RESEARCH METRO CEBU MARKET UPDATE 2H 2018 METRO CEBU REAL ESTATE SECTOR REVIEW CEBU REGAINS ATTRACTIVENESS AS A GO-TO SPOT FOR BUSINESS AND LEISURE ACTIVITIES COVER | Investments and Tourism further drive Metro Cebu’s growth in the second half of 2018 Heavy business and construction investments is noted in the fringes Exciting investment prospects activities in Metro Cebu are and surrounding cities. A great deal abound Metro Cebu, backed by the primarily observed in three of the of business and investments continuously growing local and area’s major cities, Cebu City, activities have been detected in regional economy, newly opened Mandaue City and Lapu-Lapu City. Mandaue City in particular. The Mactan-Cebu International Airport Cebu City has consistently been property sectors in Mandaue were (MCIA) and other proposed one of the preferred outsourcing perceived to be growing at a government infrastructure destinations in the world. Coming remarkable rate, following the low developments. Bridges designed to from the 12th spot in 2017, Cebu vacancies and almost full saturation connect Cebu to the other nearby City rose a level up to the 11th spot of Cebu City. islands, such as Bohol and Negros, of the latest Top 100 Super Cities are expected to further enhance the list released by Tholons, a Aside from boasting of a good ease of doing business between renowned international strategic business environment, Cebu Metro Cebu and adjacent areas. In advisory firm. The competitive talent continues to attract local and addition, road networks in the pool and cheap labor cost remain foreign tourists with the various pipeline will facilitate a smoother as major considerations in choosing leisure activities that could be done travel experience from Danao City in Cebu City over other locations. in the area, especially in Lapu-Lapu the north and Naga City in the Moreover, the digital transformation City where the picturesque beaches south, to Metro Cebu, which will of Cebu led by the local IT-BPM and resorts are located. In addition, result to faster and more efficient sector and the lined-up to complement the growing number business transactions. Investors are infrastructure developments were of hotels, resorts and other forms of therefore highly encouraged to take significant factors in the city’s accommodations, lifestyle shopping advantage of the many improved positioning. centers rise in volume to meet opportunities and become an demand by local and foreign guests essential contributor to the ever- Cebu City demand has caused for added recreation, shopping, and developing Metro Cebu property severe congestion in the city core dining options. market. such that an increased level of Source: Tholons Page 2 Page 2 CEBU OFFICE SECTOR ENDED 2018 ON ANOTHER HIGH NOTE Office | Investors displayed sustained optimism in the office market Numerous construction works, The total office stock in Cebu IT During the second half of 2018, influx of new office space supply, Park (CITP) increased by 40,203 Metro Cebu’s net absorption was and growing modern trends square meters, following the recorded at 101,141 square characterized the Metro Cebu office completion of Filinvest Cebu meters. The net absorptions of market as it closed 2018. Investors office buildings in CBP and fringe are looking forward to the large Cyberzone 2 and HM Tower. The office supply for completion in the two office buildings targets BPO areas were a few square meters coming years. companies. short of 40,000 at 39,885 square meters and 39,945 square meters, FIGURE 1 Areas in the fringes of CBP and respectively. CITP’s net absorption, Total Metro Cebu Office Stock (sq.m.) CITP likewise documented an on the other hand, was 21,311 increase in total office supply. New square meters, significantly higher 350,000 buildings in the fringes added than 8,884 square meters in the 300,000 29,056 square meters of GLA to the first half of 2018. total office stock outside the major 250,000 business districts of Metro Cebu. LEASE RATES 200,000 Newly completed buildings in the Metro Cebu’s overall weighted 150,000 fringe areas include The Space along AS Fortuna and Northpark average asking lease rate passed 100,000 Building along UN Avenue in the PhP600-mark in the second half of 2018. Rents in Metro Cebu rose 50,000 Mandaue City, and Pacific World Tower in Megaworld Corporation’s to 11.82% half-on-half (h-o-h) and 0 Mactan Newtown in Lapu-Lapu 14.20% year-on-year (y-o-y) to Cebu Cebu IT Fringe PhP613.15 per square meter per Business Park Areas City. Park month. Developers and landlords H2 2017 H2 2018 VACANCY & ABSORPTION were able to command higher rents due to the robust office demand Source: Santos Knight Frank Research Office vacancy in Metro Cebu and dwindling supply in Metro