620 - 990 -6.11
Source: Colliers International Philippines Research units to be completed this year will be in Fort Bonifacio. Residential rental rates continue to soften across major business districts. Rates in Makati CBD dropped by Overall vacancy in Ortigas Center dropped to 7.2% from 1.2% to PHP858 per sq m a month from PHP869 per sq 8.5%. Among the business districts covered, only Ortigas m. The decline is slower than the 1.6% drop recorded in Center recorded a decrease in vacancies. Take-up in 1Q 2016, reflecting slow absorption amid lack of new both Grade A and B segments was strong during the completions. Rents also dropped in Fort Bonifacio (- period, particularly for the latter where vacancies 1.5%) and Rockwell (-0.4%). Colliers sees the continued dropped to 6.4% from 8.3%. decline in rental rates given the additional 10,000+ units Rental rates continue to soften slated for completion for the remainder of the year in the major CBDs. Over the next twelve months Colliers sees Prime 3BR Units Residential Rents rental rates in Makati CBD, Fort Bonifacio, and Ortigas Center declining between 4% and 7%. 1200 With these trends, condominium investors whose units
1000 are now being completed face a very challenging rental 800 market environment. In order to assist their unit buyers 600 in achieving their expected rental yields, residential condominium developers should explore creative rental 400 models. PHP / m sq / month 200
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1Q16 2Q16
4Q16F 1Q17F 2Q17F 3Q16F Makati CBD Rockwell Fort Bonifacio
Source: Colliers International Philippines Research
Comparative Residential Lease Rates (High-Rise) 3BR, Semi-Furnished to Fully Furnished LOCATION MINIMUM AVERAGE MAXIMUM Apartment Ridge/Roxas Triangle Rental Range (PHP / mo) 150,000 200,000 300,000 Average Size (sq m) 286 303 330 Salcedo Village Rental Range (PHP / mo) 100,000 175,000 260,000 Average Size (sq m) 165 234 332 Legaspi Village Rental Range (PHP / mo) 130,000 200,000 260,000 Average Size (sq m) 142 206 296 Rockwell Rental Range (PHP / mo) 140,000 180,000 280,000 Average Size (sq m) 127 189 285 Fort Bonifacio Rental Range (PHP / mo) 120,000 200,000 260,000 Average Size (sq m) 138 223 310
Source: Colliers International Philippines Research
9 Research & Forecast Report | 2Q 2016 | Colliers International
Makati CBD Comparative Residential Lease Rates for Exclusive Villages (PHP / mo) 3BR - 4BR, Unfurnished to Semi-Furnished VILLAGE LOW HIGH Forbes Park 250,000 650,000 Dasmarinas Village 230,000 600,000 Urdaneta Village 250,000 360,000 Bel-Air Village 230,000 350,000 San Lorenzo Village 140,000 250,000 Magallanes Village 120,000 250,000 Ayala Alabang Village 130,000 280,000
Source: Colliers International Philippines Research Capital values drop across CBDs, except Ortigas Center Capital values declined across major business districts except Ortigas Center, where prices increased by 1.9% QoQ, faster than the 1.5% growth posted during the first three months of the year. Makati CBD values dropped 2.7% QoQ while Fort Bonifacio prices declined by 2.5%. Eastwood and Rockwell also recorded lower prices during the period under review, with their capital values declining by 0.5% and 1.2%, respectively. Colliers sees capital values declining slightly over the next 12 months due to a subdued outlook on the residential market.
