RESEARCH

METRO MARKET UPDATE 1H 2018

METRO CEBU REAL ESTATE SECTOR REVIEW PERFORMANCE MATCHES METRO ’S UNPRECEDENTED DEVELOPMENT COVER | Steady real estate sector growth noted in Cebu

2011 to 2016 historical data from The business, banking on the National Economic Development strengthening consumer market of Authority (NEDA) reveals an immense Metro Cebu. SNAPSHOTS growth of the Central economy, increasing annually at an Further to the above, based on the Economic Indicators average of 7.5%. This is significantly statistical data of the Department of higher than the national average of Tourism, the -Cebu 6.1%. Metro Cebu was the top International Airport (MCIA) and the performer in the region as it is where account for the most of the economic activities took combined total of 20.02% of total place. Moreover, in the next six years, foreign visitor arrivals in the country 6.0% the industry sector is predicted to during the first quarter of 2018. This GDP lead regional growth with a forecasted number is expected to further climb Q2 2018 average of 9.2% per year, followed by with the recent opening of MCIA’s services at 6.8%. Furthermore, real Terminal 2, which is capable of investment rate is expected to expand hosting a passenger traffic volume of to 32.5% by year 2022, placing it 8 million people a year. among the top 3 regions with the The residential and hospitality sectors 5.2% highest real investments. This is are to gain the most out of this Inflation Rate expected to subsequently boost the upsurge in guest arrivals. The June 2018 , as well as the rest challenge is catering to the increasing of . demand for accommodation, which The development of new and gave way to the rise of condotel upcoming Central Business Districts projects. Condotels provide an 4.2% (CBD) in Cebu, such as Aboitiz and alternative accommodation option for Inc.’s joint venture project, tourists, benefitting both the investor OFW Remittances and the user markets. May 2018 Gatewalk Central, Megaworld’s Mactan Newtown, HT Land’s In a bid to dominate the residential and ’s di and hospitality sectors, property Mare, displays unparalleled developers are actively seeking to commercial performance, not limited establish partnerships that will create 5.9% to the two prominent business synergies necessary to be able to Avg. Bank Lending districts in Metro Cebu, the Cebu compete for larger market shares and Business Park (CBP) and the Cebu IT June 2018 secure access to various resources. Park (CITP). Inc., for example, Rising foreign interests in Metro Cebu has partnered with an international was observed by the Cebu service residences operator, Ascott Investment and Promotions Office Limited, for the management and 3.36% (CIPO). Foreign firms, mostly from the operations of one of its newest 91-Day T-Bill U.S., France, China, Korea, Japan, serviced residences, Lyf. June 2018 Switzerland, , Brunei With strong indications of growth in all Darussalam, U.A.E. and sectors, Metro Cebu is poised to be a realized the potential of Metro Cebu bastion of investment outside the and are setting up satellite offices in capital. At present, it is second to 53.05 the area. Equipment electronics, Manila in terms of development yet its energy infrastructure, housing, growth potential is limitless, further Avg. PHP-USD hazardous wastes and technology are supported by the various lined-up June 2018 the identified industries of infrastructure projects. Opportunities considerable interest to most abound the metropolis. Now is multinational firms. Investors from considered the perfect time to invest. Malaysia, Indonesia and Korea also wish to tap into the local retail

