RESEARCH

METRO 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 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 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. , 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 , 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 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 (QC) documented a Bonifacio drove the weighted weighted average lease rate of PhP Makati is set to witness the turnover of 247,000 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. (BGC), Corridor (, Ortigas East, The planned completion of Ayala McKinley Hill, and McKinley West, and ) 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. 700,000 Furthermore, Megaworld’s World Commerce Place is due Q2 2019, 600,000 adding another 105,000 square 500,000 meters to the Uptown Bonifacio 400,000 development. 300,000 Ortigas will be welcoming 157,000 square meters of additional office 200,000 space in 2019. The notable 100,000 upcoming developments in Ortigas include SM Keppel Tower and SM - Mega Tower, which will revamp the Makati CBD Fort Alabang Quezon City Ortigas Bay City Ortigas skyline with 103,000 square Bonifacio meters and 96,000 square meters of office space, respectively. 2019 2020 2021 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. 2.00% Makati’s weighted average lease - 0.00% rates was pegged at PhP1,419.68 Makati Fort Alabang Quezon Ortigas Bay City per square meter per month, an CBD Bonifacio City increase of 3.10% Q-o-Q and 10.37% Y-o-Y. Lease Rates Y-o-Y Growth Source: Santos Knight Frank Research

4 OFFICE FOR SALE CO-WORKING TREND Local property developers recognized the sizable co-working The ballooning of rental rates led The biggest trend in the office market. Ayala Land and Robinsons property developers to consider sector of late is the rise of serviced Land already ventured into co- selling office spaces to interested and co-working spaces. Coworking working with Ayala Land’s “Clock- parties. This will result to better is a term first used by entrepreneur In” and Robinsons Land’s cashflows and rate of returns to the Brad Neuberg in 2005. A co- “Work.Able”. Clock-In emerged as building owners. Occupiers, on the working office space is designed to one of the well-known local co- other hand, opt to purchase spaces provide a dynamic, productive, and working brands. It is situated in to save on recurring rental costs. collaborative environment that various Ayala-owned buildings such boast of ‘breathability’ and as C2 and Pre-selling office developments in ‘flexibility’ and without the Makati command the highest selling Bonifacio Technology Center in constraints of the usual corporate BGC, Makati Stock Exchange and price ranging from PhP160,000 per office environment. Co-working square meter to PhP320,000 per Ayala North Exchange in Makati usually caters to freelancers, small th square meter. Notable Grade A and The 30 Corporate Center in start-up companies, and Ortigas. Robinsons Land, on the office developments which are independent professionals. expected to be completed by 2022 other hand, introduced “Work.Able” include The Gentry Corporate Plaza Regus, Spaces, WeWork and in the newly-operational in Valero Street and The Stiles Common Ground are some of the Cyberscape Gamma in Ortigas. Enterprise Plaza in . notable world-class serviced and Co-working rates varied depending co-working offices that are Due to the strong demand for office on the location. Co-working offices emerging and expanding in the in Fort Bonifacio had a daily rate of space in BGC, all buildings with Philippines. Regus is a popular offices for sale are 100% sold to- PhP620 to PhP1,000 per table per serviced office provider in the day. Co-working price range in date. At the farther part of , country. Its first Philippine venture however, Ayala Land Offices Makati was pegged at PhP550 to was in 1999 and it eventually PhP1,000 per table per day. The launched Tryne Enterprise Plaza in offered co-working spaces through . The 13-storey West daily rates for Alabang and the “Spaces” brand. Spaces has an co-working space ranged from Tower has a Gross Saleable Area of existing office in in 19,736 square meters and sells at PhP400 to PhP600 per table per BGC and will be opening another day. QC and Ortigas had the an average of PhP250,000 per office in Makati. square meter. The tower is cheapest co-working rates among scheduled to be handed over to Moreover, another US-based all the CBDs in Metro Manila, unit owners in Q4 2023. company, WeWork, started ranging from PhP250 to PhP600 operations in Uptown Bonifacio per table per day. Ample office inventories remain Tower 3 and announced a second available for sale in the other Metro office in RCBC Plaza in Makati. Manila business districts. Average selling prices in these areas range Furthermore, Malaysian co-working from a low of PhP155,000 per brand, Common Ground, recently- square meter to a high of opened its first branch in Arthaland PhP260,000 per square meter. Century Pacific Tower and is opening another office at IBP Tower in Ortigas.

