Capturing Warehousing Boom
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COLLIERS RADAR INDUSTRIAL | RESEARCH | MANILA | 10 DECEMBER 2020 Joey Roi Bondoc Manager | Research | Philippines +63 2 8858 9057 [email protected] Calvin Javiniar Senior Director | Capital Markets and Investment Services | Philippines +63 2 8863 4167 [email protected] CAPTURING WAREHOUSING BOOM Developers pivot to seize lockdown economy and household spending- driven opportunities in logistics and warehousing COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020 Summary & Recommendations PHP 141.2 billion* 38% Colliers Philippines believes that the Total value of InstaPay transactions from Share of food and non-alcoholic beverages pandemic has caused a significant January to August 2020. The emergence of a in the household final consumption interruption to the long run growth of the lockdown economy has resulted in an aggressive expenditure in 9M 2020, up from 34% in use of online payment channels. 2019. Demand for warehouses and logistics Philippines’ consumer-driven economy. services will likely be driven by a personal Note: USD2.9 billion. InstaPay is an electronic fund transfer In our view, the COVID-19-induced service governed by Philippine Payment Management Inc. consumption-driven Philippine economy. interruptions have altered the immediacy in under the oversight of the Bangko Sentral ng Pilipinas. which retailers must innovate to remain relevant. The continued growth of the e- PHP118.4 billion* PHP220-PHP570* commerce sector and emergence of a Range of average monthly rental rates of traditional lockdown economy have only compelled Gross value added in the warehousing warehouses in Metro Manila (per sq metre). This is mall operators and retailers to aggressively sector in 9M 2020. This represents higher than the PHP160 to PHP240 (USD3.3 to firm up partnerships with logistics firms and 31% (all time high) of the gross value USD5.0) range in Northern and Central Luzon. Among warehouse developers to reach last mile added in the transportation and the most expensive locations in Metro Manila are storage sector during the period. deliveries and capture opportunities in the Makati CBD and Mandaluyong. middle of a pandemic. Note: USD2.5 billion Note: USD4.6 to USD11.9 The industrial and logistics segment The increased demand for logistics will likely be for the Approved Foreign Direct Investments, remains a property sector of relative long haul. Colliers believes that there will likely be a H1 2020 (PHP) stability despite the pandemic-induced healthy demand for warehouses even after the pandemic wanes as this will likely be sustained by an economic slowdown. In our view, Total Approved Foreign Investments (LHS) economy that is primarily household spending-driven. In % Share of Transportation and Storage (RHS) developers should maximize opportunities our opinion, this is likely to be complemented by a 33% by: growing demand for online shopping and retailers and 500,000 40.0% 390 mall operators’ shift to e-commerce. With increasing 400,000 1% 30.0% > Modernizing warehouses 290 300,000 274 20.0% competition in the retail landscape, mall operators need 258 245 182 196 219 > Building more cold storage facilities to differentiate and a partnership with providers of 200,000 187 10.0% In million million (PHP)In 106 logistics and warehousing services plays a crucial role in 100,000 44.6K0.0% - -10.0% > Exploring co-working and flexible keeping businesses afloat. We see developers tapping warehousing options 2017 2011 2012 2013 2014 2015 2016 2018 2019 into the sector’s growth prospect as shown by rising 2010 > Converting vacant mall and office storage investments across the country. 2020H1 spaces into micro-warehouses and fulfillment centres in the city. Joey Bondoc Source: Philippine Statistics Authority. Note: USD1 to Senior Research Manager | Research | Philippines PHP48 as of the end of October 2020 2 COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020 SUSTAINED HOUSEHOLD Growth of InstaPay transactions, (PHP) CONSUMPTION, SHIFT TO E- Monthly average growth from April-August COMMERCE TO FUEL LOGISTICS 31% ✓ The Philippine economy is primarily driven by household spending, which accounts ✓ for about 70% of the country’s gross domestic product (GDP). With positive news ✓ about the production of an effective vaccine against COVID-19, the country’s ✓ Finance secretary is now projecting a faster economic rebound in 20211. This ✓ growth prospect, along with the sustained flow of remittances from overseas Filipinos, should further drive the demand for fast moving consumer goods. Due to the pandemic and lockdowns, Filipino consumers have learned to lean more PHP141.2 PHP141.2 Bn PHP117 Bn PHP80 Bn PHP100.3 Bn heavily on shopping from the comfort of their homes. With several retailers already PHP49.5 Bn shifting online and partnering with delivery platforms, Colliers expects competition April May June July August among retailers to further intensify. In our view, this is should result in retailers’ aggressive adoption