Page 2 Page 2 OFFICE SECTOR REMAINS VIGOROUS AS MARKET DEMAND FURTHER STRENGTHENS

Office | Metro Cebu continues to attract investor interests across major Central Business Districts weighted monthly lease rates 1 Nito Tower averaging PhP626.72 per square meter per month in the first half of 2018. CBP’s weighted average asking rents were higher than the overall Metro Cebu weighted average asking lease rate of PhP548.30 per square meter per month. Rental growth rate in CBP was the highest of the Cebu CBDs at 13.83% YoY and was fueled by the increase in rent of traditional and BPO offices pegged at 16.63% and 9.74%, respectively. CITP’s weighted average lease rate in the first half was PhP566.90 per square meter per month, which is a 5.46% increase from the first half of 2017. The most affordable rates in areas. The office buildings credited for Metro Cebu were in the fringe areas FIGURE 1 this office space expansion are at a weighted average of PhP467.18 Total Metro Cebu Office Stock Philam Life Center in CBP, the per square meter per month, (in thousand sqm.) Mabuhay Tower in CITP, and the corresponding to a humble increase Oakridge IT Center II, FPN Epic of 1.26% YoY. 300 Centre, Tower One Plaza Magellan, A.D. Gothong IT Tower, J Centre and Historical data shows that from 2013 250 the Island Central scattered in the up to the present, rent prices in Cebu 200 fringes. have been increasing at an annual average rate of 3.02%, signifying 150 Further to the noted expansion, Metro major capital appreciation for those 100 Cebu has yet to welcome another who invested in the Cebu office 98,834.28 square meters of gross 50 market. CBP had the highest lease leasable area (GLA) within the present rate increases averaging 2.62% 0 year. It is a big year for CITP as more annually since 2013. Average annual CBP CITP Fringe Area than 65% of the upcoming GLA will rental growth in the fringe areas was be located inside its borders, recorded at 5.48% and CITP at H1 2017 H1 2018 supporting the position of this Central 2.24%. The appreciation of rents Business District (CBD) as one of the pushed developers to introduce more Source: Santos Knight Frank Research preferred locations for commercial office spaces in Cebu, enabling the and office development. In addition, metropolitan to host new and several new office developments are expanding companies contributing anticipated in fringe areas, where further to economic growth. Coinciding with Metro Cebu’s 20% of the new office spaces will be economic development, real estate situated. These are mostly in the Overall vacancy rate in Metro Cebu players continue to harness Cebu’s of and Lapu-Lapu, making continued to decline in the first half of potential as an alternative investment sure to take advantage of the 2018. At the end of the half, Metro hub to Manila and expect a boom in proximity of the two cities to the Cebu’s vacancy rate was 8.33%. the real estate sector this year. Gross Mactan-Cebu International Airport. Although there were a number of new leasable office spaces in Metro Cebu Finally, CBP accounts for the office spaces turned over, the fringe grew 14.51% Year-on-Year (YoY) remaining 15%, which is entirely area vacancy dropped to 17.45% during the first half of 2018. Of this attributed to the CBP Tech Tower compared to the same period last expansion, 18,000 square meters is located down south, along Camiguin year’s 24.47%, clearly reflecting the attributed to Road, and is set to open in the growing demand for Cebu office (CBP), 9,929.2 square meters to second half of the year. spaces outside the CBP and CITP. Cebu IT Park (CITP) and 64,203 The CBP continues to assert itself as Vacancy rates in CBP and CITP likewise square meters to the fringe a prominent CBD in Cebu with its continued to drop. H1 2017 CBP

Page 3 3 vacancy rate was at 5.12% but connectivity with its neighboring FIGURE 2 falling to 3.96% in the first half of islands, heightening its inter-island Upcoming Office Supply in 2018. CITP vacancy rate was tight trade and enabling it to tap in to Cebu, 2018 at 2.45% in H1 2017 yet it has nearby local populace for easier further declined to 1.66% in H1 and increased access to skilled 2018. The limited amount of vacant labor. In other words, a boost in spaces in CITP led to the trade will entice firms to set up construction of several new office shops in Cebu and the availability of 20% 15% buildings in the area, three of them a large labor pool will make the due to commence operations in the move easier. Consequently, these remaining months of the year. activities will spur demand for more office spaces further resulting to 65% The efforts of the current growth of the office market. administration to develop and improve cities and provinces Lastly, Cebu is the center of outside the capital, through economic activity in southern CBP CITP Fringe Area infrastructure development, are . According to Sec. expected to decongest Metro Cebu Dominguez of the Department of Source: Santos Knight Frank Research and its neighboring areas. Finance, it will continue to play a Infrastructure projects such as the strong role as one of the reliable New Cebu International Container growth drivers of the national FIGURE 3 Port aim to boost Cebu’s trading economy. Cebu is very promising Weighted Average Lease Rate activities with the rest of the world, as it continues to follow the per CBD by increasing its export capacity footsteps of Manila to becoming the and allowing more imported goods commercial hotspot of the country. 700 to enter. Cebu-to- link bridge Investors are therefore encouraged 600 and the Cebu-Negros link bridge to consider the opportunities that lie 500 are expected to improve Cebu’s within Metro Cebu. 400 300 200 100 0 FIGURE 5 Weighted Avg. Lease in Metro Cebu Rate (PHP) vs. Rental Growth Rate (%) H1 2017 H1 2018