FIGURE 5 Co-Working Rate Price Range (Daily Rates)

1,200.00 1,000.00 1,000.00 1,000.00 600.00 600.00 600.00 800.00 550.00 600.00

400.00 620.00 550.00 200.00 400.00 400.00 300.00 - 250.00 Makati City Fort Bonifacio Alabang Quezon City Ortigas Bay City Source: Santos Knight Frank Research

5 METRO MANILA RESIDENTIAL SECTOR ENDS 2018 WITH STRONG DEMAND INDICATORS Residential | Robust buying activities from expatriates fueled the demand for residential units

The local residential market per month, a remarkable 11-unit square meter in the last quarter of continued to display vigorous increase from Q3 2018. 2018. Taguig and Makati followed numbers due to the unwavering with average selling prices of purchasing activities from both Demand for middle-income projects PhP214,491 per square meter and foreign firms and local continued to be highest in Metro PhP205,452 per square meter, professionals. Overall monthly take- Manila, with a take-up of 37.46 respectively. up in the fourth quarter averaged units per month at an average. 1- bedroom sales overtook studio 27.98 units per month, coming from TABLE 2 units in the quarter, making it the 23.1 units per month in the previous Q4 2018 Residential quarter. The influx of foreign more sought-after unit type. 1- bedroom units sold at an average of Condominium Sales Market investors and workers, as a result of Statistics the growing number of PAGCOR- 15.62 units per month in Q4 2018. enabled companies in the country, Most of the 1-bedroom units sold Avg. Units remained to be one of the major were intended for employee Area Monthly housing in the Bay Area. Sold (%) drivers of residential sale in Metro Take-up Manila. The Philippine Amusement SELLING PRICES AND YEAR-ON- and Gaming Corporation (PAGCOR) YEAR GROWTH Makati 95.45% 44.24 reported a growing list of approved licenses as of December 2018. Bulk Bay Area and Makati registered the Taguig 94.63% 12.89 residential purchases for the highest year-on-year growth in purpose of employee housing prices among the Metro Manila Quezon City 91.61% 14.15 created an upward pressure on the CBDs in Q4 2018 at 65.7% and prices of units. 32.7%, respectively. Bay Area’s Ortigas* 91.22% 48.40 indicative weighted average selling DEMAND AND ABSORPTION price remained the highest across Alabang 96.35% 11.93 Q4 2018 overall absorption rate in Metro Manila for the last 3 consecutive quarters. Residential Metro Manila rose slightly at Bay Area 95.24% 49.69 94.95%, even with new project condominium prices in the Bay Area launches during the quarter. averaged Php242,467 per METRO 93.46% 27.98 MANILA Bay Area recorded the highest *Includes parts of , , and average take-up rate among the San Juan Metro Manila CBDs in Q4 2018 at 49.69 units per month. Majority of FIGURE 6 the Chinese companies are located Indicative Average Selling Prices per Area (PhP/sq.m.) in the Bay Area and some parts of Makati. 600,000

Ortigas closely followed Bay Area, 502,894 500,000 with a 48.4 units per month average performance. Investors and end 399,136 users in Ortigas are primarily 400,000 considering the potential for high 290,271 returns due to the anticipated 300,000 251,294 237,532 increase in accessibility once lined- 204,130 up infrastructure projects are 200,000 completed. 172,743 100,000 Makati occupied the third spot with 137,135 125,605 an average take-up of 44.24 units 75,873 81,649 82,074 0 Makati City Taguig City Quezon City Ortigas Alabang Bay Area Source: Santos Knight Frank Research

