RESEARCH METRO CEBU MARKET UPDATE 1H 2018 METRO CEBU REAL ESTATE SECTOR REVIEW METRO CEBU PERFORMANCE MATCHES METRO MANILA’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 Visayas 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 Mactan-Cebu 6.1%. Metro Cebu was the top International Airport (MCIA) and the performer in the region as it is where Port of Cebu 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 Metropolitan area, as well as the rest challenge is catering to the increasing of Central Visayas. 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 Ayala Land 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 Mandani Bay and Filinvest’s City 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). Cebu Landmasters 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, Malaysia, Brunei With strong indications of growth in all Darussalam, U.A.E. and Indonesia 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 cities Overall vacancy rate in Metro Cebu players continue to harness Cebu’s of Mandaue 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 Cebu Business Park 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 Philippines. 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.