Source: Santos Knight Frank Research 560 5.00% 540 4.00% 3.00% 520 2.00% FIGURE 4 500 1.00% Metro Cebu Occupied Spaces 480 0.00% (in thousand sqm) Monthly Fee Monthly Rental 460 -1.00% 250 440 -2.00% H2 H1 H2 H1 H2 H1 H2 H1 H2 H1 200 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 150 Weighted Lease Rate Rental Growth Rate 100 Source: Santos Knight Frank Research 50 0 CBP CITP Fringe Area

H1 2017 H1 2018

Source: Santos Knight Frank Research Page 4 4 METRO CEBU CONTINUES TO BOAST UNPARALLELED RESIDENTIAL DEMAND Residential | High-end condominiums take the reins in the first half of 2018

Striding alongside the government’s lodge their children while they do FIGURE 6 Build, Build, Build program, important errands. The market that upcoming developments, rising sees Airbnb as an alternative to Allocation of Condominiums per tourist arrivals, and growing traditional renting likewise continues Classification demand for vertical living make to grow, since tourists are looking Metro Cebu a glowing beacon for for unique ways to live like locals. 10% promising investments. Rising demand surges the prices upward, Given the market situation, units are 31% giving developers the power to getting more and more expensive, increase prices at a quarterly rate increasing at a rate of 12-14.5% as compared to last year. As in the and thus enticing prospective 59% buyers to reserve units sooner past periods, middle-income rather than later. projects stretched their upper price range, overtaking bottom price High-end Mid-end Affordable Developers are enjoying the reaps points of high-end properties. Source: Santos Knight Frank Research of a robust residential sector. In just Middle-income prices reached a one year, overall absorption rate maximum of PHP 147,000 per went from 82.6% to 88.7%. High- square meter and a minimum of FIGURE 7 end projects took the lead, with an PHP 82,000 per square meter while Average Monthly Take-Up Rates average selling rate of 11 units per affordable projects now sell from per Classification (Units) month. Middle income and PHP 66,000 per square meter to affordable followed suit with PHP 97,000 per square meter, average take up rates of 8 and 7, which is a dramatic increase from 15 respectively. Buyers shifted last year’s bottom price limit of PHP preferences to high-end projects 54,000 per square meter. 10 because of their better product offerings especially amenities. Even with raised prices, buyers still patronize units of affordable Moreover, the pricing of middle 5 income-branded projects continues projects. The affordable price to overlap with the rates of high-end developments. 0 High-End Mid-End Affordable As available supply trickles down, developers should seize the Source: Santos Knight Frank Research moment and launch new projects while the market is still bullish. High- end projects in Mandaue and Lapu- FIGURE 8 Lapu are the most sought after, Indicative Average Prices per Area (PHP/sqm) with only 3.3% and 3.7% available inventories left respectively. The 225,000 204,000 expatriate community makes up 200,000 191,000 majority of the target market for 175,000 high-end residences. 32 Sanson 150,000 126,000 Gmelina, Marco Polo Residences, 125,000 and The Reef Residences are some 100,000 of the high-end projects that 75,000 84,000 82,000 reached full occupancy in the first 50,000 66,000 half of 2018. Most of the high-end 25,000 developments strategically added a 0 playhouse to address pressing Mandaue City Lapu-Lapu City needs from start-up families, a market that requires a safe place to Source: Santos Knight Frank Research

