Metro Manila Market Update Q1 2017
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RESEARCH METRO MANILA MARKET UPDATE Q1 2017 METRO MANILA REAL ESTATE SECTOR REVIEW METRO MANILA AND THE THREAT OF EMERGING CITIES The attractiveness of Metro Manila for real estate developers and investors continues to exist. Although highly congested and vacancy rates are constantly dwindling, it is still the best location for business and investment activities. Considering that the seat of government, head offices of key companies, and the most reputable universities and institutions are located in Metro Manila, demand is perceived to always be buoyant and pervasive. The real challenge is innovation and the creation of new stock to cater to the limitless demand. The Philippine National Economic and Development Authority defines Philippine Emerging Cities as cities, relative to Manila, that are rapidly catching up in terms of business activities, innovation and ability to attract people. A few of the notable emerging cities in the Philippines are Angeles (Clark), Cebu, Davao, Iloilo and Zamboanga. Cebu, Davao and Iloilo are top 5, 6 and 8, respectively, among the Philippine Highly Urbanized Cities (HUC) of the country. Angeles City’s makings is supplemented by the much- awaited Clark Green City. Zamboanga City was identified as one of the emerging cities when it comes to information technology Source: Wikipedia operations. The city has the propensity to flourish being the third major gateway and transshipment important transportation networks, largest city in the Philippines in hub in Northern Mindanao, it will increase access to jobs and terms of land area. Furthermore, continue to be a key educational services by people in smaller Bacolod, Bohol, Leyte, Naga, center in the region. settlements, and connect rural Batangas City, Subic, Baguio, areas to growth centers. Laoag and Puerto Princesa are All the same, Metro Manila is Further to this, majority of the cities expected to remain as the most other cities displaying high potential that made it to the top 10 of the and increasing economic dominant metropolitan in the country’s HUC are from Metro dynamism. Philippines. This is despite the Manila. These are Quezon City, present administration’s Makati, Manila, Pasig, Muntinlupa Metro Manila, Metro Cebu and undertaking to further enrich and Caloocan. Pasay, Mandaluyong Metro Davao are known centers of emerging cities with the end goal of and Taguig, on the other hand, commercial, financial and decongesting Metro Manila. Several were included in the top 20 HUC. administrative activities. Completing infrastructure projects are ongoing Makati remains to be number 1 in the list of Metropolitan centers in and in the pipeline to increase the Philippines is Metro Cagayan De terms of economic dynamism, connectivity and accessibility of being the country’s premier financial Oro. It is labeled as the “Melting Pot emerging cities and rural areas. The center. Closely following it is Pasig of Mindanao” due to its main objectives of this effort are to City, which is mainly due to the accessibility, business growth and improve linkages among continuously booming Ortigas local attractions. Metro Cagayan De settlements and key areas, direct Center. Nevertheless, Bonifacio Oro is one of the emerging areas to growth in areas with greatest Global City (BGC) has overtaken watch out for. Other than being a 1 Ortigas Center in terms of office, of condormitels in Metro Manila. SNAPSHOTS residential and retail supply. The Space U-Belt, Space San present office stock in BGC is Marcelino, Space Romualdez and double the size of Ortigas. Space Taft are a few of the Major Economic Indicators Homes projects. Other examples of Metro Manila cities have condormitels are Harvard Suites of revolutionized by developing and Ascott and Apartment 20 by demonstrating trends such as sale Arkiland. 6.4% of office spaces and introduction of GDP new products such as Condormitel. In addition, an anticipated Q1 2017 development trend in the market is Ayala Land subsidiaries, Alveo Land the retrofitting of old buildings in to and Avida Land, are known Boutique Hotels. The Luneta Hotel developers for selling office spaces. has been restored and reopened in 3.4% Avida’s One Park Drive and Capital 2014. A number of heritage House, and Alveo’s High Street buildings in Manila are being Inflation Rate South Corporate Tower and Alveo targeted for this special project, March 2017 Financial Tower are few of the such as the Old GSIS Building and recorded sold out office projects. Metropolitan Theater in Ermita, Alveo’s Gentry Corporate Plaza and Times Theater in Quiapo, Capitol 7.7% The Stiles Enterprise Plaza, on the Theater in Escolta, El Hogar Filipino other hand, are upcoming in Binondo, Monte De Piedad OFW Remittances developments that will introduce Savings Bank in Sta. Cruz and Q1 2017 additional for sale inventory to the Aduana in Intramuros. office market. A condormitel is a fusion of 