INSIGHTS ON THE PHILIPPINE REAL ESTATE MARKET David Leechiu – CEO March 2017 1 THE PHILIPPINES The Philippines LITERACY RATE 97.5% 6.8% GROWTH 103 LABOR FORCE GDP 68.1 Mn million 2.6% 24 years old INFLATION RATE POPULATION Average age of Filipinos D E B T CREDIT PHILIPPINE RATING GDP EXTERNAL $292.45B S & P BBB $76.62B (SEPT 2016) MOODY’S Baa2 FOREIGN PUBLIC RESERVES FITCH BBB- 47.4% of GDP $81B (1H2016) Source: Trading Economics, BSP 3 Foreign Investment in the Philippines LEASE TERM 25 years Renewable for another 25 years 40% In some cases, FOREIGN EQUITY LIMIT 50 years Renewable for another 25 years PERSONAL INCOME TAX If annual net taxable 30% income is at least P500,000 annual income (USD10,000) CORPORATE 32% INCOME TAX 4 Philippine Foreign Direct Investments (FDI) Source: World Bank 5 Government’s Socioeconomic Agenda PRES. DUTERTE’S 10-POINT SOCIOECONOMIC AGENDA Current Tax Reform Ease of Doing Infrastructure Rural and macroeconomic Business Spending value chain policies development Security and Human Capital Science, technology, Social protection Responsible land tenure Development and programs Parenthood & creative arts Reproductive Health Source: DOH 6 Demand Drivers Urban BPO Employee’s Overseas Filipino Population Growth Housing Need Remittances Need to live 48.6% 10 million Growing number near OF’s can invest in Real Estate of Filipinos of BPO workers live in Urban their Areas* workplace. More than 50% Housing backlog needs of remittances are to be addressed and real estate related It is projected to rise to 56.3% demand for dormitories by 2030 and 66% by 2050. will rise. Source: Keynote speech of Sec. Arsenio M. Balisacan Director General of NEDA “The Philippine Economic Growth and the Growth in the Property Sector” 2015 7 * 2010 Metro Manila Cityscapes • Most of these districts will be fully developed by 2018. • There will be little land left for development. • The most important districts moving forward will be Bonifacio Global City, Bay Area, Filinvest City, and Arca South. Quezon City 3 MAJOR CBDs MAKATI MAKATI CBD. CENTURY CITY. ROCKWELL CENTER. CIRCUIT MAKATI. Manila San Juan ORTIGAS ORTIGAS CBD. ROCKWELL BUSINESS CENTER. ARCOVIA CITY. SILVER CITY. CAPITOL COMMONS. Manda- Ortigas/ luyong BGC BONIFACIO GLOBAL CITY. MCKINLEY WEST. MCKINLEY HILL. Pasig UPTOWN. VERITOWN. Makati Bay/ Pasay BGC / 46 BUSINESS PARKS Taguig QUEZON CITY. UP TECHNOHUB. EASTWOOD CITY. ETON CENTRIS. Parañaque ARANETA, CYBERARK. ROBINSONS BRIDGETOWNE IT PARK. VERTIS NORTH. UP TOWN CENTER. FAIRVIEW TERRACES. ALI CLOVERLIEF BALINTAWAK. NUVO. MANDALUYONG. GREENFIELD DISTRICT. ROBINSONS CYBERGATE. ROCKWELL SHERIDAN. SAN JUAN. Las Pinas ROCKWELL HILLSIDE. MUNTINLUPA. FILINVEST CORPORATE CITY. LA FUERZA. NORTHGATE CYBERZONE. MADRIGAL BUSINESS PARK. ALABANG WEST. TAGUIG. ARCA SOUTH. LAS PINAS. PORTOFINO. EVIA. PASAY. NEWPORT CITY. SM MALL OF ASIA COMPLEX. METROPOLITAN BUSINESS PARK. DOUBLE DRAGON CYBERCAMPUS. FILINVEST Alabang CYBERZONE PASAY. PARANAQUE. ASIAWORLD CITY. ASEANA BUSINESS PARK. AYALA ASEANA. MANILA. CITYPLACE. SAN LAZARO. 