Page 5 5 segment had the highest sold-out NEW RETAIL OPENINGS TO ADDRESS rate with a 14% increase from the second half of last year. Developers offer more flexible payment CLAMOUR FROM CEBUANOS AND schemes making it easier for the buyer to avail more units. Moreover, GUESTS the current market is wiser with RETAIL | Continuous low vacancy expected with commitments from various their investments and choose to retail brands place their bets on those that will give higher yields, hence the sizeable residential demand.

Take-up of middle-income projects might have dwindled last year but have picked-up its pace this period, having sold 88.6% of its 23,400 floated units. Developers were able to position their projects close to the business districts, with majority of the floated units consolidated in Cebu City. Furthermore, speculations from developers include plans of adding new towers to their successful Source: Cebu Daily News projects. Sun Park Royal by Sunkai With the fast-changing times, Also to open in SM Seaside City Land, Miko Tower by LandTraders shopping mall developers and Cebu is another branch of Nuat World Properties Corp, and Vertex operators attempt to cater to all the Thai Foot & Body Massage. Nuat Central by Priland Development different interests and shifting Thai originated from Cebu in 2005 Corp are some of the projects preferences of the Metro Cebu and presently has more than 180 branches nationwide. Given the scheduled to commence selling consumer market. New and exciting many factors negatively affecting a either in the remaining months of stores are in the present pipeline, 2018 or the early months of next person’s well-being nowadays, anti- which further tightens up the local stressors such as a good massage, year. retail supply. after a hard day’s work or a hectic work week, are yearned for Filipinos love to go on food trips and especially by the growing working dine together with friends, population. workmates and relatives. It is not surprising therefore that a big In addition, since Metro Cebu is a portion of shopping mall space is preferred destination by local and foreign guests, the Department of occupied by stores under the Food Trade and Industry (DTI) has and Beverages (F&B) category. targetted to open a Go Lokal! store Among the well-anticipated in Cebu in the second restaurants under F&B is Tong half of 2018. It will be the first Go Yang Shabu-Shabu & Barbecue Local! store outside of Metro Restaurant in SM Seaside City Manila. Moreover, the DTI is Cebu. Tong Yang, scheduled to pursuing a space in the New open in the third quarter of 2018, Mactan-Cebu International Airport will offer a variety of Filipino, Terminal. Go Lokal! is a design-led concept store that will offer Chinese, Japanese and Korean innovative native products by dishes in a buffet spread. Buffet Filipino micro, small and medium restaurants are a thing in the enterprises (MSME). The DTI has country for about a decade now, partnered with mall giants such as Amisa Private Residences among the well-known brands are SM, Ayala and Robinsons in putting Cabalen, Dads Saisaki Kamayan, up various Go Local! branches all Vikings, Yakimix and Buffet 101. over the country.

Continued on Page 7…

Page 6 6 Metro Cebu boasts of the ease of vacancy in Metro Cebu is expected landmark address with the doing business in this rising global to remain low backed by persisting monumental SM Seaside City city driven by a strong local robust demand and increasing Cebu, completion of the Il Corso of economy, presence of skilled commitments from local and foreign Filinvest Lifestyle Malls and addition labor force and affordable retail retail brands. of JG Summit’s Isla dela Victoria rents. Rents in shopping malls are Shopping Mall. Also in the shopping reported to be within the PHP 800 The (SRP) is mall pipeline is a 3-hectare 3-story to PHP1,500 per square meter a very promising area within Cebu mall at Mactan Newtown in Lapu- per month range. In addition, retail City. It is envisioned to be a Lapu City.