6 High-end condominium projects Some of the notable upcoming the construction of Arcovia City in realized the highest year-on-year townships are concentrated along the Pasig side of C-5. The first high- growth in prices, with selling prices the C-5 Corridor. Eton Properties end condominium project in Arcovia growing at an average of 23% in the and Ayala Land’s Parklinks project City, 18 Avenue De Triomphe, is for fourth quarter. High-end projects boasts of being the largest mixed- launching within 2019. The 37- sold from Php122,554 per square use development in the area, storey residential project will offer meter to Php399,137 per square covering 35 hectares of land. 576 residential units of different meter in Q4 2018. cuts, targeting the young continues professionals working in the area. NEWLY-LAUNCHED PROJECTS to expand its township portfolio with Residential property developers continue to bank on the Vion Tower Source: Megaworld government’s large-scale 18 Avenue De Triomphe infrastructure program by acquiring Source: Megaworld land and master-planning developments proximate to planned infrastructure projects. Uptown Arts Residences, Megaworld Corporation’s newly launched property in Taguig, is located near the proposed Skytrain Uptown Station and the bridge that will connect Fort Bonifacio to Pasig. In addition, Megaworld Corporation recently launched Vion Tower in Makati, which capitalizes on its accessibility to the proposed Magallanes Transport Hub. Makati is likewise set for a major transportation upgrade with the construction of a subway system. The new infrastructure is expected to improve capital values and rejuvenate interests in the city. Also in Q4 2018, Aseana Residential Holdings launched the first two of the four towers of MidPark Towers. The residential project is within in Parañaque City and MidPark Towers Source: BusinessMirror is in close proximity to the recently launched Parañaque Integrated Terminal Exchange.

GENTRIFICATION IN MANILA

The massive infrastructure projects of the government and lack of developable land within the Metro Manila CBDs paved the way for the gentrification of fringe areas. Major developers expand their portfolio by acquiring land outside the city core and turning them into urban township developments. Townships are ideal for residents because it offers an integrated community where they can live proximate to retail establishments and workplaces.

7 Bridgetown Business Park by Arcovia City Source: Megaworld Robinsons Land Corporation will soon introduce residential condominiums to complement the upcoming office buildings in the mixed-use development. The township will mostly cater to the Business Process Outsourcing (BPO) sector.

BOOM OF CO-LIVING With the strengthening of the IT- BPO sector in the country, residential demand for products specifically targeting BPO workers and employees entices property developers to conceptualize and Notable co-living projects include MyTown rates, on the other hand, unveil products and projects that Ayala Land’s The Flats Amorsolo vary depending on the type of tap into the huge unserved and SMDC’s MyTown Dormitories. accommodation. Rooms that could demand. At present, there are 16 MyTown fit 6, 4, and 2 persons cost Co-Living projects present an projects in various locations within PhP4,050 per bed per month, alternative accommodation that BGC and Makati while The Flats PhP4,200 per bed per month and meets the needs, desires and have upcoming sites in BGC Fifth PhP8,100 per bed per month, preferences as well as addresses Avenue, BGC Parkway and Circuit respectively. A Private Queen Room . the focal concerns of BPO workers Makati. is also available for PhP16,100 per month. and staff, young urban A bed in The Flats is priced professionals, ordinary office PhP6,250 per month (excluding Another co-living project to watch workers and students. Bed and utilities) for the first 6 months of out for is First Georgetown’s GRID, room options for individuals and lease. The monthly occupancy cost which is also situated in Makati. staff housing are available. increases to PhP6,700 per month The worsening traffic situation (excluding utilities) in the within the major business districts succeeding months. of Metro Manila creates a demand The Flats Amorsolo for housing units that are close to Source: Make It Makati places of work. This promotes personal and monetary well-being, saving the worker a great deal of time and money. Also, renting a residential condominium unit might be too expensive for employees living on a strict budget. Hence, the dormitory model appears to be more compelling and practical. Sharing living spaces likewise promotes social interactions and friendly collaborations for an enhanced overall living experience.

8 PROPERTY DEVELOPERS MOVE INTO WAREHOUSING AND LOGISTICS INDUSTRIAL | New opportunities in the industrial sector identified by local firms

The Gross Domestic Product (GDP) property developers to re-visit FIGURE 7 of the Philippines grew by 6.1% in opportunities in logistics and Industry Sector Composition the final quarter of 2018, bringing warehousing outside the city core. (Q4 2018) the full year GDP growth to 6.2%. Developers likewise formulate