8 Regional Cityscapes LAOAG. CAMELLA. VALDEZ CENTER. CAGAYAN. CAGAYAN Unprecedented countryside SPECIAL ECONOMIC ZONE AND FREEPORT. BAGUIO. development. BAGUIO AYALA LAND TECHNOHUB. SM BAGUIO CYBERZONE BUILDING. PCH IT CENTER. ABANAO SQUARE. TARLAC. LAOAG CAGAYAN LUISITA BUSINESS PARK. TARLAC PROVINCIAL IT PARK. 2 Approximately BULACAN. PDC TECHNOPARK. ALTARAZA. FIRST BULACAN 132,000 hectares BAGUIO 1 IT PARK. CIUDAD DE VICTORIA. ABS-CBN CAMPUS. of master-planned or URDANETA. CB MALL. 4 TARLAC mixed-use developments 2 9 BULACAN PAMPANGA CAVITE. BATANGAS. LAGUNA. VERMOSA. Over 80 I.T. parks and 5 PONTEFINO. SUNTECH IT PARK. HAMILO COAST. PANGASINAN 1 1 QUEZON SMDM IT CENTER. SOUTHFORBES IT PARK. business districts CAVITE / BATANGAS 11 SOUTHWOODS. NUVALI. ETON CITY. / LAGUNA GREENFIELD CITY. PUERTO AZUL. Countryside development going through CEBU. CEBU IT PARK. CEBU SRP. unprecedented construction boom driven by CEBU BUSINESS PARK. MACTAN NEWTOWN. AKLAN 1 1 CAPIZ ABOITIZLAND CEBU. WATERFRONT TOWNSHIP. CITTA DE MARE. SMC. OAKRIDGE BUSINESS PARK BPO and tourism. PALAWAN ILOILO 4 DAVAO. MATINA IT PARK. ABREEZA. DAVAO PARK 2 9 CEBU DISTRICT. LANANG IT PARK. DAMOSA IT PARK. BACOLOD 6 PAMPANGA. CLARK SPECIAL ECONOMIC ZONE. NORTHPOINT. CAMELLA. CIUDADES. LUBI ISLAND PHILEXCEL BUSINESS PARK. BERTAPHIL BUSINESS PLANTATION. PARK. SM CITY CLARK. CLARK GREEN CITY. GGLC. DUMAGUETE 4 NEPO CENTER. ALVIERRA. CAPILION. AKLAN. PALAWAN. LIO RESORT TOWN. SAN BORACAY NEW COAST. CAPIZ. PUEBLO DE PANAY 4 VICENTE. QUEZON. BALESIN ISLAND TECHNOPARK. ILOILO. ILOILO TECHNOHUB. ATRIA CAGAYAN DE ORO CLUB PARK DISTRICT. GAISANO CAPITAL. AYALA SICOGON. ZAMBOANGA 4 ZAMBOANGA. MEGALAND MALL. ILOILO BUSINESS PARK. BACOLOD. LOPUE’S 9 CITYMALL ZAMBOANGA. EAST IT CENTER. ONE AND TWO SANPARQ. THE 1 DAVAO ZAMBOECOZONE AND FREEPORT NEW BLOCK IT PARK. ROBINSONS CYBERGATE CENTER. GENERAL TOWNSHIP. ZAMBOECOZONE SANTOS HIGHLANDS. CAGAYAN DE ORO. LOPUE’S SOUTHSQUARE IT PARK. BACOLOD IT LIMKETKAI CENTER. SM CITY BPO 2. PARK. CAPITOL CENTRAL. DUMAGUETE. CENTRIO. ONE PROVIDENCE. DUMAGUETE BUSINESS PARK. LINKSYS IT PARK. LP Legend: IT PARK. YY STAR DAS. Number of townships 9 Growth Sectors Source: UNWTO, iBPAP, World Bank 10 PH Growth Amidst Historical Events ZTE Scandal GDP expanded by 7% EDSA II Makati Bus Explosion Conviction of ERAP National and Local Elections EDSA III Tropical Storm Juaning Glorietta 2 Bombing Rodrigo Duterte proclaimed as new Pres. 9-11 Typhoon Sendong Manila Peninsula Mutiny 2011 Pres. Duterte enjoys a record high trust Phil. General Elections Arrest of former Pres. Gloria Arroyo 2001 Cotabato Bus Station Bombing 2007 rating of 92% Dos Palmas Kidnapping Congress Bombing Corona Impeachment Trial Spratly Islands Dispute Typhoon Pablo 2016 Davao Bombing Bombing in Zamboanga Cotabato City Bombing Cebu Governor Suspension War on Drugs Capture and sentence of Ces Drilon Kidnapping 2012 6.9 Magnitude Earthquake Negros and Cebu Above investment grade rating (BBB) Jemaah Islamiyah MV Princess of the Star Sank Tropical Dispute with China State of Emergency Declaration 2002 ZTE-NBN Irregularities Oakwood Mutiny 2008 Meralco Stockholders Meeting Super Typhoon Haiyan Overseas SARS Outbreak Cebu Ferry Tragedy Filipinos Jemaah Islamayah escape H1N1 Outbreak Killing of Taiwanese Fisherman Jose