RESEARCH METRO MANILA MARKET UPDATE Q4 2018 METRO MANILA REAL ESTATE SECTOR REVIEW FDI RISES AS NEIGHBORING COUNTRIES CONTINUE TO BET ON “ASIA’S RISING TIGER” COVER | The Philippines remains a popular investment destination for Asian investors FIGURE 1 Net Foreign Direct Investment Level By Country of Origin (in USD Mn) 905.65 SNAPSHOTS 900 750 2017 2018 Economic Indicators 600 450 384.25 263.97 300 189.33 183.51 64.4 150 13.25 8.56 6.1% 0 GDP SINGAPORE HONGKONG CHINA JAPAN Q4 2018 Source: Bangko Sentral ng Pilipinas The Philippines continues to attract Foreign Direct Investments (FDI) as formulates policies that will limit the economy carries on constraints in doing business in the experiencing growth of above 6% 6.1% country. On October 2018, the 11th Inflation Rate for the past 7 consecutive years. Regular Foreign Investment December 2018 The growth was mainly brought Negative List was amended to about by the increase in include five areas that will allow government spending from the 100% foreign investment present administration’s “Build, participation. The list includes Build, Build” infrastructure program. internet businesses (as excluded from mass media), teaching at 3.1% At the end of 2017, the Philippines higher education levels provided the OFW Remittances posted the highest rise in Foreign subject being taught is not a November 2018 Direct Investments (FDI) among professional subject (i.e., included in a government board or bar ASEAN countries. FDI remains examination), training centers that robust as investments increased by are engaged in short-term high- 42% in the first half of 2018. As of level skills development that do not October 2018, net foreign direct form part of the formal education 7.02% investments reached $8.5 billion, an system, adjustment companies, Avg. Bank Lending lending companies, financing increase of 2% from the previous December 2018 year’s $8.4 billion. The largest share companies and investment houses, in FDI was investments on and wellness centers. Manufacturing, which rose to $1.03 There is a large room for further billion from $894.8 million during the expansion of the Philippine same period in 2017. Manufacturing economy in 2019, as strong was followed by real estate macroeconomic fundamentals 5.11% 91-Day T-Bill activities ($269.6 million), and remain sound and foreign capital Q4 2018 financial and insurance activities continue to be invested in the ($230.2 million). country. The average inflation in 2019 is forecasted to revert back to Equity capital placements 3%. The service sector will remain predominantly came from the main driver of growth of the Singapore ($905.7 million), economy, backed by an excellent pool of low cost-skilled labor. Hongkong ($264 million) and China 52.77 Moreover, the campaign spending ($189.3 million), representing for the upcoming mid-term Avg. PhP-USD 45.3%, 13.2% and 9.5% of the total elections and the country’s hosting December 2018 FDI from January to October 2018, of the Southeast Asian games in the respectively. latter part of the year are expected to further advance the country’s The Philippines continuously opens economic performance. its doors to foreign investors and 2 RISING RENTS AND GROWING SUPPLY TO FURTHER STRENGTHEN THE METRO MANILA OFFICE SECTOR OFFICE | 2019 predicted to be a good year for the office market despite large upcoming stock Metro Manila Office Sector ended Net absorption of office space was FIGURE 2 2018 on a high note with a measured at 337,277 square Office Space Influx 2018 (in sq.m.) maintained positive momentum and meters in the fourth quarter of continuing growth in the fourth 2018, bringing the total 2018 net 7000000 absorption to almost 600,000 quarter of 2018. Modernization of 6000000 square meters of leasable space. the workplace and continuing 5000000 trends were noted during the year. Fort Bonifacio, Bay Area, and Ortigas exhibited an active and 4000000 NET ABSORPTION & VACANCY healthy office market in the last 3000000 RATE quarter of the year. 2000000 1000000 Metro Manila’s overall office Fort Bonifacio ended 2018 with the vacancy rates was recorded at largest net absorption among the 0 4.88% in Q4 2018, which was Central Business Districts CBD) of driven by the continuing strong Metro Manila. 