Colliers Quarterly | RESIDENTIAL 1Q 2017 11 May 2017

Forecast at a glance Short-term leases Demand Colliers sees luxury condominium take- up being sustained by demand from to temper rising expatriates and affluent families. Millennials working in CBDs will drive the demand for rental housing in the fringes. RFO vacancy Supply Joey Roi Bondoc Research Manager About 22,000 additional units will be Completion of residential condominium projects for completed this year, about five times the first three months of the year picked up after a higher than the number of units delivered in 2016. The bulk of the new sluggish 1Q 2016. Colliers sees about 22,000 supply will come from the additional units being completed this year in the Area, driven by affordable to mid-income major business districts, with the Manila Bay Area projects. accounting for two-thirds of the new supply. While rents in major CBDs are declining, prices continue to Vacancy rate grow albeit at a slower pace. The demand for luxury Vacancies in CBD and Fort units is stable and this encourages affordable and Bonifacio should rise marginally to 14% mid-income developers to pursue high-end projects and 15% over the next 12 months. especially in the Manila Bay Area, where the demand vacancy should be for luxury projects has spilled over. Colliers relatively stable at 6% to 7%. encourages developers with significant ready-for- Rent occupancy (RFO) units to lease out the units either We expect rents to drop by about 1% to individually or as shared units as long as the leasing 3% over the next 12 months. schemes conform with the developers' market positioning and do not lead to a deterioration of the units' perceived value. To entice more consumers to acquire RFOs, Colliers recommends that developers Residential Stock* offer these units through rent-to-own schemes and be more aggressive in providing flexible and 30,000 25%

extended payment terms. Colliers also sees the Contributors: 25,000 For more information: demand for worker accommodation projects being 20% sustained over the medium term. Hence, developers 20,000 Market Contact Name Market Contact Name Market Contact Name Market Contact Name 15% should look at either building or acquiring existing 15,000 projects catering to this market. 10% Title | Market Title | Market Title | Market Title | Market 10,000 5% +1 00 000 0000 +1 00 000 0000 units condominium 5,000 - 0% [email protected] [email protected] Market Contact Name Market Contact Name

2012 2001 2002 2003 2004 2005 2006 2007 2008 2010 2011 2013 2014 2015 2016 2017F Title | Market Title | Market

Residential Stock (LHS) YoY Change (RHS) Copyright © 2015 Colliers International. *Includes Alabang, Araneta Center, Eastwood City, Fort Bonifacio, Makati CBD, Manila Bay Area, Ortigas Center, and Rockwell Center The information contained herein has been Source: Colliers International Philippines Research obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed

Residential Supply Forecast (units)

LOCATION AS OF 2016 2017F 2018F 2019F 2020F TOTAL Alabang 3,700 900 820 - - 5,500 Araneta Center 4,200 300 - - - 4,500 Eastwood City 7,500 980 - 630 - 9,100 Fort Bonifacio 24,200 8,500 3,800 3,000 - 39,700 Makati CBD 21,600 4,700 1,000 590 330 28,400 Manila Bay Area 8,800 5,500 8,500 2,600 2,100 27,600 Ortigas Center 16,200 1,400 780 570 610 19,700 Rockwell Center 4,100 - 340 760 - 5,200 Total 90,700 22,500 15,400 8,100 3,100 140,000

