MANILA, Phillippines, March 23, 2015 /PRNewswire/ -- With the latest economic growth rate at 6.1%, second only to China, a growing service sector, and rising foreign investments, the Philippines remains one of the world's bright spots. (Figure 1) Given the country's strong economic performance, real estate services agency KMC MAG Group believes that the local real estate market is in a position to sustain its growth across all sectors.
"We expect the property markets to remain active throughout the year," shared KMC MAG Group Managing Director Michael McCullough. "There are a lot of reasons for this optimism, chief among them low interest rates, quantitative easing from the central bank, and positive feedback from investors. These factors have helped create a favorable climate for both local and foreign businesses."
2015: The year of the townships
McCullough noted that the rise of townships across various cities has created pockets of growth and development in Metro Manila. Major developers such as Megaworld, SM, and Ayala are focusing on township projects, with Megaworld turning its attention to McKinley West and Uptown Bonifacio, while SM is working on reclaiming more land and expanding the Mall of Asia complex, and Ayala developing the Arca South (Taguig), Makati Circuit (Makati), and Vertis North (Quezon City) townships. In addition to these, developers like Federal Land and Vista Land have also started to build townships, with the former building Metropolitan Park (Pasay) and Veritown Fort (Bonifacio Global City, Taguig), and the latter building Vista City (south of Manila). (Figure 2)
The ongoing race to build townships has also led to local developers pouring in massive amounts of capital. Capital expenditure programs are now expected to breach the Php300 billion mark this year, covering land acquisitions, ongoing projects, and launches.
"The live-work-play lifestyle encapsulated in these townships has resulted into a lot of success for some of the major developers, so it's no surprise that new players are working to capitalize on this and bring the concept to new areas," noted McCullough.
"The township concept also provides a way for developers to be part of the solution to the congestion in Metro Manila," said McCullough. "With developers taking the critical first step and building in other areas within and outside of the Metro, they're creating new microdistricts and encouraging more Filipinos to live, work, and play closer to home. We hope that this will help reduce congestion and make Metro Manila more liveable."
BPOs still driving take-up for office sector
Strong demand from the outsourcing industry continues to power the upswing for the office market, which has encouraged developers to launch new developments across Metro Manila. For this year alone, approximately 560,000 square meters of new office space is expected to be built across the major central business districts, with nearly half of the supply located in Bonifacio Global City. (Figure 3)
Office supply is also set to increase in Alabang, Ortigas, and in the Bay Area, with the additions of the Alabang Town Center BPO Building, Vector Three, the BDO Corporate Center, and Five E-com. Meanwhile, Quezon City will have to wait until 2016 for new office supply.
Meanwhile, the Makati CBD market has experienced a fall in take-up, owing to the lack of supply which is expected to remain low for the next four years. However, there is a silver lining as this opens opportunities for BGC to absorb the demand and rise as the choice of location for prime offices and headquarters.
Retail sector growth providing new opportunities for the Philippines
With the recent decline in oil prices, consumers now have more spare cash and more reasons to consume, powering the boom in the retail sector. (Figure 4) Demand for tenants within malls continues to be at its peak, encouraging developers to pursue new projects. The retail market's strong performance has led to developers adding approximately 600,000 square meters of new retail space until 2018.
Driven by their success in Metro Manila, the top three domestic players, Ayala Land, SM Prime, and Robinsons Land, and other large players in the community mall segment like Cosco Capital and DoubleDragon, are also looking into expansion strategies outside Metro Manila.
"The expansion of BPOs to new wave cities and the economic growth in major cities such as Cebu and Davao have spurred developers into pursuing more projects outside of Metro Manila," said McCullough. "One of the major retail developments outside Metro Manila is SM City Seaside, a 472,470 square meter mall in Cebu. Once this has been completed, it is expected to break into the list of the world's biggest shopping malls."
The retail sector also enjoys the advantage of having lower rates than Hong Kong, Singapore, Australia, Japan, Malaysia, Indonesia, and Vietnam. "At $49.1 per sq. m., the monthly prime mall rental rate in Manila remains as the lowest in the region, less than its counterparts Ho Chi Minh City, Hanoi, Jakarta, and Kuala Lumpur. The Philippines should be taking advantage of that," noted McCullough. "We hope that this boom in the retail market would persuade more local companies to seek out foreign retailers and pursue the unique opportunity that the country provides."