The industry sector grew fastest at strategies that cater to the notable Electricity, Mining & 6.9%. Manufacturing and growing demand coming from Gas & Water Quarrying construction were the largest Small and Medium Enterprises Supply 3% 10% contributors to industry growth at (SME). 62% and 25%, respectively. Moreover, government spending on Double Dragon Properties is set to infrastructure increased by 6.9%, open the Central-Hub Iloilo, a Construction the fastest pace since 2013. warehousing hub that will add 22,000 square meters to the 25% Manufacturing With the projected prolonged present industrial supply. 62% elevated level of fuel prices and as e-commerce continues to reshape In addition, Prime Orion Properties, retail, last-mile delivery hubs, inner- in partnership with Mitsubishi Corp., plans to build a new Standard city distribution centers, cold Source: Philippine Statistics Authority storage and warehouse facilities will Factory Building (SFB) inside the remain in high demand. 11-hectare Laguna Technopark. The SFB will have an estimated in the country. The building will have The average lease rate for industrial GLA of more than 60,000 square 29 storeys of modern storage, with space were at a minimum of meters and will include only 8 units per floor. An extra PhP152 and a maximum of PhP589 commissaries, cold storage, light space is to be provided per unit, per square meter per month. Cities manufacturing and logistics which can be used as showroom or of Makati, Mandaluyong and facilities. The total area will be office space. The ground floor will Parañaque recorded the highest divided into 40 leasable units, each be dedicated to banks, for easier lease rates at PhP589, PhP457 and having an estimated area of 1,200 trading and transactions between PhP438 per month, respectively. to 1,500 square meters. businesses and clients.

The scarce supply of industrial The Juan Luna Logistics Center in properties within Metro Manila, , Manila will be Anchor nevertheless, has been forcing Land Holdings, Inc.’s third

FIGURE 8 Industrial Space Average Lease Rates (PhP/sq.m./mo)

Makati ₱589

Mandaluyong ₱457

Parañaque ₱438

Taguig ₱300

Quezon City ₱255

Pasig ₱225

Las Piñas ₱157

Valenzuela ₱152

₱0 ₱100 ₱200 ₱300 ₱400 ₱500 ₱600 ₱700 Juan Luna Logistics Center Source: Santos Knight Frank Research Source: Anchor Land Holdings Website

9 HOSPITALITY MARKET STEADILY CRUISING THE 2018 FLIGHT PATH HOSPITALITY | New Transportation Routes, Expansion of Airports and Hotels, Rising Tourist Arrivals and Better Utilization of Technology all show a Brighter Future for the Capital

The Department of Tourism (DoT) FIGURE 9 celebrated a momentous occasion Philippine Foreign Tourist Arrivals 2018 as the country welcomed the highest number of tourist arrivals in South Koreans decades . Foreign tourist arrivals in 19% From Other the country increased by 7.68% to Countries 7.1 million in 2018 despite the 28% closure of Boracay Island. Boracay’s closure opened up Hong Kong opportunities for alternative tourist SAR destinations in the country, such as 1% Chinese , Iloilo, Palawan and Siargao. Indians 15% 2% South Korea remained the Malaysians country’s top tourism market with 2% about 1.6 million visitor arrivals in Singaporeans British 2% 2% Americans the full year of 2018. South Korea Canadians (19%), China (15%) and US (12%) 12% 3% Taiwanese Aussies Japanese occupied the top 3 spots in terms 3% 3% 8% of 2018 visitor arrivals to the Philippines. China was recognized Source: Department of Tourism as the most improved tourism market, achieving an almost 30% the prospect of long-haul flights to The Ninoy Aquino International year-on-year growth in tourist European cities while Cebu Pacific is Airport (NAIA) received 42 Million arrivals, with 1.3 million Chinese looking at direct flight opportunities passengers in 2017, which is nationals visiting the country in to North Asia. These new links will beyond the airport’s 30.5 million 2018. serve as the country’s silk road annual capacity. In response, a EXPANSION OF ROUTES AND connecting the country’s more than super consortium of the country’s AIRPORTS 7,000 islands with the rest of the top conglomerates was awarded world, which will consequently the Original Proponent Status (OPS) In December 2018, AirAsia stimulate trade, tourism and to rehabilitate and increase the Philippines added a new direct flight investments across the hospitality capacity of the Philippine’s main route from Manila to Shenzhen, sector. and most congested airport. The months after the launching of the target commencement of airline’s Cebu – Shenzhen flights. Complementing the expansion of rehabilitation works will be in The primary objective was to cater various routes to and from the September 2019. Estimated to the growing Chinese market country, the DoT, together with the completion will be in 2 to 6 years traveling to and from China. The Department of Transportation from start date. The goal is to new flight routes are expected to (DOTr), is prioritizing the increase NAIA’s capacity to 47 generate increased volumes of improvement of the country’s million in the next 2 years and to 65 tourism and investment activities, international airports, especially million in the succeeding 4 years. as well as foreseen to further those catering to the market of enhance relations between China tourist destinations. Improvement of In addition, after a seven-year and the Philippines. at least 85 airports are in the closure, the Manila – Davao pipeline, including New Clark shipping route was reopened, Philippine Airlines (PAL), the International Airport, New Bohol providing another link between country’s flag carrier, and Cebu (Panglao) International Airport and Manila and four of the country’s far- Pacific, a low-cost airline in the Bacolod Airport. The Philippine flung cities. The route is serviced by Philippines, are also expected to government is likewise interested in the 2Go Group, a Philippine-based launch new domestic and developing smaller airports with the company engaged in transporting international routes in 2019, objective of redirecting load away people and cargo with the use of pending the delivery of new from the country’s main gateways. airplanes. PAL is currently studying

