Capturing Warehousing Boom

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

Housing, electricity Housing, water,

Food non Food and

Clothing

Household Household equipment Communication Education

Recreation and culture Recreation and Restaurantshotels and Miscellaneous goods

Alcoholic beveragesAlcoholic 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. Taguig are among the feasible locations as these are likely to be developed by the government as agro-industrial zones. ‘Hub and spoke’ and ‘flex’ warehouses Further tap technological innovations and adopt more Industry 4.0 practices Collier believes that developers should look at the viability of opening small-scale storage facilities near major business districts to Demand for warehousing will likely be driven by the growth of e-commerce satisfy the rising demand for same-day deliveries. Landlords should also especially in Metro Manila which covers more than 30% of the Philippines’ consider proximity to transportation centres, seaports, and airports in annual economic output. We believe that developers should aggressively northern Quezon city, Manila, and Paranaque areas. modernize their facilities by adopting Industry 4.0 practices. These include further automation of facilities and adoption of advanced robotics and We also encourage developers to explore the feasibility of implementing co- conveyor systems. Developers should also consider investing in cloud data warehousing strategies which we are seeing in the USA and Europe. The systems which should ease storage and retrieval of items in warehouses. demand for small scale and ‘flex’ warehouses will likely grow as retailers implement omnichannel strategies.

Lease rate of warehouses per location, Q3 2020 (PHP/month/sq m) Retail vacancy of submarkets in Metro Manila, Q3 2019 to Q3 2020 Avg. Monthly Lease Rate Location 25% Pampanga (per sq m) 22% 20% 19% 19% 20% Metro Manila PHP220 to PHP570 18% Bay Area Cavite PHP120 to PHP420 14% Metro Manila 15% Laguna PHP130 to PHP330 Alabang Batangas PHP130 to PHP300 10% Cavite Laguna Pampanga PHP100 to PHP250 5% Batangas 0% Q3 2019 Q1 2020 Q3 2020 Source: Colliers International 5 Source: Colliers International COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020

Convert vacant mall spaces into fulfillment centres CENTRAL LUZON: WAREHOUSING In Q3 2020, average vacancy of malls across Metro Manila further HUB UP NORTH increased to 12.5% due to the slowdown in brick-and-mortar retail space The warehouse supply in Central Luzon is mainly concentrated in the absorption. We project vacancy to further increase and peak at 14% by the provinces of Pampanga, Bulacan, and Tarlac. end of 2020, from only 9.8% in 2019. Mall operators with large vacancies should consider alternative uses for their space. Converting vacant mall One of the upcoming logistics facilities in Central Luzon is the North Mega spaces into microwarehouses provides an alternative use of vacant spaces Distribution Center (North Mega DC) of Metropac Movers, Inc. (MMI) and in the near term. Demand for these facilities may also be driven by mall Aboitiz Construction, Inc. (ACI). The facility will likely be located on a 277,857 tenants that are expanding their online presence and are aiming to meet sq metre (3.0 million sq ft) property in San Rafael, Bulacan. DoubleDragon also demands for last-mile deliveries. started expanding its warehouse leasing business thru its CentralHub facility in Tarlac.

Snapshot of the Pampanga warehousing market Quality of road infrastructure ranking of the Philippines likely to improve given the upcoming infrastructure projects in the country Available traditional warehouse space (floor area) Pampanga

MANILA Est. average vacancy of traditional warehouses

Monthly warehouse rental rate, Q3 2020 (PHP/sq metre)

PHP100 PHP160 PHP250 Minimum Average Maximum

Profile of recent locators:

Stone Cement Heavy duty Source: World Economic Forum's Global Competitiveness Report F&B* engineering manufacturing components Source: Colliers International. Note: F&B = Food and Beverage Also supporting logistics demand in the region is the Alviera Industrial Park in Porac, Pampanga. The 64-hectare (160 acres) park is located within 6 COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020