Prime 3BR Units Residential Capital Values 180,000 160,000 140,000 120,000 100,000 80,000 60,000
PHP / m sq / month 40,000 20,000
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
1Q16 2Q16
4Q16F 1Q17F 2Q17F 3Q16F Makati CBD Rockwell Fort Bonifacio Source: Colliers International Philippines Research
Metro Manila Residential Condominium Comparative Luxury 3BR Capital Values (PHP / sq m / month) LOCATION 1Q 2016 2Q 2016 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY)
Makati CBD 107,000 - 197,000 104,000 - 191,000 -2.67 100,000 - 184,000 -4.02 Rockwell 122,000 - 203,000 120,000 - 200,000 -1.23 119,000 - 197,000 -1.36 Fort Bonifacio 115,000 - 185,000 112,000 - 181,000 -2.52 104,000 - 148,000 -7.01
Source: Colliers International Philippines Research
10 Research & Forecast Report | 2Q 2016 | Colliers International
The hotel projects to be delivered this year are a mix of 3-star and 5-star hotels. The estimated 3,100 additional Hotel and Leisure rooms expected to be completed by the end of the year are higher than the 1,700 new rooms introduced in the New hotel rooms raise Metro metropolis in 2015. This signifies the anticipated Manila’s stock to about 22,000 increase in demand for accommodation amid the sustained economic growth. The increase in commercial More than 900 new hotel rooms were completed in Metro activities has propelled the demand for business class Manila during the first six months of 2016. The figure accommodation, especially in Metro Manila, which accounts for nearly a third of the total number of rooms accounts for 37% of the country’s economic output. projected to be delivered this year. The new rooms brought the metropolitan area’s stock to around 22,000 rooms. Two new hotels, Belmont Luxury Hotel with 480 Focus on New Hotel Room Supply rooms and Conrad Hotel with more than 200 rooms were completed, accounting for more than 70% of new stock 4,500 delivered during the period. The soft opening of Shangri- 4,000 La at the Fort added about 200 keys to Metro Manila’s 3,500 hotel room stock. The remaining rooms (376 rooms for 3,000 Shangi-La at the Fort and more than 100 for Conrad 2,500 Manila) should be delivered by the third quarter of 2016. 2,000 1,500
1,000 The PHP6.5 billion six-star Conrad Hotel is positioned 500 atop the two-level S Maison, a high-end retail complex. - The posh hotel houses four contemporary event halls 2015 2016F 2017F 2018F 2019F 2020F and two ballrooms spanning 4,000 sq m. It also has a Number of Hotel Rooms luxury spa, a 24-hour fitness center, and an outdoor function space overlooking the city. Meanwhile, Shangri- Source: Colliers International Philippines Research La at The Fort is one of the tallest towers in the country and features Horizon Homes, a collection of distinct Occupancy down despite rise in homes situated on the top floors with views of the metropolis; upscale retail shops; and Kerry Sports tourist arrivals, receipts Manila, a comprehensive lifestyle and leisure club. It also Foreign tourist arrivals to the country during the first five features a pillarless Grand Ballroom that can months of the year reached 2.52 million, up 14% from accommodate up to 1,200 guests. 2.22 million in the same period a year ago. South Korea remained the country’s largest market with 576,332 arrivals, accounting for 23% of total foreign visitors. Metro Manila Hotel Room Stock Other major tourism markets include the United States, China, Japan, Australia, Taiwan, and Canada. Among 35,000 20% the top contributors to foreign arrivals, China recorded 30,000 15% the highest growth of 81% with 285,348 visiting the 25,000 10% country from January to May 2016 despite an economic 20,000 5% slowdown. China remains as the world’s largest source 15,000 0% of tourists and statistics indicate that Chinese are 10,000 -5% increasingly venturing to other parts of Asia, including the Philippines. 5,000 -10% - -15% Tourism receipts for the period totaled PHP106.6 billion,
13.5 % higher than the PHP93.9 billion posted in the
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2017F 2018F 2019F 2020F 2016F same period in 2015. The Average Daily Expenditure Number of Hotel Rooms (LHS) YoY Change (RHS) (ADE) of a visitor in May 2016 rose by about a fifth to PHP5,580. Source: Colliers International Philippines Research Other hotels likely to be completed this year are the 250- room Seven Seas (formerly World Hotel) in Makati City; the 440-room Seda Hotel-Vertis North in Quezon City; and the 1,000-room Okada Manila in Entertainment City, Parañaque.
11 Research & Forecast Report | 2Q 2016 | Colliers International
Visitor Arrivals* implement, so tourism growth will be suppressed until these issues are addressed. 6,000,000 80% International tourist arrivals have steadily been growing 70% 5,000,000 since 2010 and the Philippines has the potential to 60% 4,000,000 become a major tourist destination in the region but the 50% country lacks the necessary infrastructure to compete 3,000,000 40% with other ASEAN destinations and attract more tourists, 30% 2,000,000 especially the high-spending ones. The development of 20% 1,000,000 the regional airports is a crucial first step in ensuring 10% that the Philippines has adequate infrastructure to 0 0%
absorb the targeted 6.5 million international visitors this
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
2016E year and the projected 12 million foreign arrivals by
Visitor Arrivals Average Occupancy (RHS) 2022.