NEW INTERNATIONAL PORT SET TO BOOST CEBU’S INDUSTRY SECTOR Industrial | Retail growth continues to drive warehouse and logistics demand

Meant to decongest traffic in the existing port, The New Cebu International Container Port is expected to be completed in 2022. It will be located in a 25-hectare reclaimed island in , Cebu. The new port will feature a 500 m berth length to accommodate two 2,000 twenty-foot equivalent unit (TEU) vessels, 4 quay cranes and superstructures such as operation building, gate complex, weigh bridge, maintenance factory, and 1,450 m inland access road and 300 m offshore bridge connecting the Source:jetro.go.jp port to the shoreline. It aims to add to the current port’s container yard The sizeable foreign investor meter in the Mandaue area, where capacity of 7,373 TEUs to 14,400 interest in the Philippines is about 40% of the export companies TEUs. sustained in the initial months of in Metro Cebu are located. 2018. January to April Foreign A notable trend in the industrial sector, Direct Investments (FDI) rose almost Dubbed as the industrial hub of not only in Cebu but in other areas all 25% from $2.58 Billion in 2017 to Central Visayas, Mandaue City over the country, is the market’s $3.2 Billion in 2018. The holds about 10,000 industrial and movement away from the city core. manufacturing sector bounced commercial companies. Asking The limited industrial supply in the main back becoming the biggest rents of warehouses and standard cities is unable to match the rising contributor to FDI growth, as factory buildings fall within PHP120 volume of industrial space consumer spending likewise grew per square meter per month to requirements. Infrastructure projects more than 5% year-on-year in the PHP250 per square meter per are being laid to facilitate the first quarter of 2018. The booming month. movement in order to cut logistics cost retail sector has again triggered In addition, with the increasing of bringing inventories from the industrial sector expansion. number of activities in Metro Cebu, manufacturing plants and storage a new container port has been facilities to the physical stores. In Metro Cebu, the growing retail Nevertheless, it is the best time for market resulted to an increased added to the pipeline of infrastructure projects that will industrial developers to rethink of ways demand for warehousing and to increase industrial capacity within industrial space. For instance, land sustain the metro’s developing economy. The existing port will be the city, where operating costs are acquisition costs range from a low lower but market demand is high of PHP9,000 per square meter to a converted to a business and cruise hub. hence the opportunity to command high of PHP 25,000 per square higher rents and sale prices.

Page 7 7 THE INFLUX OF TOURIST ARRIVALS BOLSTERS METRO CEBU HOSPITALITY SECTOR Hospitality | Heightening demand created by tourists, businessmen and millennial markets