10 FIGURE 11 MM Upcoming Hotel Room Supply

2019 2020 2021-2023

1214 1010 847 713 678 591 613

275 280 200

Makati Ortigas Bay Area & QC Taguig NAIA Terminal 1 (08-19-18) Pasay Image Source: DZBB Super Radyo (others) Source: Santos Knight Frank Research

FIGURE 10 enhancement of trade and Budget hotels continue to MM Q4 2018 Hotel room Supply investments, and the expansion of mushroom in various areas in and Distribution a logistics provider’s capability. outside of Metro Manila. Hop Inn METRO MANILA’S HOSPITALITY Tomas Morato recently-opened in INDUSTRY QC, bringing the number of hotel QC Alabang rooms in QC to 2,919 rooms. 6% 11% BGC As the country’s center of culture, 7% economy, education and Newly-minted into the Philippine government, Metro Manila Hospitality Industry, RedDoorz, an welcomed the most number of online budget hotel marketplace, visitors, both domestic and foreign, partners with low-cost hotel owners Bay among all other places in the Area & to standardize product offerings, Makati Philippines. Manila is often the Pasay formulate marketing and sales 29% venue of choice when hosting (others) strategies, and handle customer 33% international conferences, conventions and events, such as feedback. RedDoorz and other concerts and economics summits. similar service providers, such as The Metro Manila hospitality Zen Rooms, Nida Rooms and Oyo Ortigas Rooms, play a huge role in the 14% industry growth remains mainly driven by Meetings, Incentives, introduction of small and less Conferences and Exhibitions Source: Santos Knight Frank Research known hotels to the market. (M.I.C.E.) and local guests on staycation. In response to growing tourist volume, developers have been A number of hotel openings were inter-island ferries and cargo investing in the hotel industry recorded in Q4 2018, including ships. across the Philippines. Branded Sheraton Manila by Mariott From Davao, the ship first stops in International at Newport City in hotels are expanding not only within General Santos (South Cotabato) Pasay. 390 new rooms were added the capital but also in locations then in Zamboanga, followed by to Newport City’s present supply of such as Zambales (Rosewood), La Iloilo, before it finally docks in more than 2,600 rooms. Moreover, Union (dusitD2, a Dusit brand), Manila, and vice-versa. This Hotel Okura is set to open in Q2 Bacolod (Citadines, an Ascott interconnectivity between the five 2019, adding another 196 rooms. brand), Davao (Dusit) and Cebu cities provides another avenue of Continuing and increasing demand (Dusit, Sheraton, Radisson and transport at competitive prices, a is noted despite the presence of Citadines). Meanwhile, homegrown boost in domestic tourism, numerous hotels in the area.