In residential sector, demand shifts toward developments for the middle-class
In the residential rental market, rates have continued to grow at a modest rate (Figure 5). While yield compression is ongoing for luxury and high-end properties, demand for middle-income residential properties remains high, largely due to overseas Filipino workers and BPO employees investing in condominiums. "Previously, the gains in the residential market were largely due to luxury and high-end properties, but now we're starting to see attractive returns for lower-end products," shared McCullough. "The growing demand and the shortage of residential units in this sector has led to a shift among developers, who are now focusing on providing more developments catering to the middle-income sector."
Despite the strong demand, financing remains a challenge for prospective condominium owners. "The majority of the growing middle class still doesn't qualify for bank loans. We have seen developers try to work around this by taking on the bank loans and offering more affordable payment schemes; however, the Central Bank's tightening might scale back the lending. This will not be a problem for major developers, but second tier and mid-sized players may face a bumpy road ahead."
Lack of solid infrastructure continues to limit hotels sector
Another prospective growth area in the real estate market is the hotels sector, which is also supported by the country's favorable economic environment. The lack of solid infrastructure, however, is still a major roadblock to the sector's growth. "The government's target of 10 million arrivals by 2016 seems to be difficult to achieve as Philippine tourism last year only grew by 3.2%, currently at 5 million in foreign tourist arrivals," said McCullough."Without expanded runways at the flagship airport NAIA and new alternative runways to accommodate more flights, it would be difficult to create substantial growth in the number of annual passengers."
However, McCullough added that despite the slow tourist arrivals growth, the hotels sector is still performing well. "The deluxe segment is enjoying relatively high occupancy rates, and the number of rooms in this category is likely to increase further. In fact, there are currently at least 2,000 rooms in the pipeline for this segment within the next two years from brands such as Shangri-La, Conrad, Novotel, Moevenpick, Westin, Grand Hyatt, Hilton, and Sheraton," shared McCullough. "This shows that global brands also recognize the strong potential of the Philippines' hotel sector across all markets, particularly for the MICE market (meetings, incentives, conferencing, exhibitions)."
McCullough also noted that business travelers are increasing demand for more serviced apartments, which Ascott is now addressing by opening its 180-key site in Bonifacio Global City. Ascott will also be opening another group of serviced apartments under its Citadines brand in Ortigas.
Amending ownership policies, increasing investments in infrastructure needed to further strengthen the Philippine economy
For the Philippines to attract more investments and fully maximize its positive momentum, McCullough believes that strengthening infrastructure and relaxing foreign ownership rules will be critical. "To encourage more people to visit and invest in the Philippines, we need to make improvements in land and air transportation, from upgrading the metro rail system to building new roads, highways, and airports. That has to be a priority," said McCullough. "We need to make it easier for potential investors to come in and see what we have to offer."
"The government also needs to consider relaxing foreign ownership rules to give potential investors more of an incentive to choose the Philippines as an investment destination," added McCullough. "If the Philippines invests in connectivity throughout Luzon, Visayas, and Mindanao and supports this with good governance, sound macroeconomic policies, and more liberal foreign ownership rules, then it stands a good chance of becoming an economic powerhouse in Southeast Asia."
The full report can be downloaded here: Metro Manila Property Outlook 2015.
About KMC MAG Group
KMC MAG Group, Inc. is an award-winning real estate services firm based in the Philippines. The company works with over 100 employees that are directly involved in transactions for office and retail space, industrial locations, as well as residential properties. KMC MAG Group is also an International Associate of Savills, a leading global real estate services provider listed on the London Stock Exchange. For more information on the company, please visit kmcmaggroup.com.
About Savills
Savills is a leading global real estate service provider listed on the London Stock Exchange. The company, established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows and now has over 500 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. Savills' unique combination of sector knowledge and entrepreneurial flair gives clients access to real estate expertise of the highest calibre. Savills is synonymous with a high-quality service offering and a premium brand that takes a long-term view on real estate and invests in strategic relationships.
For more information about this release, please contact:
Yves Luethi
KMC MAG Group
Tel: (632) 403 5519 Loc. 126
Email: mailto:marketing@kmcmaggroup.com