Source: Colliers International Philippines Research

in Makati CBD rising to about 14% to 15% over the next Completions in CBDs pick up 12 months given the projected completion of an The completion of residential condominium projects for additional 4,500 units, about a fifth of the projected new the first three months of the year picked up after a supply this year. Colliers also attributes the projected sluggish 1Q 2016. Five residential projects were increase in Makati CBD vacancy to the completion of completed from January to March. These include Breeze mid-income projects in the fringes areas such as The Residences (2,100 units) in the Manila Bay Area; CDC Beacon-Amorsolo Tower in Chino Roces corner Arnaiz Millennium Residential Apartments (130 units) and The Avenue, Makati. Notable projects due to be completed Pearl Place-Tower B (410 units) in Ortigas Center; The within Makati CBD include Kroma Tower by Ayala Land, Venice Luxury Residences-Emanuele (250 units) in Fort Three Central by Megaworld, and Bonifacio; and Valero Grand Suites (220 units) in Makati by Kuok Properties. CBD. About 3,100 residential condominium units were completed in 1Q 2017, more than triple the number of Fort Bonifacio’s vacancy reached 12.4% from 11.7% in units delivered in the same period last year. SMDC’s 4Q 2016. The business district will account for nearly Breeze Residences in the Manila Bay Area accounted 40% of the projected additional supply this year. Thus, for two-thirds of the total units delivered in the first three we see vacancy rising to about 15% in the next 12 months of the year. months, the fastest among the major CBDs. Projects due to be completed this year include One Uptown Close to an additional 20,000 units are expected to be Residences by Megaworld; and Avida Towers BGC 34th delivered in Metro Manila for the rest of the year. The Street and The Sequioa at Two Serendra by Ayala Land. bulk of the supply will come from the Manila Bay Area, driven by SMDC’s affordable to mid-income projects. Makati CBD Residential Vacancy From about 8,800 units as of end-2016, Colliers sees the 18% Manila Bay Area’s stock surging by more than 200% to 16% more than 27,000 units in 2020. Aside from overseas 14% Filipino workers (OFWs), demand in the emerging 12% business hub is fueled by casinos, BPOs, and offshore 10% gaming firms. Meanwhile, Fort Bonifacio’s supply is 8% expected to reach nearly 40,000 units from about 24,000 6% as of end-2016. 4% 2% Overall, Colliers sees about 12,300 units being 0%

completed in Metro Manila annually from 2017 to 2020.

2010 2001 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2013 2014 2015

1Q16 2Q16 3Q16 4Q16 1Q17

1Q18F 2Q17F 3Q17F 4Q17F

Makati CBD Residential Vacancy Vacancy rates continue to rise across major CBDs Source: Colliers International Philippines Research Vacancy in Makati CBD rose to 13.7% in 1Q 2017 from 13.3% in the previous quarter. Colliers projects vacancy

2 Colliers Quarterly | 11 May 2017 | PHILIPPINES | RESIDENTIAL | Colliers International Metro Manila Comparative Luxury 3BR Residential Rental Rates (PHP / sq m / month)

LOCATION 4Q 2016 1Q 2017 %CHANGE (QoQ) 1Q 2018F %CHANGE (YoY) Fort Bonifacio 640 - 1,020 630 - 1,000 -1.86% 610 - 980 -1.96% Makati CBD 560 - 1,100 560 - 1,080 -1.64% 550 - 1,070 -1.29% Rockwell Center 780 - 1,070 760 - 1,050 -2.15% 760 - 1,030 -1.24%

Source: Colliers International Philippines Research

Due to the lack of developable land, Ortigas Center will Rental rates in Fort Bonifacio slid by 1.9% to PHP817 account for only 7% of the additional supply this year. (USD16.2) per sq m a month from PHP835 (USD16.7) Hence, vacancy will be relatively stable at around 6% to per sq m. Colliers sees rents in Fort Bonifacio declining 7%. The business hub’s vacancy in 1Q 2017 was 6.6%, by about 2%-2.5% over the next 12 months. practically unchanged from the previous quarter. Among the projects due to be completed for the remainder of the Rockwell rents declined by 2.2% to PHP910 per sq m a year are Zitan by Greenfield Development, The Currency month. We project rental rates to drop by a slower 1% to by Crown Asia, and The Sapphire Residences-East Bloc 1.2%. by Robinsons Land. Slower increase in capital values Makati CBD Comparative Residential Vacancy Rates Premium 3BR-Unit Residential Capital Values