150,899 square demand in office space from meters of Gross Leasable Area Q1 2018 Q2 2018 Q3 2018 Q4 2018 international firms, IT-BPO (GLA) was absorbed in Fort Source: Santos Knight Frank Research companies, and PAGCOR enabled Bonifacio in Q4 2018, as the CBD companies. Office vacancy competes against Makati, boasting SM Prime’s Three E-Com Center remained within healthy levels of of newer buildings with modern started its operations in Q4 2018, below 6% since Q4 2010. The designs and architectures. with Amazon Philippines as a major vacancy level was below 5% in Q4 tenant. The opening of Three E- 2018 despite the more than Bay Area office developments Com Center added 68,584 square 350,000 square meters of new logged a net absorption of 68,581 meters of leasable space to Bay supply introduced within the square meters in Q4 2018. Demand Area’s total office stock. quarter, signifying a robust office was generated from expanding IT- Towers 1 and 2 of Ayala Land’s market. BPO and PAGCOR-enabled companies. Ayala North Exchange in Makati increased the CBD’s total office Another notable net absorption in TABLE 1 supply by 56,000 square meters. Q4 2018 was Ortigas CBD’s 67,489 Q4 2018 Office Data square meters of GLA. Firms L & Y Plaza and Robinsons Land’s choose to locate in Ortigas given Cyberscape Gamma in Ortigas and Weighted Avg Vacancy the CBD’s competitive rates. its fringes added 55,490 square Area Lease Rates Rate meters of office GLA to another of (PhP/sq.m./mo.) NEW SUPPLY Metro Manila’s most sought-after business districts. Makati 1,419.68 4.13% Completion and turnover of new office buildings added 373,331 Fort 1,150.54 5.32% square meters of GLA to the Bonifacio Ayala North Exchange approximately 5.4 million square © Ayala Land meters of existing Prime and Grade Alabang 772.13 0.36% A office space in the Metro Manila Quezon 900.73 8.62% major CBDs. City The Finance Center, Twenty-Five Ortigas 698.72 5.85% Seven McKinley, and High Street South Corporate Plaza (Tower 1 & Bay Area 842.71 1.27% 2) constitute the additional 193,257 METRO square meters of new office supply 1,042.35 4.88% MANILA in Fort Bonifacio. Source: Santos Knight Frank Research 3 UPCOMING SUPPLY Emerging developments in Fort Quezon City (QC) documented a Bonifacio drove the weighted weighted average lease rate of PhP Makati is set to witness the turnover of 191,238 square meters of office average lease rate of the CBD to 900.73 per square meter per GLA in 2019. Prime-grade office PhP1,150.54 per square meter per month, exceeding the PhP900- building Nex Tower by Nova Group month, which represents a 3.50% mark in the last quarter of 2018. is the most notable upcoming office Q-o-Q and an 11.25% Y-o-Y Rental rates in QC grew by 0.53% building in Makati. It will increase increase. Despite the large number Q-o-Q and 9.33% Y-o-Y. the office stock of the country’s of upcoming office buildings and Developments in Cubao, Vertis financial capital by 31,173 square commercial developments in North, and townships along the C-5 meters. Bonifacio Global City (BGC), Corridor (Arcovia City, Ortigas East, The planned completion of Ayala McKinley Hill, and McKinley West, Bridgetowne and Parklinks) are Land’s Park Triangle Corporate lease rates are forecasted to grow expected to drive rental rates up to Center and BGC Corporate Center further in 2019, given the quality of the PhP1,000-mark this 2019, 2 in 2019 will inject 38,875 square the buildings slated for delivery. following the boosted activities in meters and 26,620 square meters nearby areas. of GLA into Fort Bonifacio, respectively. Moreover, Asian Century Center of Century FIGURE 3 Properties, also in Fort Bonifacio, should be operational by Q1 2019. Upcoming Supply (in sq.m.) It will supply 26,000 square meters of additional GLA to the CBD. Furthermore, Megaworld’s World 700,000 Commerce Place is due Q2 2019, 600,000 adding another 105,000 square 500,000 meters to the Uptown Bonifacio development. 400,000 300,000 Ortigas will be welcoming 398,499 square meters of additional office 200,000 space in 2019. The notable 100,000 upcoming developments in Ortigas 0 include SM Keppel Tower and SM Makati Taguig Ortigas Bay Area Alabang Quezon City Mega Tower, which will revamp the Ortigas skyline with 103,000 square 2019 2020 2021 meters and 96,000 square meters of office space, respectively. Source: Santos Knight Frank Research WEIGHTED AVERAGE LEASE RATES Amidst new and upcoming supply, FIGURE 4 office asking rents in Metro Manila Weighted Average Lease Rate (in PhP) and Year-on-Year continued to rise. Weighted average Growth Rate (in %) lease rates in Metro Manila grew by 3.25% Quarter-on-Quarter (Q-o-Q) and almost 10% Year-on-Year (Y-o- 2,000.00 14.00% Y), increasing by 9.38% in Q4 2018. 12.00% Weighted Average Rents remained 1,500.00 10.00% above PhP1,000 as it was pegged 8.00% at PhP1,042.35 per square meter 1,000.00 per month. 6.00% 4.00% Makati continued to occupy the top 500.00 spot in terms of asking rents.