Pidal plunder case Typhoon Ondoy 2013 Senate Pork Barrel Scam Hearing Remittance 2003 Davao airport bombing Typhoon Pepeng 5.4 Magnitude Earthquake Cebu and Bohol Typhoon Marakot Infanta Mud Slide Superferry sank in Zamboanga Typhoon Hagupit BPO Superferry Bombing Death of Corazon Aquino Binay Alleged Corruption Hearings 2009 Phil. General Elections Greenbelt 5 Robbery DMCI Construction Hearings Revenue 2014 2004 General Santos Christmas Bombing Maguindanao Massacre Pres. Aquino’s Final SONA Typhoon Megi Kentex Manufacturing Slippers Factory Fire V-day Bombing Manila Hostage Crisis Typhoon Nona Hello Garci Scandal Phil. General Elections Typhoon Koppu General Santos City Mall Bombing DLSU explosion during Bar Exams 2015 PNP-SAF killed in Maguindanao 2005 2010 Inauguration of Pres. Noynoy Aquino Vizconde Massacre Case Finished Milenyo Southern Leyte Mud Slide State of Emergency Declaration 2006 Tourism Receipts 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016E 11 METRO MANILA OFFICE MARKET Metro Manila Current vs. Pipeline Supply Current vacancy rate across Metro Manila is at an all time low of 3.8%. As of March 2017, there is a record number of 518,500 sqm pre-commitments for office space for 2017. Bonifacio Global City, Quezon City, and Bay Area will more or less double its office space stock in the next 6 years. Future office supply will mostly come from BGC, followed by Ortigas/Pasig/Mandaluyong, and Bay Area. 13 Metro Manila Supply Pipeline Per District, per Year (2017 to 2023E) *Gross Leasable Area in thousands (sqm) 14 FY 2016 Supply and Demand *Gross Leasable Area in thousands (sqm) Metro Manila Demand Activity 2016 | By Location and Industry 70% of demand are coming from the information technology – business process management (IT-BPM) industry and 60% prefer Bonifacio Global City (BGC) over any other district. By Location By Industry *Online gaming transactions are concentrated in the Bay Area 16 2017E Supply and Demand 2017 supply is also at an historical high of 1,269,618 square meters, most of which are in BGC, constructed at a much higher grade of specification, materials, workmanship, and quality, and catering primarily to multinational corporate tenants. Nonetheless, demand for 2017 is forecasted to reach new heights judging by the significant and unprecedented level of pre-commitments of 518,500 sqm by tenants to buildings under construction. *Gross Leasable Area in thousands (sqm) Metro Manila Demand Activity 2017E | By Location and Industry 18 PEZA Status 2016, 2017E and 2018E Office Buildings • IT-BPM tenants, a significant driver in the demand for office space, need to locate in PEZA-certified buildings. • Currently, there is a risk of scarcity of such PEZA-registered projects, as so few have been granted this status in the last seven months—only two buildings in Metro Manila, one in Luzon, and one in the Visayas. • For the supply in 2017, only 15% are PEZA spaces with vacancies; others are either leased or non-PEZA. • Much of the vacant PEZA buildings are due for completion at the end of 2017 and are at risk of delays (Q1- or Q2-2018) • We forecast rents for these PEZA buildings to be driven up, given the