GRADE 4Q 2016 1Q 2017 1Q 2018F 250K Luxury 13.98% 15.47% 16.76% 200K

Others 13.18% 13.39% 13.90% All Grades 13.29% 13.65% 14.25% 150K

Source: Colliers International Philippines Research 100K PHP / / m PHPsq Rents continue to drop 50K

Rental rates for premium three-bedroom units in Makati K

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

2Q16 3Q16 4Q16 1Q17

CBD declined by 1.7% to PHP823 (USD16.5) per sq m a 1Q16

2Q17F 3Q17F 4Q17F 1Q18F month from PHP837 (USD16.7) per sq m in 4Q 2016. Fort Bonifacio Makati CBD Rockwell Center The drop was slightly faster than the 1.4% decline recorded in 4Q. We expect the rental decline to ease to between1.3% and 1.5% over the next 12 months. Source: Colliers International Philippines Research Prices continue to grow across major CBDs, albeit at a Premium 3BR-Unit Residential Rents slower pace. Capital values for Makati CBD residential 1,200 properties rose by 3.2% to PHP186,000 (USD3,700) per sq m in 1Q 2017 from PHP180,300 (USD3,600) per sq 1,000 m in the previous quarter. Fort Bonifacio prices 800 increased by 2.7% to PHP173,000 (USD3,500) per sq m. The increase is slower than the 5.5% growth posted 600 in 4Q 2016. Prices in Rockwell Center reached 400 PHP202,600 (USD4,100) per sq m, up by a slower 2.3%

PHP / / m month / PHPsq 200 from 5% in the previous quarter.

- Colliers projects slower price increases over the next 12

2010 2013 2002 2003 2004 2005 2006 2007 2008 2009 2011 2012 2014 2015

2001 months. We see Makati CBD prices increasing by only

1Q16 2Q16 3Q16 4Q16 1Q17

3Q17F 4Q17F 1Q18F 2Q17F 10% from about 14% previously. Colliers also sees Fort Fort Bonifacio Makati CBD Rockwell Center Bonifacio and Rockwell Center prices growing at a

slower rate of 7% to 9% this year from 8% to 10% Source: Colliers International Philippines Research previously.

3 Colliers Quarterly | 11 May 2017 | PHILIPPINES | RESIDENTIAL | Colliers International Metro Manila Comparative Luxury 3BR Residential Capital Values (PHP / sq m)

LOCATION 4Q 2016 1Q 2017 %CHANGE (QoQ) 1Q 2018F %CHANGE (YoY) Fort Bonifacio 110,500 - 226,300 110,500 - 235,500 2.73% 118,300 - 252,200 7.09% Makati CBD 85,900 - 274,500 97,400 - 274,500 3.19% 108,000 - 304,200 10.80% Rockwell Center 188,400 - 207,600 186,500 - 218,600 2.30% 201,800 - 236,500 8.18%

Source: Colliers International Philippines Research

Meanwhile, SM Prime is partnering with Federal Land to Mid-income developers venture build a PHP5 billion luxury residential project on a 3,500- into luxury sq m lot between Ritz Towers and along , Makati. British architect Norman Colliers sees a stable demand for luxury, three-bedroom Foster will do the project. While prices have yet to be units in major CBDs such as Makati, Rockwell Center, disclosed, it is interesting to find out if the project will and Fort Bonifacio. The take-up is fueled by demand break the PHP300,000 per sq m average price of Ayala's from expatriates and affluent families looking for units to ultra-luxury Park Central Tower. stay and invest in.