11 players are also expanding their tourism and hotel portfolio, such FIGURE 12 as Ayala with the Seda hotel brand MM 5-Star Hotels ADR Q4 2018 (in PhP) and its new tourism estate, Sicogon Island. 14,838.15 At present, Bay Area and other areas in Pasay have the most number of hotel rooms in Metro Manila, accounting for 33% of the total. Moreover, about 3,000 new 9,362.96 rooms will soon be available in the Bay Area. Makati likewise 6,553.20 6,770.44 6,721.80 comprises a large portion of the hotel supply with a 33% share in total number of rooms. Another 1,700 hotel rooms will be added to the Makati supply within the next five years. A total of 6,400 rooms are upcoming in Metro Manila until Alabang BGC Makati Ortigas Bay Area & 2023, with nearly 2,900 expected to Pasay (others) open in 2019. Source: Santos Knight Frank Research

In terms of Average Daily Rates (ADR), Bay Area and other areas in Pasay have the highest ADR across FIGURE 13 the 5-Star-rated hotels in Metro MM Hotels Average Daily Rate Q4 2018 (in PhP) Manila. ADR of 5-star hotels in the aforementioned areas averaged PhP15,000.00 in Q4 2018. The price was mainly driven by 11,813.08 integrated hotels and casinos. ADR in Makati was recorded at a little 8,847.77 over PhP9,000.00 while ADR in the rest of the areas were estimated between PhP6,000.00 to 4,849.14 PhP7,000.00. 4,681.23 4,785.44 4,188.99 Overall ADR follows the pattern of that of 5-star hotels, with prices in Bay Area and other areas in Pasay leading all the other business districts, pegged at almost Alabang BGC Makati Ortigas Bay Area & QC PhP12,000.00. BGC’s overall ADR Pasay was almost PhP9,000.00 while the (others) overall ADR of the rest of the areas Source: Santos Knight Frank Research ranged between PhP4,000.00 to PhP5,000.00.

12 BRICK & MORTAR ESTABLISHMENTS SUSTAIN GROWTH AMIDST BUSTLING E-COMMERCE RETAIL | Evolving landscape increases demand for new concepts and technologies

OPENINGS & EXPANSIONS project, targeting to finish 1 phase per year. FIGURE 14 Both internet and traditional retail Upcoming Retail Supply Per have thrived in the Philippines amid Upon completion, an additional Retail Category changing dynamics of customer 250,000 square meters of retail preferences. Despite the rapid space will be added to the mall’s emergence and notable growth of existing GLA. Global furniture retailer e-commerce, Filipino consumers continue to prefer the actual IKEA is a notable locator in the shopping and dining experience of expansion, with slated opening in Others Food & 2020. visiting physical stores. Moreover, Beverage retail expansions far and wide 36% ascertain that retail developers Mitsukoshi Mall, Japan’s oldest 42% expect the market to remain surviving department store chain, is patrons and regulars of shopping making its way to the Philippines. Clothing & malls. Complete with an authentic Apparel Japanese food court and a 22% Ortigas and Company is ramping supermarket featuring wines, meats, up the Estancia Mall in Capital Commons, adding another 65,000 sweets, and confectioneries, Source: Santos Knight Frank Research square meters of GLA in 2019. The Mitsukoshi Mall will surely captivate mall expansion will include an SM the hearts of the Filipino market. Carpet cinemas were uncovered in department store, movie houses, Federal Land, Inc. together with new and exciting restaurants and Nomura Real Estate Development Q4 2018. more global lifestyle brands. The and Isetan Mitsukoshi Holdings Ltd. NEW BRANDS & TRENDS company is keen on making Capital teamed up to bring the high-end Commons an integrated hub for mall to the country. It will be located As of the last quarter of 2018, there live-work-play in the Ortigas Central in Federal Land’s Veritown project in are 257 upcoming brands in all of the Business District. BGC. The target completion is in major retail establishments in Metro of SM Supermalls 2021. Manila. The Food & Beverage recently revealed the mall’s much category takes the lead representing awaited expansion, which is To further enhance the retail 42% of the entire upcoming brands actually a renovated version of the experience, a number of shopping pie. Milk Tea takes up 6.5% while original mall. The estimated malls underwent renovation. Food Buffets make up 10.3% of the additional area is 20,000 square in Ortigas F&B. The remaining percentage are meters of leasable space. substantially completed renovation in restaurants, coffee shops and other in QC is time for the Christmas season. As a food concepts. likewise undergoing a considerable result of the renovation, the number expansion. The mall expansion will of food and beverage stores 36% of the upcoming brands is add 10,000 square meters of increased by 10% and seats in the composed of collaborative retail leasable space to the existing mall food court rose from 1,000 to 1,200 shops, furniture, entertainment, health GLA. seats. The renovation of the & wellness, supplies, tech, general merchandise, sports, cosmetics, and Ayala Land Inc. is further boosting Robinsons Movieworld-Galleria is the Bay Area retail sector in 2019 on-going and, once completed, will services. with the scheduled unveiling of the introduce recliner seats good for Shops on health & wellness comprise first phase of Bay Area. about 100 viewers. The new mall is expected to seize a 21.3% of the brands placed under the large share of the existing SM Mall Shangri-la Mall in Ortigas enhanced Others category. This trend signifies of Asia market. Nevertheless, SM the overall shopping mall experience that Filipinos are becoming more Mall of Asia continues construction by renovating the 30-year old movie health conscious and are aspiring to works on an 8-phase expansion houses. The new and improved Red live a more active lifestyle.