remained below 10% in the second Cebu. Moreover, the superior half of 2018, despite the significant NEW SUPPLY quality, innovative design and better increase in office supply. The 7.87% handover conditions of leasable Recent building completions and vacancy rate signifies a healthy spaces enabled a number of handovers resulted to a 14.40% or demand for office space, which is lessors to exact higher rents, pulling 106,253-square meter increase in mainly driven by BPO companies. up the weighted average rents in Metro Cebu’s total office stock Moreover, the Metro Cebu vacancy the area. Handover condition of (from the first half of 2018). As of rates have been on a downward units vary from bare-shell to warm- the end of 2018, Metro Cebu’s trend for the past 3 years, aggregate supply was recorded at shell, extending to fully-fitted notwithstanding the constant 844,377 square meters of office spaces. Gross Leasable Area (GLA). 12.58% increase in office stock summing up of this was identified as new supply. to 258,531 square meters since the CBP continued to record the 1st half of 2016. highest weighted average lease rate In Cebu Business Park (CBP), three among the Metro Cebu business new buildings went online in the CBP’s vacancy rate was districts at PhP689.16 per square second half of 2018, adding 36,993 remarkable at 2.35%, as it retains meter per month. Rents in CBP square meters of office space to the its position as the leading business grew 9.82% from the first half of total GLA in the area. MDCT district in Metro Cebu. The vacancy 2018 and 16.19% from the same Building and Tech Tower launched rates of CITP and fringe areas were a combined total of 20,228 square period last year. 8.5% and 12.16%, respectively. meters of office space, specifically suited for Business Process Although above 10% in the second Cebu IT Park documented a Outsourcing (BPO) companies. On half of 2018, the vacancy rate of weighted average lease rate of the other hand, BPI Cebu office buildings in the fringe areas PhP632.99 per square meter per Corporate Center, with a GLA of essentially dropped from 17.32% in month, corresponding to 16,765 square meters caters to the first half of 2018. escalations of 11.65% h-o-h and traditional office occupiers. 14.47% y-o-y. Page 3 3 Rents in the fringe areas remained within 2019. Central Bloc Tower 1 will be comprised of a shopping most affordable at a weighted will rise above the Ayala Malls mall, an educational institution, average of PhP529.39 per square Central Bloc to maximize the use of hotel developments, residential meter per month. Although the roughly 2.5-hectare land inside condominiums, and a series of recording the cheapest weighted CITP. office buildings, which are already average lease rate in Metro Cebu, catering to BPO as well as rents in the fringe areas continued RISE OF MIXED-USE PAGCOR-enabled occupiers. All to increase at rates of 13.17% DEVELOPMENTS existing office projects in Mactan semi-annually and 8% annually. Since Metro Cebu’s major business Newtown are completely leased out districts are almost at full capacity, to international occupiers. BPI Cebu Corporate Center Furthermore, Megaworld plans to Source: Alveo Land property developers shift to the fringe areas and develop mixed-use construct 2 additional office projects that are self-sufficient and buildings in the remaining 6,000 sustainable. square meters of vacant land within the development. Base Line Center of Cebu Landmasters, Inc sits on a 1.6- hectare land along Juana Osmeña Astra Centre Source: Cebu Landmasters Street. Base Line HQ is a 21-storey office development that will offer 4,700 square meters of office GLA and 5,900 square meters of leasable retail. Soon to rise in Mandaue, Astra Corporate Center will introduce 28,000 square meters of office GLA to the market. It is the office component of a 1.2-hectare mixed- use development, Astra Centre, which is situated along AS Fortuna UPCOMING OFFICES Street. Approximately 520,000 square In the North Reclamation Area, meters of office space will be added Robinsons Land Corporation has to the Metro Cebu office supply the 18,848-square meter Cybergate within the next 3 years. Several Galleria Cebu in the present mixed-use developments will be pipeline. It will complete the 4.7- FIGURE 2 highlighting new office hectare Robinsons Galleria Cebu Upcoming Office Supply in Cebu as developments, boosting Metro Complex of integrated components of H2 2018 Cebu’s office stock to more than such as existing BPO offices, 1,000,000 square meters by the Summit Hotel Cebu and Galleria end of 2019. About 170,000 square Residences Cebu. Cebu Business Park meters of office GLA will be Cebu IT Park completed within the vicinity of Ayala Land and Aboitiz Land’s joint Fringe Areas CBP.