RESEARCH METRO MANILA MARKET UPDATE Q3 2018 METRO MANILA REAL ESTATE SECTOR REVIEW PHILIPPINE COMPETITIVENESS AND GNI PER CAPITA ON A CONSTANT RISE COVER | Local firms benefitting from the country’s economic growth and planned infrastructure programs Figure 1 Philippine GDP Growth Rate Forecasts for 2018 SNAPSHOTS 6.8 6.7 6.7 6.7 6.5 6.3 6.4 6.5 Economic Indicators 5.1 6.1% GDP Q3 2018 Fitch Solutions Asian Development International World Bank Bank Monetary Fund Original Forecast Revised Forecast Developing Asia 6.7% Inflation Rate Rising to the 5th spot among Global economists predict that the September 2018 ASEAN (Association of Southeast Philippines will be able to attain a Asian Nations) countries, the GDP growth rate that is above 6% Philippines once again proved itself in 2019. Economists of both the as a rising economic powerhouse First Metro Investment Corporation on the world stage. The World (FMIC) and the University of Asia Economic Forum recently published and the Pacific (UA&P) remain 2.5% the World Competitiveness Report optimistic of an economic rebound OFW Remittances 2018 using a new metric called the in the second half of 2018, due to August 2018 New Global Competitiveness Index the rising national government 4.0. Additional categories were disbursements and capital outlay created and used in ranking the for infrastructure projects, higher 140 economies. New drivers of peso equivalent of remittances, and productivity and long-term growth increasing volume of exports. during the era of the Fourth 6.15% Industrial Revolution were added. In Several local companies wish to Avg. Bank Lending take advantage of the Philippine’s the report, the Philippines’ September 2018 strongest suits were its Market Size, competitive market and rising Labor Market, Financial System, income per capita by expanding Business Dynamism and their respective businesses. One of Macroeconomic Stability. the country’s biggest conglomerates, San Miguel The Philippines is envisioned to Corporation (SMC), is prepping for a 3.35% become an upper middle-income group-wide expansion program that 91-Day T-Bill will cost around PhP742 billion. country by the end of 2019. The September 2018 country’s current Gross National Ginebra San Miguel, one of the Income per capita is just below SMC subsidiaries, reported plans of $3,900, which is slightly lower than building 4 new plants in various the World Bank’s $3,956 to locations across the country and $12,235 metric for upper middle- launching new products, adding to income countries. The Philippines its existing wide array of needs to grow 4.4% next year in manufactured beverages. 53.94 order to make it to the upper middle-income bracket. The Avg. PhP-USD present Gross Domestic Product September 2018 (GDP) growth levels of the country render the goal of moving up highly Continued on page 11. attainable. 2 MANILA OFFICE SECTOR SUSTAINS MARKET OPTIMISM OFFICE | Tighter vacancies and higher lease rates noted despite introduction of additional supply The Metro Manila office market growing firms and new entrants sustained momentum in the third from the PAGCOR-enabled TABLE 1 quarter of 2018. The overall companies. Q3 2018 OFFICE DATA vacancy rate continued to decline despite additional office stock from Rental rates in Metro Manila Weighted Avg continued to escalate albeit at a Vacancy newly completed developments, Area Lease Rates more gradual pace. Overall Rate indicating robust demand for office (PhP/sq.m./mo.) space. Q3 2018 vacancy dipped to weighted average asking lease rate grew 0.81% quarter-on-quarter and 3.96%, coming from 4.51% in the Makati 1,377.03 3.42% previous quarter. Moreover, net 9.72% year-on-year. Headline rent for the third quarter was noted at Fort absorption picked up remarkably at 1,111.59 3.34% 154,855 square meters, the highest PhP1,018.32 per square meter per Bonifacio month. The continuous growth in figure yet recorded for the year. The Alabang 782.16 2.52% value more than offsets the 133,000 rates supports the positive market square meters of leasable area outlook on the office sector. Quezon 895.99 8.09% added to Metro Manila’s total office Makati’s weighted average lease City supply, upon completion of 6 new rate remains the highest headline Ortigas 682.67 4.09% office buildings. rent among Metro Manila’s Central Various construction activities and Business Districts (CBD). The rents Bay Area 765.94 1.42% project launches further fortify the in Makati was pegged at an average of PhP1,377.03 per square METRO office market of Metro Manila. 