Map of Pampanga the 1,800 hectare (4,450 acres) Alviera township, a joint venture of Ayala Land and Leonio Land. The park currently caters to locators from the food manufacturing, plastic packaging, motorcycle parts, and electronics industries. New Clark City (2022) to Mabalacat Some of its initial locators include Monde Nissin and Badan Building Materials (28km) Pampanga Corp. Filinvest is also developing its 120 hectare (300 acres) Filinvest Innovation Park within New Clark City. Filinvest Innovation Park (New Clark City) Selected upcoming infrastructure projects in the region likely to support MANILA logistics growth are the North Luzon Expressway and South Luzon Expressway (NLEX-SLEX) Connector road and the Skyway Stage 3. These should improve Subic-Clark-Tarlac Expressway (SCTEX) (Mabalacat) access between central and southern Luzon – the two major industrial corridors in the Philippines. Clark Airport Modernization (2021) TECO IP Aside from road projects, the upcoming Clark Airport Modernization and the Clark Freeport Mabalacat North Luzon Expressway (NLEX) Mabalacat Bulacan International Airport should further raise commercial activities in the and SEZ region and help prop up demand for warehouses and logistics services. -Manila-Clark Railway Angeles (2022) -Subic-Clark Railway Angeles IP SOUTHERN LUZON WAREHOUSING Mexico Alviera IP Cavite: Logistics center near the Philippine capital San Fernando As of Q3 2020, we estimate that the leasable traditional warehouse supply in Cavite is at 392,000 sq metres (4.2 million sq ft). We project that around Bacolor 41,300 sq metres (444,500 sq ft) of additional leasable warehouse space will San Simon likely be offered in the province until 2021. Among the upcoming facilities is the South Mega Distribution Center (South Mega DC) located along Arnaldo Highway between Barangays Santiago and Pasong Kawayan in General Trias. Subic-Clark-Tarlac Expressway North Luzon Expressway (SCTEX) (Floridablanca) (NLEX) Apalit Metropac Movers, Inc. (MMI) and Aboitiz Construction, Inc. (ACI) broke ground for the project in April 2019. The 20-hectare (50 acres) logistics facility Subic Bay Freeport Bulacan International Airport (2021) will likely rise on a PHP1.2 billion (USD25 million) property in the province. Zone to San Fernando (San Fernando to Bulacan: The project was initially scheduled to be completed by the latter part of 2021. (66km) 41km) Pampanga to Makati One of the newest industrial parks located in Cavite is the Phase 2 of the Legend (89km) Cavite Light Industrial Park (CLIP) by Cathay Land. The 70 hectare (170 acres) Industrial Parks CLIP located in Silang is part of the developer’s Mallorca City township. The NLEX-SLEX Connector Road Infrastructure industrial park currently houses 25 to 32 locators under light manufacturing, (2021) Traditional Warehouses glass, aluminum, automotive, garments, and food. The expansion of manufacturers under the essential goods segment such as food and medical Source: Colliers International Note: IP = Industrial Park; SEZ = Special Economic Zone products may also boost the need for warehouses in the province.

Map of Cavite Snapshot of the Cavite warehousing market

Cavite City to Makati (33km) MANILA Available traditional warehouse space (floor area)

Naic Sangley Point International Airport 41K Cavite (2023) Additional leasable space to be offered until 2021 (sqm) Cavite City LRT-1 Cavite Extension (2022)

Skyway SLEX Extension Est. average vacancy of traditional warehouses in Cavite Cavite EZ Cavite-Laguna Expressway (CALAX) (2022) Monthly warehouse rental rate, Q3 2020 (PHP/sq metre) Imus Bacoor

Suntrust Ecotown Tanza Golden Gate BP PHP120 PHP240 PHP420 Tanza Dasmariñas Minimum Average Maximum Gen. Trias

First Cavite IE Naic Profile of recent locators Gateway BP Carmona Trece Martires

CALAX, Gov. Daiichi IP Lamp F&B* Truck and Electronics Legend Drive Interchange Cavite Light IP manufacturing equipment builder (CLIP) Source: Colliers International. Note: F&B = Food and Beverage Industrial Parks CTBEX, Silang Interchange Infrastructure Laguna: Where large manufacturers locate Traditional Warehouses Silang We estimate that around 347,600 sq metres (3.7 million sq ft) of leasable Source: Colliers International traditional warehouse space is located across municipalities in Laguna. More Note: BP = Business Park; IP = Industrial Park; IE = Industrial Estate; EZ = Economic Zone than 40% of the existing supply is located in Biñan. Around 17,000 sq metres (183,000 sq ft) of leasable warehouse space will likely be offered in Among the infrastructure projects likely to boost demand for warehouses in the province by the end of 2020. Filinvest Land Inc. also plans on launching a the province and its peripheral areas include the Cavite-Laguna Expressway logistics park in Calamba, Laguna next to its Filinvest Technology Park. The (CALAX) that will likely link Kawit, Cavite to SLEX-Mamplasan interchange in 20 hectare (50 acres) development will likely be constructed as a response Biñan, Laguna while the South Luzon Expressway Toll Road 4 (SLEX TR-4) will to the growing demand from the logistics and e-commerce segments. likely traverse Sto. Tomas Batangas to Lucena, Quezon.

