Paving the Road to Property Growth Infrastructure Implementation to Sustain Property’S Growth Amid Disruption

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Paving the Road to Property Growth Infrastructure Implementation to Sustain Property’S Growth Amid Disruption Colliers Flash | Infrastructure | Manila | 5 March 2021 Paving the road to property growth Infrastructure implementation to sustain property’s growth amid disruption Insights & recommendations INFRASTRUCTURE SPENDING LOWER GLOBAL Despite Covid-19’s disruption to the NOW AT 4.5% GDP INFRASTRUCTURE RANKING Philippine property market, Colliers recommends developers continue Data from the DBM* show that infrastructure spending reached The need for quality infrastructure is reflected in the country’s global maximizing the government’s plan of PHP681 billion (USD14 billion) in 2020, down 23% from the PHP881.7 ranking compared to its regional peers. Data from the World ramping up infrastructure development billion (USD18.5 billion) in 20191 as the government realigned funds for Economic Forum (WEF) show that the Philippines ranked 96th in by implementing the following: its COVID-19 response. Infrastructure spending accounted for about infrastructure out of 141 countries in 2019, down from 92nd in 4.5% of GDP in 2020, down from 5.4% in 2019. The government plans 2018. This will likely propel the administration to ramp up • Strategic landbanking in areas outside to spend at least PHP1.17 trillion (USD24.5 billion) in 2021 or 5.9% of infrastructure spending. In our opinion, the infrastructure push of of Metro Manila as infrastructure GDP, higher than the 2-4% average from 2011 to 20162. the government should benefit the real estate industry and provide spending should enable decentralization developers an impetus to redevelop viable areas into integrated from the urban core to the provinces communities. around Metro Manila. • Expansion of mixed-use developments outside the capital region. PUBLIC CONSTRUCTION 2021 NATIONAL BUDGET TO • Expansion of industrial hubs given the resurgence of the manufacturing sector DOWN 10% SUPPORT INFRASTRUCTURE and the rising demand for warehouses Public construction was affected by COVID-19 induced delays which For 2021, the government has set aside PHP87.9 billion (USD1.8 and similar facilities. resulted in a 10% contraction in 2020 from -3.6% in 2019. In our view, billion) for the Department of Transportation (DOTr) and about • Highlighting the proximity of office, the government's target of completing several infrastructure projects PHP695.7 billion (USD14.6 billion) for the Department of Public residential, and industrial properties to before the end of the Duterte administration should help support the Works and Highways (DPWH)4. In our view, the construction of public infrastructure projects. recovery of office and residential demand. The National Economic and public infrastructure projects will likely further stoke demand in the Development Authority (NEDA) has listed 104 infrastructure projects3 property sector. Among the projects scheduled to be completed In our view, the Philippine property that are likely to be implemented even beyond 2022. About 1.7 million within 2021 include the MRT-LRT Common Station in Quezon City, market’s pace of recovery is also likely to direct and indirect jobs are likely to be generated from the the MRT-3 rehabilitation, LRT-2 East Extension, Bonifacio Global City hinge on the government’s roll-out of the government’s infrastructure program. (BGC)-Ortigas Link Bridge, and the Skyway SLEX extension. COVID19 vaccines. Note: USD1 = PHP48 as of the end of 2020. *Department of Budget and Management; 1BusinessWorld, Efficient spending seen needed to plug infrastructure gap. 2Infrastructure outlays-to-GDP ratio twice the deficit-to-GDP ratio. 3Malaya Business Insight, NEDA reviews 26 infra projects. 4Department of Budget and Management, PRRD signs the P4.506 Trillion National Budget for FY 2021. Colliers Flash Infrastructure | Manila | 5 March 2021 Upcoming infrastructure projects in Metro Manila Reduced travel time across Metro Manila Project Travel Time Origin-Destination Before After Skyway Stage 3 3 hrs 30 mins NLEX-SLEX Valenzuela BGC–Ortigas Link Bridge 1 hr 11 mins BGC-Ortigas Quezon City LRT-2 East Extension 3 hrs 40 mins Recto-Masinag Metro Manila Subway Estrella-Pantaleon Bridge 1 hr 12 mins Makati-Mandaluyong (2025) NLEX-SLEX Connector 2 hrs 20 mins NLEX-SLEX NLEX Harbor Link (2020) MRT 7 (2022) NLEX Harbor Link 2 hrs 20 mins QC-Port Area Manila NLEX-SLEX Connector Road MRT Line 7 2 to 3 hrs 35 mins QC-Bulacan (2022) MRT 3 Rehabilitation (2021) MRT-LRT Common Station (2021) Skyway SLEX Extension N/A N/A SLEX Alabang –(MCX) Pasig River Expressway (PAREX) 2 hrs 10 to 15 mins Manila-Taguig MRT 4 (2025) Metro Manila Subway 1 hr 30 mins 45 mins Valenzuela depot-NAIA 3 Manila LRT 2 East Extension (2021) Source: Colliers International. Various news articles. Note: Travel time is by private vehicle. BGC-Ortigas Link Bridge Mandaluyong Pasig (2021) The Philippine economy contracted by 9.5% in 2020, the country’s worst economic performance Skyway Stage 3 Estrella-Pantaleon Bridge (2021) since the second World War. Undeniably, COVID-19 affected major economic sectors including (2020) Makati Pasig River Expressway (PAREX) property. Office leasing remains challenging, with vacancy reaching 9.1% in 2020 from 4.3% in Bay Area (2023) 2019; condominium pre-sales reached their lowest since 2013; hotel occupancies only hovered around 20% as foreign arrivals declined by 82% in 2020 while vacancy across malls in Metro Manila reached at 14% in 2020. Taguig Colliers Philippines believes that the government-projected rebound in Gross Domestic Product Parañaque (GDP) should partly hinge on the implementation of major infrastructure projects including the Skyway Stage 3, whose recent opening has been announced on social media and several news Other projects in south of Manila: agencies. Skyway SLEX Extension Las Piñas (2021) In our view, this should play an important role in reviving the Philippine property market. The completion of toll roads, cargo railways, subways, and airports will play a major role in paving Cavite-Laguna Expressway the proverbial road to recovery. Muntinlupa (2022) North-South Commuter Railway In our view, office and condominium developers should maximize their projects’ proximity to (2040-full completion) these infrastructure projects which are scheduled to be completed in 12 to 36 months. 2 Source: Colliers International. Various news articles. MRT = Metro Rail Transit. LRT = Light Rail Transit. Colliers Flash Infrastructure | Manila | 5 March 2021 The implementation of infrastructure projects nationwide should provide access to properties Take-up rate of horizontal projects outside Metro Manila that could be redeveloped into mixed commercial, residential, and industrial estates. The infrastructure plans of the national government will likely dictate the direction of real estate Pampanga developments even after COVID-19 is under control. H&L avg. % sold Q4 2020: 69% Railways: Unlocking the appreciation potential Lot Only avg. % sold of Q4 2020: 75% The expansion of Metro Manila’s railway system should unlock underutilized areas for township developments. Developers with significant office and condominium stock in the Bulacan northern part of Metro Manila will likely benefit from the Metro Rail Transit Line 7 (MRT-7) as it is directly connected to the project’s North Avenue station. The railway project should improve H&L avg. % sold Q4 2020: 77% the business hub’s accessibility to the estimated 60,000 college graduates each year from Makati Lot Only avg. % sold of Q4 2020: 5 Quezon City, Caloocan and Bulacan . 77% The construction of the Southern Luzon line of the North-South railway project and the planned revival of a rail cargo line from Manila to Laguna should play a vital role in funneling Laguna major manufacturing investments to the Cavite-Laguna-Batangas corridor. H&L avg. % sold Q4 2020: 77% The proposed Southern Luzon line of the North-South Railway Project will likely cover Calamba Lot Only avg. % sold of Q4 2020: in Laguna; Batangas city in Batangas; Matnog, Sorsogon and Legazpi, Albay in the Bicol region. 63% The railway project is envisioned as the primary rail backbone that would connect the country’s capital to the underserved areas in Southern Luzon, particularly the Bicol region. Cavite Batangas H&L avg. % sold Q4 2020: H&L avg. % sold Q4 2020: Roads: Improving access to residential communities 74% 68% Lot Only avg. % sold of Q4 2020: Lot Only avg. % sold of Q4 2020: According to a study released by the Japan International Cooperation Agency (JICA), the 75% 64% country loses about PHP3.5 billion (USD73 million) daily due to traffic congestion. The aid Source: Colliers International. Google Maps. Note: % sold excludes sold-out, projects which stopped selling, and on hold agency added that if the traffic situation remains unresolved, the country could lose as much projects. H&L = House and Lot. Sorsogon province and Legazpi in Albay province are beyond this map to the south. as PHP5.4 billion (USD113 million) a day by 20356. Road projects play a major role in easing traffic in the country’s capital and improving the flow of people, goods, and services within The BGC-Ortigas bridge, for instance, is projected to absorb up to 25% of EDSA7, Metro Manila’s Metro Manila’s major business districts. main thoroughfare’s, daily traffic volume. Skyway Stage 3, which was completed in Q4 2020, Other infrastructure projects that will likely drive major office and residential developments helped reduce travel time from NLEX8 to SLEX9 to 30 minutes from three hours. Another project around Metro Manila are the BGC-Ortigas Link Bridge, Estrella-Pantaleon Bridge, and the that aims to improve the connectivity within the southern portion of Metro Manila is the Cavite- Skyway SLEX Extension. The three are among the Duterte administration’s priority projects and Laguna Expressway (CALAX). Once fully operational in July 2022, the project is planned to cut should improve connectivity between the major business districts in Makati, Taguig, Ortigas travel time from CAVITEX10 to SLEX-Mamplasan to 45 minutes from 2.5 hours. and Alabang.
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