5.8% condominium, dormitory and hotel. It is similar to a condotel except that Avg. Bank Lending it is normally furnished with three to March 2017 six beds per unit targeting students and Business Process Outsourcing (BPO) employees. Major Homes is 2.37% one of the distinguished developers 91-Day T-Bill Luneta Hotel March 2017 Source: Luneta Hotel 49.99 Avg. PHP-USD Q1 2017 Space Romualdez Source: Major Homes 2 FLOURISHING MARKET FOR COWORKING SPACE PARTNERED BY ROSY OFFICE SPACE SELLING Office | Industry resiliency powered by innovation The office market is showing no Adjustments made by the U.S. had new building was added to the signs of slowing down as the sector also affected other nations office supply during the first quarter continues to display resiliency currency. The outcome, however, of the year. However, over 510,000 amidst different issues revolving was a lucrative office sector across square meters of GLA is scheduled around the business market. In the first quarter of the year, the real Metro Manila. to be turned over until 2022. The CBD is still the center of business estate sector further expanded and According to the 2017 ASEAN outlook remained positive activities. The Weighted Average Business Outlook, The Philippines complementing the optimistic view Lease Rate of the CBD grew by that the Philippine economy, registered the highest satisfaction 11.23% to PhP 1,250.86. although growth is slowing down, sentiment with 77%, followed by Moreover, Makati experienced the will stay on as one of the fastest Vietnam with 72% and Myanmar largest growth in rental rates in spite growing economies in the Asia- with 70%. Furthermore, 70% of the of having the need to refurbish old Pacific Region. respondents plan to expand their buildings in order to compete with operations in the country, 55% With the government’s propaganda the new designs of buildings in of ‘Build, Build, Build’, investors project an increase in number of other CBDs. Grade A Buildings led conveyed an enthusiastic employees and 79% forecast an the occupancy rating with 99.25%, perspective that the country will increase in company profit. Such followed by Prime Buildings at perform beyond what is expected surveys help in the decision making 98.63%. of it. Overall vacancy and rental rate of potential investors seeking are stable despite additional office opportunities to expand coverage in stock coming from newly the countries included in the survey. FIGURE 1 Weighted Average Lease Rates vs. completed developments. For nations with poor ratings, it Rental Growth Rate Moreover, new concepts and could be detrimental to the local innovations emerged in the market. A concept dubbed as ‘Coworking business industry. Nevertheless, the 1,000 8% 900 Space’ is growing in response to country could respond through 4% improvements and innovation. 800 the demand of young entrepreneurs 0% and other professionals that are 700 looking for a new way of doing In addition to the good news for the 600 -4% /sqm/month 500 business. Office unit sale likewise office sector, more foreign firms are -8% 400 displayed vigor after office projects eyeing to invest in the IT-BPO PhP became fully sold. industry in the Philippines, as 300 -12% reported in the first three months of Issues concerning President the year. Investments are expected Q1 2012 Q1 Q1 2009 Q1 2010 Q1 2011 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Q1 Trump’s protectionism and threat to 2008 Q1 to come from countries like Qatar, the BPO industry were silenced by Weighted Average Lease Rate the director-general of the Mexico, Israel, United Kingdom, Philippine Economic Zone Authority Canada, and China. Multinational Growth Rate (PEZA). After the forum held in companies (MNC) and offshoring Source: Santos Knight Frank Research Washington D.C., uncertainties and outsourcing (O&O) firms take were finally cleared that the service advantage of the country’s skilled industry in the Philippines would not manpower and cheap labor cost. TABLE 1 be affected by US policies rather Some firms from the said countries Q1 2017 Office Data the concern would fall on the are also exploring new opportunities manufacturing sector. The IT-BPO Weighted Average Vacancy outside Manila, specifically in Iloilo, Lease Rate industry was in a good financial Rate wherein 14 Chinese delegates were (PHP/sqm/mo.) position after the local currency Makati CBD 1,250.86 1.00% fluctuated between the PhP48 – sent to study the local business PhP51 level due to the interest rate climate in the area. Fort Bonifacio 949.19 0.43% adjustments made by the Federal Alabang 669.70 6.59% system of the United States Looking at the market movement of the CBDs in Metro Manila, Makati Quezon City 760.63 10.08% CBD presently has more than 3 Ortigas 635.46 1.34% Million Gross Leasable Area and no Bay City 720.56 0.14% Source: Santos Knight Frank Research 3 at a remarkable record of market providing a leeway for start- 38,151.25, the second highest up businesses in the central since 2007.