Map of Laguna Laguna province is home to several industrial and science parks catering to both local and international locators. These include the PEZA-accredited Carmelray Industrial Park 1 and 2 in San Pedro, Calamba. The two industrial parks feature a combined 470 hectares (1,160 acres) of land and houses 130 locators from several industries. These include food, chemicals, electronics, MANILA Laguna to Makati fabricated metal, and plastic products. Some of its notable locators include Fujifilm Optics (28km) Philippines, Suzuki, Zest-O Corporation, Dyson Electronics, and Monde M.Y. San Corporation. Laguna also houses the eight-phase, 460 hectare (1,140 acres) Laguna Technopark of Ayala Laguna Land. Snapshot of the Laguna warehousing market

Available traditional warehouse space (floor area)

Calamba 17K Additional leasable space to be offered until 2021 (sqm)

South Luzon Expressway (SLEX) PNR San Pedro Station San Pedro PNR Biñan Station Est. average vacancy of traditional warehouses in Laguna Biñan PNR Sta. Rosa Station Monthly warehouse rental rate, Laguna International IP Profile of recent locators Q3 2020 (PHP/sq metre) Laguna TP PNR Cabuyao Station Santa Rosa Cabuyao PHP130 PHP200 PHP330 Automobile Solar energy Electronics Minimum Average Maximum manufacturer Carmelray IP Calamba Light Industry & Science Park II Carmelray IP II Source: Colliers International PNR Calamba Station Batangas: Warehouses to benefit from expanding industrial parks The province currently offers around 76,500 sq metres (823,400 sq ft) of leasable traditional Governors Drive to Biñan warehouse space. The top five cities in the province include Lipa, Santo Tomas, Malvar, Ibaan, (30kms) and Tanauan. For the remainder of 2020, we expect that around 14,000 sq metres (150,700 San Pablo sq ft) of leasable warehouse space will likely be offered in the market. Warehouse facilities in Legend the province with available leasable space may attract locators considering its proximity to Industrial Parks the Port of Batangas via the Southern Tagalog Arterial Road (STAR) Tollway. Upcoming Infrastructure infrastructure projects such as the SLEX-TR4 should also make the province more accessible. Traditional Warehouses

9 Source: Colliers International Note: IP = Industrial Park; TP = Technology Park COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020

One of the key industrial parks that continue to expand in Batangas is Map of Batangas AboitizLand’s Lima Technology Center in Lipa-Malvar. The 600-hectare (1,480 acres) park located within the developer’s LIMA Township hosts around 111 light to medium locators including Epson Precision Philippines, Furukawa First Philippine IP Automotive Systems, Hitachi Cable Philippines, and Taisei Electronics Light Industry & Science Park III Philippines. AboitizLand previously announced its plan to further expand the MANILA First Industrial Township SEZ SLEX Toll Road 4 PEZA-accredited park by another 200 to 300 hectares (490 acres to 740 acres) Tanauan given the sustained demand. The group mentioned that it plans to Sto. Tomas accommodate locators under the micro-electronics and food processing Batangas Light Industry & Science industry for the expansion area. Batangas is also home to the 450 hectare Park IV (1,110 acres) First Philippine Industrial Park (FPIP) of First Philippine Holdings Malvar Corp. (FPHC) and Sumitomo Corp. The park, located in Sto. Tomas, houses more than 100 locators. Lima Technology Center

Lipa Snapshot of the Batangas warehousing market Batangas City to Makati (112km) Available traditional warehouse space (floor area)

Santo Tomas 14K Ibaan Nasugbu to Batangas City Additional leasable space to be offered until 2021 (sqm) (75km) Cavite-Tagaytay-Batangas Expressway Project Southern Tagalog Arterial Road (STAR) Tollway (Nasugbu alignment) Port of Batangas Est. average vacancy of traditional warehouses in Cavite Legend Industrial Parks Batangas City Infrastructure PNR South Long Haul Monthly warehouse rental Profile of recent locators Traditional Warehouses (Batangas City) rate, Q3 2020 (PHP/sq metre) Source: Colliers International Note: IP = Industrial Park; SEZ = Special Economic Zone Hydrogen Chemical Consumer F&B* PHP130 PHP220 PHP300 Manufacturing Products Electronics Minimum Average Maximum IN-CITY WAREHOUSES The available leasable warehouse space in Metro Manila is currently at 825,800 sq metres (8.9 million sq ft). Based on the submarkets that we covered, a third of the available traditional warehouse supply in the country’s Source: Colliers International. Note: F&B = Food and Beverage capital is located in Valenzuela. 10 COLLIERS RADAR LOGISTICSINDUSTRIAL | |RESEARCH RESEARCH | |MANILA MANILA | |15 10 DECEMBER DECEMBER 2019 2020