of an omnichannel approach and this requires an adequate and Source: Bangko Sentral ng Pilipinas (BSP) and various news articles versatile network of logistics infrastructure. Annual growth of consumer spending per sub-segment Percent share to household expenditure per segment 20.0% 7.6% 8.0% 6.7% 5.7% Food and non-alcoholic 10.0% 4.6%4.6% 2.2% 38% Alcoholic beverages 0.0% 2% Clothing -10.0% -0.9% 2% -9.1% -2.3% Housing, water, electricity -20.0% -13.9% -15.7% 14% -12.0% Household equipment -30.0% 3% 2018 -25.5% -27.0% -20.8% Health -33.4% 4% -40.0% 2019 -40.2% Transport -50.0% -42.0% 8% -49.9% Communication -60.0% Q2 2020 Q3 2020 3% 9M 2020 -60.1% -59.3% Recreation and culture -70.0% -66.3% -65.8% 1% Education 5% Housing, water, water, Housing,electricity Food and Food non Clothing Household equipmentHousehold Communication Education Recreation and Recreation culture and hotelsRestaurants goodsMiscellaneous Alcoholicbeverages Health -80.0% Transport Restaurants and hotels 6% Miscellaneous goods 14% - alcoholic 0% 10% 20% 30% 40% Source: Philippine Statistics Authority. 1Philippine Daily Inquirer, (2020). ‘Big bounce back’ in GDP growth seen in 2021 Source: Philippine Statistics Authority. Note: Percentages shown represent 9M 2020 3 COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020 • Personal consumption-driven economy • Limited space in Metro Manila • Thriving e-commerce sector • Limited flexibility of existing warehouses • Growing demand for cold storage facilities and dark groceries* • Aging warehouses in the provinces • Improving infrastructure connectivity • Traffic congestion within Metro Manila CHALLENGES • Modernization of warehouses Philippine GDP and share of household final consumption • Conversion of vacant mall spaces into warehouses Gross Domestic Product Share of household final consumption expenditure OPPORTUNITIES • Emergence of a lockdown economy 40,000,000 76.0% 75% 75% 74.0% 20,000,000 74% 74% 74% 74% 74% 73% 73% • Strong regional growth 73% 72% 72.0% (Metro Manila, Central Luzon, and CALABARZON) - 70.0% In million million (PHP)In 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 9M 2020 *Dark groceries are stores that are generally out of sight and only cater online deliveries within their vicinities. Source: Philippine Statistics Authority Philippines’ leasable warehousing supply, rents, vacancy, and cap rates by selected regions Top Five Municipalities per Region in terms of warehouse space (in sq m) Mexico 39K Pampanga San Fernando 22K San Simon 8K Est. total leasable supply: 73,600 sqm Angeles 4K Monthly rental rate (per sqm): PHP100 to PHP250 Bacolor 1K Cavite Est. average vacancy: 14% Pampanga Valenzuela 247K Est. total leasable supply: Quezon City 174K 392,000 sqm Parañaque 125K Pasig 117K Metro Monthly rental rate (per sqm): Metro Manila Manila Taguig 77K PHP120 to PHP420 Est. total leasable supply: 825,800 sqm Carmona Est. average vacancy: 5.6% Monthly rental rate (per sqm): PHP220 to PHP570 141K General Trias 55K Dasmariñas 53K Naic 49K Cavite Tanza 33K Laguna Biñan 155K Batangas Calamba 68K Est. total leasable supply: 347,600 sqm San Pedro 48K Est. total leasable supply: Cabuyao 45K Monthly rental rate (per sqm): PHP130 to PHP330 Laguna 76,500 sqm Sta. Rosa 32K Est. average vacancy: 4.2% Monthly rental rate (per sqm): Lipa 36K PHP130 to PHP300 Santo Tomas 27K Est. average vacancy: 6.6% Malvar 8K Note: Typical cap rates in Cavite, Laguna, Batangas, and Pampanga range from 5% to 7% while Metro Ibaan 2K Manila is at 5% to 6% due to higher land values. Colliers estimated cap rate of microwarehouses in Tanauan 2K Batangas Metro Manila malls are also lower due to high renovation costs and operational expenses. Source: Colliers International. 4 COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020 RECOMMENDATIONS Explore fringe options offering lower rental rates Lease rates of traditional warehouses in Metro Manila located near Invest in cold chain assets major business districts are higher compared to those located in the The demand for cold storage facilities in Metro Manila, Pampanga, fringe areas. This is partly due to higher land values in core locations and and the CALABA corridor remains underserved. We project demand for the facilities’ proximity to integrated communities that house malls, these facilities to increase as restaurants and supermarkets (including black offices, and condominiums. Facilities in the fringe areas such as grocery concepts) serve the demand for delivery of perishable, ready-to- Valenzuela, Quezon City, and Parañaque are offered at relatively cheaper cook or eat food items. This will likely be complemented by a rising demand rates. for pharmaceuticals. In our view, retailers of non-essential items looking for cheaper options In our view, developers should look for areas in the peripheries of business should explore warehouses in Valenzuela and Paranaque as well as urban districts that are viable locations for these facilities. The New Clark City and areas outside of Metro Manila such as Pampanga, Bulacan, and Tarlac.