The country has been benefiting from cheaper cost of *as of May 2016 Source: Colliers International Philippines Research travel around the region coupled by Asians’ rising Despite the higher tourist arrivals and expenditures, discretionary incomes. The Philippine tourism sector will occupancy rates in Metro Manila declined slightly to 69% also gain from the ASEAN bloc’s air transport deals with from 70% in the second half of 2015. Occupancy rates Russia, China, Japan, South Korea and the European were partly fueled by the hosting of two major tourism Union (EU). The hosting of the Miss Universe pageant events – the ASEAN Tourism Forum which brought in an in January 2017 is likely to raise tourist arrivals and estimated 1,600 delegates and Routes Asia, one of the hotel occupancy rates in Metro Manila particularly in the biggest conventions for aviation executives around the Bay area. globe that hosted more than 1,000 delegates. Election- The overall increase in tourism and the improvement of related spending also had a positive impact on hotel international airports outside of Metro Manila will lead to occupancy during the period as major political parties an increase in hotel demand, but not necessarily for mounted rallies across Metro Manila, bringing in their Metro Manila hotels. The improvement in airport allies from other parts of the country. The hotly- infrastructure in the regional destinations will remove the contested presidential elections also attracted foreign necessity for a pitstop in Metro Manila, leading to a media personnel and poll watchers, which partly raised decline in occupancy rates in the capital. Furthermore, hotel occupancy in Metro Manila and other key cities the current clampdown on spurious spending in across the Philippines. These events, however, failed to mainland China has resulted in a severe decline in offset the increase in the number of hotel rooms in the revenues for the new casinos built in the Manila Bay metropolis. Area. These casinos were built on the thesis that the mainland Chinese high rollers will spill over from Macau; Improved infrastructure to sustain unfortunately with the Chinese government strictly tourism growth monitoring gambling activity, these casinos will have to contend to lower revenues and occupancy rates. More The new administration has pledged to prioritize the than two-thirds of the additional hotel rooms expected to bidding for the five airports as these were among the be completed till end-2018 will come from casino hotel public-private partnership (PPP) projects that were projects which could further depress occupancy rates in stalled under the previous administration. The airport O & Metro Manila. M projects will cover the operation and maintenance of five regional airports in Bohol, Cagayan de Oro, Davao, Colliers sees hotel occupancy rates in Metro Manila Bacolod, and Iloilo. The private partners for the airport stabilizing between 60% and 70% over the next twelve PPP projects will provide the capital investments required months, given the projected completions especially in to upgrade the capacities of the airports in terms of the Bay area. passengers and freight. With upgraded regional airports, foreign tourists will no longer have to pass through the overstretched Ninoy Aquino International Airport (NAIA) to visit scenic spots or do business in the South. This will not only ease foot traffic at NAIA and decongest the country’s capital (about 70% of all arrivals still come through Manila), but will also drive growth towards other regional centers. This should provide the impetus for investors to build more hotels and other tourism-related establishments to absorb the influx of both local and foreign tourists. However, this will take years to
12 Research & Forecast Report | 2Q 2016 | Colliers International
Philippine Industrial Supply Stock by Region of Industrial Highest Supply (Manufacturing) R-VIII R-X 4.8% Number of manufacturing ecozones 5.8% R-VII up 7.7% As of 1H 2016, there are 195 manufacturing economic zones in the Philippines, up from 187 in the second half of last year. The Philippine Economic Zone Authority R-IV (PEZA)-registered property was almost flat at 58,430 ha 14.7% R-III from 58,000 ha in 2H 2015. PEZA data showed that 57.7% there are eight new manufacturing zones added to the country’s industrial stock, including EDAMPI Industrial Park in Cavite and First Philippine Industrial Park lll in
Batangas. Both are currently classified as developments- in-progress. Source: Philippine Economic Zone Authority Total industrial stock in the Cavite-Laguna-Batangas area reached 6,898 ha as of 2H 2016, a mere 1% Industrial Supply Stock (Manufacturing)* increase HoH. Colliers sees supply in Cavite, Laguna, Region IV-A 2H 2015 1H 2016 Change (HoH) and Batangas increasing over the near- to medium-term Cavite 2,426.45 2,451.45 1.03% due to the government’s push to attract more manufacturing investments . Manufacturing is a major Laguna 1,437.50 1,439.91 0.17% job-generating sector and promoting it is a major plank of Batangas 2,971.55 3,006.59 1.18% the current administration’s economic agenda to TOTAL 6,835.50 6,897.95 0.91% generate more employment opportunities in the *PEZA accredited economic zones as of March 2016 countryside. Source: Philippine Economic Zone Authority
