MANILA, Philippines, Sept. 9, 2015 /PRNewswire/ -- With the Philippines continuing to outpace most Southeast Asian economies, the Philippine real estate industry is set to continue on its positive trajectory. The industry recently recorded a record-high quarter for transaction volumes driven by large-scale land deals, with the volume estimated to be at US$505 million, according to the latest Asia Pacific Investment Quarterly released by international associate of Savills, KMC MAG Group. Some of the major transactions include SM Prime's EDSA Guadalupe property (worth Php1.6 billion/US$35 million), the Hyundai Balintawak property (worth Php1.2 billion/US$26.5 million), and 8990 Holdings' EDSA Cubao property (worth Php366 million/US$8 million).
"These major transactions have confirmed that strong economic policies and a stable political environment will sustain the real estate industry," says KMC Managing Director Michael McCullough. "While investment banks are scaling down their growth forecasts, we believe that the long-term economic outlook remains positive, which will provide a favorable foundation for the property market."
Low prime office rental costs, rental growth compression good news for tenants
Foreign investors looking to set up shop in Southeast Asia have one good reason to look at Manila. McCullough shares that even with strong rental growth, Manila offers low prime office rental costs, averaging at Php1,510.00 (US$33.41) per sq m, inclusive of taxes and management fees, according to the latest Office Briefing released by KMC. Manila's prime office rental costs continue to be lower than some of Asia's major cities, such as Tokyo, Beijing, Seoul, Ho Chi Minh City, Jakarta, and Hanoi; and is second only to Kuala Lumpur, which has the lowest prime office rental rate in Asia at Php1,289.00 (US$28.52) per sq m.
"Manila's prime office rental costs, sound macroeconomic conditions, and relatively cheap labor costs make a strong argument for the city," highlights McCullough. "Multinational companies looking to expand to Southeast Asia or set up another office in Asia should seriously consider Manila as a destination."
Another argument for moving to Manila is the ongoing ease in rentals; which is due to the influx in new supply in Bonifacio Global City and higher vacancy rates in Alabang. McCullough advises businesses to look into long-term leases in central business districts during this time, when market trends can work to their advantage.
"We expect over 430,000 sq m of new office stock by the end of 2015 and a sharp rise in vacancy rates by the second half of 2016. This is good news for tenants looking to move to new spaces. Given the amount of new office supply, landlords may be more open to long-term leases at lower rates," says McCullough. "We would advise businesses to look into pre-leasing addresses in the central business districts, while they can still leverage on their increased bargaining power."
Growing middle class, private consumption make Manila attractive for retail
International retailers looking to capture a share of Asia's growing middle class can also look at setting up in Manila, which offers the lowest rental costs for prime retail malls, averaging at Php2,300.00 (US$50.88) per sq m, inclusive of taxes and management fees, according to the latest Asian Cities Report for Manila Retail. Manila's rental rates are lower than some of Asia's more popular shopping destinations, such as Hong Kong and Singapore, and even lower than some Asia-Pacific cities, such as Tokyo, Taipei, Sydney, and Melbourne.
McCullough notes that another draw for local and international retailers is the high domestic demand. "High GDP growth and an oil price crash have helped fuel private consumption in the Philippines. In addition, the country continues to benefit from increased remittances from overseas Filipino workers and rising incomes due to a competitive business processing industry," says McCullough. "These factors have helped create a growing middle class that has the spending power to support various retail concepts."
To respond to the demands of the country's rising middle class, local developers are launching projects within Metro Manila and in the provinces. In Metro Manila, local developers have put 600,000 sq m in the pipeline, with 75.2% to be delivered by Ayala Land, SM Prime, and Robinsons Land. The largest single project in Metro Manila is SM's 200,000-sq m Mall of Asia expansion, increasing the property's total size to 550,000 sq m. Other pipeline retail projects include Ayala Land's Paradigm Pasig, SouthPark Alabang, and Circuit Lane, Megaworld's Uptown Mall, and Wilcon's Wilcon City Center. Outside of Metro Manila, SM is currently working on SM City Seaside, located in Cebu. This development is estimated to have a gross floor area of 474,400 sq m and is slated to be among the world's largest shopping malls once it opens late this year.
Community malls have become one of the most active segments for the retail market. Cosco Capital and DoubleDragon Properties are in the middle of executing aggressive retail expansion strategies, focusing outside of Metro Manila. DoubleDragon is on track to meet its short-term goal of having 25 malls by the end of 2016, after securing its 15th site last December. Meanwhile, Cosco Capital was recently active on the investment market as it acquired a portfolio of five commercial properties and nine supermarkets under the Puregold brand.
Likewise, the convenience store segment is rapidly gaining a foothold on the market, appealing to young professionals and business process outsourcing employees looking for quality and accessibility. Ayala and SSI Group are looking at operating 500 Family Mart stores in five years, while Japanese convenience store giant Lawson entered into a partnership with Puregold to roll out 500 stores by 2020.
Cebu blossoming under investors' attention
Cebu has long been pegged as one of the country's bright spots and recent transactions have shown how bullish local developers are in shaping the city's future. During the local government's recent auction of two properties on reclaimed land in South Road Properties, the Ayala Land and SM Prime consortium won the bid for a 26.3-hectare parcel, which was sold for Php10 billion (US$221 million), making it the largest single ticket transaction in the country since late 2013. In the same auction, Filinvest also won the bid for a 19.2 hectare property, sold for Php6.7 billion (US$148 million).
"With South Road Properties slated to be transformed into a mixed-use central business district, these deals will certainly influence the dynamics of Cebu's real estate market," notes McCullough. "This upcoming central business district will account for significant real estate activity in the future. With townships becoming the norm, these deals may also encourage local developers to become more aggressive, especially if similarly-sized parcels become available in Cebu in the near future."
The office market in Cebu continues to be robust, with major developers ramping up their activity. Filinvest has rolled out the first tower of its Php5 billion (US$110 million) Cyberzone complex, and Norkis is expected to complete the first office tower in Norkis Cyberpark later this year. Ayala Land is also rolling out Php8 billion (US$177 million) for Central Bloc, which is located within the Cebu IT Park. Lastly, Megaworld is expected to add 150,000 sq m to its Mactan Newtown property by 2021.
While the Philippines offers a lot of advantages to potential investors, poor infrastructure and connectivity remain to be drawbacks. McCullough believes that the government should pay extra attention to these two issues, as these can dictate the country's future economic growth, as well as its attractiveness to foreign investors. "Low rental costs can bring investors into the Philippines, but the quality of the infrastructure and the limitations in connectivity can keep the Philippines from sustaining and even improving on its growth," says McCullough. "The government cannot afford to have these issues further impact the ease of doing business and the quality of life."
"For the Philippines to be able to compete with the rest of Southeast Asia and the rest of the region, it will have to make transportation and communication easier across the islands, and ensure that this experience is consistent throughout the country," adds McCullough. "Otherwise, other markets will find a way to take up the slack, and the rest of its advantages will become irrelevant."
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