13 The remaining 22% is made up of clothing & apparel, eyewear, accessories, and footwear. Japanese brands grouped together to create a single destination for the selling of Japanese merchandise. The opening of @Tokyo in various malls made it easier and more convenient for patrons of Japanese items to shop for their favorite products. Brands such as Seiko, Legato Largo, Accessories Blossom, Karuizawa Shirt, Prospex, and Annello are participating Inside of @Tokyo in , BGC names. More brands are in the pipeline. These stores share a common payment counter, similar to a department store, creating a Asia’s main mall. Another noticeably players recently participated, such feel of a mall-within-a-mall. Unlike growing skincare brand is The as China’s AliPay and WeChat Pay collaborative retail stores, @Tokyo Saem, which means spring water or that partnered with AUB Paymate houses well-established brands, fountain in Korean. It now has 9 to cater to the growing number of each with their own hard-walled branches in different locations Chinese nationals in the country. booth as partition. @Tokyo has within Metro Manila. existing branches in Uptown BGC According to PayPal’s Cross- Mall and Market! Market!, and In December 2018, the Bench Border Consumer Research 2018, upcoming branches in The Podium Group opened the second branch the total online spend of Filipino and Estancia Mall. of Bench Cafe in , Makati. shoppers for 2017 was PhP92.5 From a simple hot dog cart in This illustrates the concept of billion. This number is expected to Madison Square back in 2001, combining shopping and dining for rise to PhP122 billion in 2018, a Shake Shack now has around 200 a better retail experience, which is 32% increase from 2017 statistics, global branches serving burgers, an evidently developing trend in the and grow further to more than milkshakes, hot dogs, frozen country. PhP185 billion in 2020. The top 3 custards, beer, and wine. This purchases were for Clothing & American-favorite food place is Apparel at 68%, followed by making its way to the country with Consumer Electronics at 57% and its first-ever Philippine branch in Cosmetics at 56%. BGC’s Central Square. We are yet to see an end to the Milk Tea phenomenon as another VACANCY AND RENTS foreign entrant, Taiwan’s popular milk-tea shop, Tiger Sugar, arrived Retail lease rates in Metro Manila in the country. It has opened its first averaged PhP1,342.46 per square branch in Bonifacio High Street. meter per month in the fourth Customers line up for hours just for quarter of 2018. Bay Area led the the experience. What sets Tiger Metro Manila CBDs, having an Sugar apart from its competitors is Local drug store accepting Chinese e-wallets as form of payment at SM average lease rate of PhP1,750.00 the use of fresh cream instead of per square meter. This was driven milk, which is a rich twist to the Mall of Asia by SM Mall of Asia rents. Bay Area original recipe. likewise displayed the lowest An increasing demand for beauty In addition, retail establishments vacancy rate with as little as 0.08% and skin care products led to the started accepting cashless of available space as of Q4 2018. further expansion of Korean skin transactions to offer consumers a Following Bay Area in terms of lease care brands in the Philippines. more convenient way of paying for and vacancy rates is Fort Bonifacio, Influenced by Korean telenovelas, purchases and elevate the buying with average rents pegged at PhP Filipinos try to achieve a “glass- skin” complexion (clear, luminous, experience. The country’s strongest 1,541.67 per square meter and seemingly transparent skin). Popular player of digital wallets (also known vacancy estimated at 0.94%. Korean skincare brand Innisfree set as e-wallet, mobile payment), Sound indicators render Bay Area up its first branch in the country at GCash and Paymaya, are available and Fort Bonifacio as significant the ground floor of SM Mall of in a number of major malls. Foreign growth drivers of the retail sector.

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