Prime residential buildings in Makati such as Raffles Developers with significant RFOs Residences, Discovery Primea, The Residences at , and continue to attract urged to tap short-term lease consular officials as well as high-ranking executives of market MNCs and top Filipino companies holding offices along Over the past three to five years, a number of Ayala Avenue and in nearby Salcedo and Legazpi developers have been very aggressive in launching villages. studio and one-bedroom units, now accounting for 70% Rockwell's Rizal Towers and continue to of residential stock in Metro Manila. For companies that enjoy healthy occupancies as they are among the have significant ready-for-occupancy (RFO) units, primary choices of expatriate families. Colliers believes that leasing out these units either individually or even as shared units makes sense, as Meanwhile, Fort Bonifacio’s Essensa, Pacific Plaza long as the leasing schemes do not go against the Towers, Regent Parkway, and One Serendra are able to market positioning of the properties and do not lead to a sustain high occupancies as they complement the surge deterioration of the projects’ perceived value. of multinational knowledge process outsourcing (KPO) firms in Fort Bonifacio. Major KPO firms such as Google, An example is Century Properties’ Siglo Suites which Towers Watson and Deutsche Knowledge Services have helps owners effectively lease out units to short-, established operations in Fort Bonifacio while the medium-, and long-term guests and tenants. The planned transfer of the Philippine Stock Exchange scheme also strengthens and enhances the security of should entice more multinational finance companies to owners and residents. open shops in the area. The influx of these multinational With an oversupply of studio and one-bedroom units, we firms should bring in more foreign workers and further encourage developers to look at offering their properties raise the demand for luxury condominium units in the to the short-term lease market since demand is primarily business district. Expatriates are also drawn to Fort fueled by: Bonifacio due to the presence of international schools such as the British School Manila, International School  Surge in foreign tourist arrivals with about 60% of Manila, and the Manila Japanese School. international visitors making a pit stop in Metro Manila; The demand for luxury units is spilling over to other business districts such as the Manila Bay Area. The  Increase in domestic tourists with an average of Consunji-led DMCI Homes, primarily known for its mid- 500,000 domestic tourists visiting Metro Manila each income projects, has started developing its luxury year; condominium project in the emerging business district.

4 Colliers Quarterly | 11 May 2017 | PHILIPPINES | RESIDENTIAL | Colliers International  Millennials who comprise about 40% of the work As developers try to corner a larger fraction of the rental force and heavily use “shared economy” services housing pie, they must ensure that their developments such as AirBnB; and have amenities similar to condominium developments in the CBDs. Since the target occupants are millennials,  OFWs who spend vacation in the country’s capital. Colliers proposes that firms apportion amenities and facilities such as gyms, retail shops and lounges with Developers take aim at rental fast broadband internet connection. housing Colliers sees the demand for worker accommodation projects being sustained over the medium term given the growing number of highly-mobile young urban professionals who cannot afford to own their own apartment yet or rent a condominium unit within Makati CBD, Fort Bonifacio, and Ortigas Center. The halfway houses are for CBD employees who want to live near their place of work. These types of accommodation units are also more practical for employees working in CBDs as the worsening traffic in Metro Manila only makes their commute to and from work more unbearable. Mobility of employees will only improve once the committed infrastructure projects that will pass through major business districts in Metro Manila are completed. These include the proposed Manila Bus Rapid Transit (BRT) system and the Subway system which has 13 stations connecting and NAIA Terminal 3.

SM Investments Corporation’s foray into the rental housing market indicates the growing demand for this type of housing. The Philippines’ leading conglomerate has acquired a 61% stake in Philippines Urban Living Solutions, Inc. (PULS), the operator of “MyTown” dormitory buildings. At present, PULS manages five buildings offering more than 1,000 beds.

For more information: Contributors: Randwil Dinbo Macaranas Joey Roi Bondoc David A. Young Richard Raymundo Senior Research Manager Research Manager Managing Director Deputy Managing Director +632 858 9047 +632 858 9057 randwil.macaranas @colliers.com [email protected] Randolf Ilawan Research Assistant

Copyright © 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

5 Colliers Quarterly | 11 May 2017 | PHILIPPINES | RESIDENTIAL | Colliers International