1,018.32 3.96% About 1.3 million square meters of meter per month, slightly higher MANILA office space is expected to be than last quarter’s PhP1,362.05 per available by the end of 2018. square meter per month. With an Source: Santos Knight Frank Research Majority of these spaces are already additional Gross Leasable Area pre-leased and the remaining (GLA) of 10,407 square meters from newly operational M1, Makati office vacant stock will cater to the FIGURE 2 supply expanded to about 930,000 Upcoming Supply (in sq.m.) square meters. By the end of 2018, another 286,317 square meters of office space is expected to add to 800,000 the existing office stock in the area. 700,000 600,000 In Fort Bonifacio, the newly turned 500,000 over One Bonifacio High Street added 28,992 square meters of 400,000 GLA to the area’s total supply, 300,000 increasing Fort Bonifacio’s vacancy 200,000 rate to 3.34% from 3.24% last 100,000 quarter. In terms of weighted 0 average lease rate, Fort Bonifacio Makati Fort Alabang Quezon Ortigas Bay City came in second to Makati, with Bonifacio City office rents pegged at PhP1,111.59 Q4 2018 2019 2020 2021 per square meter per month. Quezon City further expanded its Source: Santos Knight Frank Research supply of office spaces with the Four E-com Center 3 completion of two prime office Recent Philippine Economic Zone buildings in the third quarter: Zeta Authority (PEZA) data show an Tower (35,000 square meters in 8.82% percent growth in the GLA) and Skysuites Corporate number of investment pledges from Tower (8,273 square meters in IT-BPO companies. The BPO GLA). Upcoming office building industry continues to expand its Centris Cyberpod Five (42,336 services to include animation, data sq.m. in GLA), targeting expanding analytics, legal research and BPO companies and multinational analysis, game development and companies in the area, is expected accounting, among other things. to commence operations before the Artificial Intelligence (AI) is seen as end of the year. an opportunity to move the industry up the value chain and present new In the Bay Area, Nexgen Tower and roles to the Filipino workforce. Aseana 3 went online in Q3 2018, Despite the looming threat of adding a total of 50,329 square automation and AI, the IT-BPO meters or 8.7% to the total stock in sector is still expected to flourish in the business district. Weighted the next three to five years as Uptown Place Towers average asking lease rates for evidenced by the growing number Quezon City and Bay Area went up of office leasing transactions. in the third quarter of the year to PhP895.99 per square meter per month and PhP782.16 per square meter per month, respectively. FIGURE 3 The largest change in vacancy rate Weighted Average Lease Rate (in PhP) and Year-on-Year Growth was recorded in Ortigas, coming Rate (in %) down to 4.09% from 6.41% last quarter. Alabang also exhibited tighter vacancies at an average of 1,600.00 18 2.52% of the total office stock. No 1,400.00 16 new office buildings were turned 1,200.00 14 over in the aforementioned markets. 1,000.00 12 10 However, a total of 192,467 square 800.00 meters and 76,332 square meters 8 600.00 6 of GLA are expected to add to the 400.00 4 Ortigas and Alabang office supply, 200.00 2 respectively. 0.00 0 The Philippines remains an Makati Fort Alabang Quezon City Ortigas Bay City Bonifacio attractive investment destination for BPO companies amidst Lease Rate (Php) Growth Rate uncertainties caused by the country’s tax reform program. Information Technology and Source: Santos Knight Frank Research Business Process Association of the Philippines (IBPAP) reported that existing investors continuously expand and new entrants are likewise expected to come in. The Philippines continues to capitalize on its young, highly educated and English-speaking labor force, as well as infrastructure developments that will spur investment and business activities in the country. 4 MANILA RESIDENTIAL DEMAND DRIVEN BY INFRASTRUCTURE PROGRAMS AND CREATION OF MIXED-USE DEVELOPMENTS RESIDENTIAL | Infrastructure projects key to the identification of project sites and investment opportunities Real estate developers continue to The infrastructure projects support The emerging Arca South in Taguig capitalize on the present these developments by bringing is generating considerable interests government’s Build! Build! Build! down the travel time from the from investor. Most of the program by acquiring land and Central Business Districts (CBD) to residential projects in Arca South master-planning projects relative to the fringe areas. Several residential are 97 to 100% sold as of the third the reported location of the planned projects are located outside the quarter of 2018. The newest infrastructure projects. Developers CBDs, such as The Vantage by project, Park Cascades 2 (launched likewise highlight the completion of Rockwell Primaries, Empire East’s April 2018), is approximately 75% the infrastructure projects as an Kasara Urban Resort Residences sold.