The Cavite-Laguna-Batangas area remains the country’s Industrial Vacancy Rates (Manufacturing)* major industrial hub with the provinces’ manufacturing Region IV-A 2H 2015 1H 2016 output accounting for half of the Cavite-Laguna- Batangas-Rizal-Quezon (CALABARZON) region’s gross Cavite 13.33% 7.93% domestic product (GDP). Aside from Japanese and Laguna 1.32% 3.91% Chinese investors’ decision to transfer manufacturing Batangas 19.41% 18.39% operations to the Philippines from China, the TOTAL 11.29% 10.09% CALABARZON region will also benefit from the growing *PEZA accredited economic zones as of March 2016 interest among Taipei-based manufacturing firms to put Source: Colliers International Philippines Research up facilities in the country. Also crucial in funneling manufacturing investments to CALABAZON is the revival Overall vacancy improves of a rail cargo between the ports of Manila and an inland An insignificant increase in industrial stock coupled with container terminal facility in Laguna. International Container Terminal Services, Inc. (ICTSI) is partnering a slight uptick in demand led to a decline in the overall vacancy of Cavite, Laguna, and Batangas industrial with MRAIL, the railway subsidiary of Manila Electric Co (Meralco) for the PHP10 billion project. The project is stock to 10.1% as of 1H 2016 from 11.3% in the second likely to get approval from the government as it is in line half of 2015. Cavite recorded the largest drop in vacancy to 7.9% from 13.3% due to reductions in with the current administration‘s goal of pursuing rail projects in “major key-points in the country.” Daiichi Industrial Park, Suntrust Ecotown Tanza, and Cavite Technopark. Batangas recorded a slight drop in vacancy to 18.4% from 19.4% while vacancy in Laguna increased to 3.9% from 1.3% due to a rise in vacancy in Carmelray Industrial Park l.
13 Research & Forecast Report | 2Q 2016 | Colliers International
Industrial Lease Rates (Manufacturing)* Key infrastructure to drive industrial (PHP / sq m / mo) Region IV-A 2H 2015 1H 2016 sector growth Leasehold (Land) 59.33 63 The current administration’s thrust to aggressively Lease Rates (SFB**) 218 222 implement infrastructure projects outside Metro Manila
*Average in Cavite, Laguna, and Batangas also bodes well for the thriving industrial sector in **Standard Factory Building Source: Colliers International Philippines Research Cavite, Laguna, and Batangas. Better and well- maintained roads and rail and air transport infrastructure Region IV-A Industrial Land Values will ensure the seamless transport of manufactured
6,000 goods and significantly cut down the costs of doing business in the region. 5,000 Interest in Central Luzon in terms of industrial activity
4,000 has been increasing, especially with developments such as Clark Green City and Ayala Land’s Alviera project in 3,000 Porac, Pampanga being publicized. However because
PHP / sq m 2,000 of the location cost difference between Central Luzon and CALABARZON, Colliers believes that low value 1,000 manufacturers will prefer the former because of the cost advantages, while those that are in higher value -
manufacturing such as electronics will continue to shift
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2Q16
1Q16 southwards. Nevertheless, demand will continue for
3Q16F 4Q16F 1Q17F 2Q17F industrial space, and we see more industrial-related
Source: Colliers International Philippines Research developments as part of township developments being
pursued by the major developers nationwide, particularly in areas where infrastructure support is Industrial land values to increase available. steadily Average land leasehold rates in Cavite, Laguna, and Batangas rose by 6.8% HoH to an estimated PHP63 from PHP59 per sq m a month. Leasehold rates for warehouses and logistics facilities in the areas covered increased to PHP222 from PHP218 per sq m per month. Colliers expects industrial land and building leasehold rates to grow over the next twelve months given the resurgence of the manufacturing sector, especially in the predominantly-industrial CALABARZON region. The government’s efforts to attract more manufacturing investments should lead to higher demand for industrial lots and this, coupled with limited supply, should raise land values in the region.
For more information: Contributors: Julius Guevara Joey Roi Bondoc Randolf Ilawan David Young Director Research Manager Research Assistant Managing Director Research & Advisory Research & Advisory Research & Advisory Philippines +632 858 9050 +632 858 9057 +632 858 9068 +632 888 9988 [email protected] [email protected] [email protected] [email protected]
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