This is followed by Quezon City at 21%, Parañaque at 15%, Pasig at 14% and Map of Metro Manila Taguig with 9%. We estimate that around 179,800 sq metres (1.9 million sq ft) of leasable warehouse space will likely be offered in Metro Manila starting Q4 2020. More than 70% of the upcoming leasable space will likely come from Manila with the Metro delivery of projects such as Juan Luna Logistics, Recto Logistics Center, and Manila Rosan Logistics Center by Anchor Land in Binondo. Micro, small, and medium- Valenzuela sized enterprises (MSMEs) looking for warehousing options near high density Metro Manila Subway commercial centers should consider available storage spaces in the area. (2025) Quezon City MRT 7 Snapshot of the Metro Manila warehousing market NLEX Harbor Link (2022) NLEX-SLEX Connector Road (2021) MRT 3 Rehabilitation (2020) MRT-LRT Common Station (2021) LRT 2 East Extension (2020) MRT 4 Available traditional warehouse space (floor area) (2025) Manila Mandaluyong Manila 129K BGC-Ortigas Link Bridge (2021) Pasig Taguig 34K Estrella-Pantaleon Bridge (2021) Parañaque 8K Skyway Stage 3 (2020) Makati Valenzuela 4K Quezon City 3K Las Piñas 2K NAIA Redevelopment (2021-2024) Taguig Pasig 800 Additional leasable space to be offered until 2021 (sqm) Parañaque Monthly warehouse rental rate, Q3 2020 (PHP/sq metre) Minimum Average Maximum Legend Makati PHP340 PHP570 PHP920 Infrastructure Las Piñas Manila PHP300 PHP480 PHP750 Traditional Warehouses Mandaluyong PHP270 PHP480 PHP750 Las Piñas PHP150 PHP350 PHP650 Potential Microwarehouse Locations Muntinlupa Muntinlupa PHP230 PHP320 PHP500 Pasig PHP150 PHP320 PHP670 Source: Colliers International Parañaque PHP140 PHP310 PHP470 Quezon City PHP110 PHP300 PHP700 Cap rates of warehouses across Luzon Taguig PHP200 PHP300 PHP400 Colliers Philippines data show that the cap rates of traditional warehouses in Valenzuela PHP100 PHP220 PHP710 Metro Manila range from 5% to 6%. This is slightly lower than the 5% to 7% in

Source: Colliers International CALABA and Pampanga given the higher land values in the country’s capital.

Given the increase in retail vacancy due to the slowdown of demand for Potential increase in demand for cold storage facilities physical mall space during the pandemic, certain developers have Demand for cold storage facilities within and outside of the country’s capital announced their plans on converting selected mall spaces into remains underserved due to limited options. The growth of online deliveries microwarehouses. of perishable food items will likely lead to a potential increase in demand for The yields of microwarehouses within malls will likely be lower cold chain storage. compared to traditional warehouses as in-mall warehouses have higher In other markets such as China, cold chain facilities also have low penetration development and renovation, maintenance, and operational expenses. in the market. By the end of H1 2019, total cold storage stock in Chengdu was The growth of microwarehouses as a response to higher retail only one-sixth that of traditional high standard warehouses2. Demand for vacancy these facilities will likely increase given the rising consumption of fresh food from online retailers. Developers that plan on constructing facilities should We see a growth in demand for warehousing and storage options as offer value-added services to gain a competitive advantage. These include retailers continue to tap the e-commerce market to take advantage of inventory management and order purchasing services. the growing popularity of online shopping. As a response to the potential increase in warehouse demand and higher retail vacancy, Value-added cold-chain supply chain services (for reference) selected mall operators have decided to convert certain retail spaces into microwarehouses. A couple of developers are exploring the concept and are eyeing certain submarkets and business districts within Upstream Midstream Downstream Metro Manila. Sample Potential microwarehouse locations in Metro Manila Inspection Order Quality Consumption data purchasing Inspection Microwarehouses Quezon analysis Marikina located within retail City Sorting Demand establishments will Manila Supplier forecasting likely feature separate management Packaging freight elevators for Pasig tenants. Demand for Pasay Makati Handling these facilities may also be driven by Source: Colliers Chengdu Cold-chain Logistics Investment Study. Note: 2Colliers Chengdu Cold-chain Logistics Investment Study tenants that are shifting to e-commerce and are looking for storage space. Muntinlupa

Source: Colliers International

12 Primary Author: For further information, please contact:

Joey Roi Bondoc David A. Young Manager | Research | Philippines Chief Operating Officer | Philippines +63 2 8858 9057 +63 2 8858 9009 [email protected] [email protected]

Calvin Javiniar Richard Raymundo Senior Director | Capital Markets and Investment Services | Managing Director | Philippines Philippines +63 2 8858 9028 +63 2 8863 4167 [email protected] [email protected]

Contributors:

Donica Cuenca Research Analyst | Research | Philippines +63 2 8858 9068 [email protected]

Martin Aguila Research Analyst | Research | Philippines +63 2 8863 4116 [email protected]

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