A continuing boom in the Metro The whole renovation project is Cebu hospitality sector is driven expected to go on for 18 months by the constantly rising number of from its scheduled start in June domestic and foreign guests. 2018. Several airlines anticipated the increased demand coming from Demand for accommodation the unveiling of the new Mactan- within the Cebu Business Park Cebu International Airport (MCIA) (CBP) remains high especially Terminal 2 in the second half of from travelling businessmen and 2018. AirAsia recently launched investors. Developers take daily direct flights from Shenzhen, advantage of the growing market China to Cebu. In 2017, China with new developments in the recorded the highest growth rate pipeline. One of the upcoming for tourist arrivals with an 87.29% additions is Seda Hotel by Ayala increase in volume from 2016’s Land Inc. (ALI), formerly known as 108,769 visitors that arrived in Marriott Hotel. The Seda Hotel is Cebu. Korea and Japan, however, set to open by the third quarter of are in the top 2 spots in terms of 2018 and will house 301 guest tourist arrivals with 802,298 and rooms. Another hotel to watch out 390,796 visitors, respectively. for in CBP is Holiday Inn by Source: Santos Knight Frank Research InterContinental Hotels Group With the introduction of additional (IHG). It will offer 180 guest rooms direct flights to Cebu, tourist and is set to be completed by end arrivals for the first half of 2018 of 2020. The hospitality sector is therefore already surpassed same period rapidly expanding from traditional to a last year’s recorded figure, In addition, Cebu developers are younger niche market. While revealing a 12.5% upsurge to be targeting a new market segment, businessmen, family vacationers, and exact. Domestic passenger the millennial market. Filinvest expat market still constitute the main arrivals posted a 10.19% increase Hospitality Corp. (FHC), a market of Cebu’s hospitality sector, while a 17% growth in subsidiary of Filinvest Metro Cebu is poised to serve the international passenger arrivals Development Corp. (FDC), additional demand to be generated was similarly noted. announced the opening of a from the new MCIA terminal, be it of youth-oriented resort in the latter local or foreign origin. Moreover, new In light of the Boracay closure, part of 2017. Grafik Resort concepts such as AirBnB continue to tourists were deflected to nearby Mactan-Cebu will be located in provide tourists with alternative tourist destinations such as Bohol 2.8-hectare property in Duawon accommodation options, enabling and Cebu which also boast of Beach in Marigondon, Lapu-Lapu living like the locals at an affordable pristine beaches and social City. Grafik is a lifestyle resort that and more practical price. entertainment. Local airlines caters to the young and young-at- likewise initiated new flights to heart who are looking for a place Cebu and other Central Visayas that is more casual and fun. FHC provinces to combat the cancelled recognizes the gap in the market flights to Caticlan and Kalibo. and regarded the “millennial” segment as underserved. The The anticipated surge in tourist room rates in Grafik will range arrivals from the newly opened between PhP5,000 to PhP 6,000 MCIA compelled hotels to to meet the budget of the target renovate their guest rooms in market. The resort will feature 308 order to better accommodate the rooms, two signature restaurants, incoming tourists. Radisson Blu three bars, and multiple pools- Cebu is set to invest P500 million and is to be completed by 2020. in re-upholstering 396 rooms.

Page 8 8 MANAGEMENT

Rick Santos Chairman and CEO +63 917 528 3687 Manila Office [email protected] 10th Floor, Ayala Tower One & Exchange Plaza Ayala Avenue, City, 1226 OCCUPIER SERVICES AND COMMERCIAL AGENCY t: (632) 752-2580 / 848-7388 f: (632) 752-2571 Joey Radovan w: www.santos.knightfrank.ph Vice Chairman +63 920 906 7517 [email protected]

Cebu Office INVESTMENTS AND CAPITAL MARKETS Suite No. 30, Regus Business Center Calvin Javiniar th 11 Floor, AppleOne Equicom Tower Senior Director Avenue corner Biliran Road +63 917 574 3058 Cebu Business Park, Cebu City 6000 [email protected] t: (6332) 318-0070 / 236-0462 VALUATIONS

Mabel Luna Director +63 917 865 3712 [email protected]

RESIDENTIAL SERVICES

Toby Miranda Assistant Manager +63 917 8077 495 [email protected]

Kim Sanchez Associate Director +63 917 537 9650 [email protected]

PROPERTY MANAGEMENT

Ed Macalintal Associate Director +63 917 533 7750 [email protected]

PROJECT MANAGEMENT

Allan Napoles Executive Director +63 917 5277638 Santos Knight Frank Research provides strategic advice, consultancy services and forecasting to a [email protected] wide range of clients worldwide including developers, investors, funding organizations, corporate institutions and the public sector. All our clients recognize the need for expert independent advice RESEARCH & CONSULTANCY customized to their specific needs. Jan Custodio Senior Director RECENT MARKET-LEADING RESEARCH PUBLICATIONS +63 917 574 3572 [email protected]

Pai Javillonar Research Manager [email protected]

Rhys Revecho Research Analyst [email protected]

Maki Takagaki Research Analyst [email protected] The Wealth Report Metro Cebu Global Cities Market Update 2018 Market Update The Report 2018 Q1 2018 2H 2017 Gelo Manansala Research Analyst [email protected] Santos Knight Frank Research Reports are available at santos.knightfrank.ph/research

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