PHILIPPINES - truelogicf.tlcollect.com/fr2/716/37132/Phil_Knowledge_2Q2016.pdf · 2016-08-09 · decades, the Philippines outpaced China’s growth. The economic expansion is primarily

Quarterly Property Market Report

PHILIPPINES

2Q 2016 August 9, 2016

Buoyant economy drives growth in property sector

Julius Guevara Director | Research & Advisory

The accelerated economic growth during the second quarter was echoed by the office property market, where high occupancy levels have been sustained by the BPO industry. An increase in tourist arrivals failed to uphold the hotel market, where a softer gaming market and new completions will suppress occupancy rates in the short term. The resurgence of the manufacturing sector has led to increased demand for industrial space, with a further boost set to come from the implementation of vital infrastructure projects. Meanwhile, the outlook for the residential condominium sector remains subdued amid oversupply concerns.

Forecast at a glance

Demand The BPO market continues to lift the office market, with no sign of letting down.

Supply Construction delays due to the lack of skilled labor will continue to affect the new supply to be delivered for all sectors.

Vacancy rate Residential condominiums in the core areas will continue to see rising vacancies amid a deluge of new supply in the fringe areas. Meanwhile, delays in office completions will lead to even lower vacancies for office buildings.

Rent Rates for condos are still seen to continue to soften because of the new supply coming up. While office demand is strong, all-time highs in office construction will rein in sharp upward rental rate movements. Meanwhile, improvements in industrial rents will continue.

The Philippine economy accelerated by 6.9% during the first

quarter of the year, the fastest in East Asia. The expansion is

primarily attributed to sustained growth in investments and

household expenditures complemented by ramped up public

infrastructure spending. The prospects for economic growth in

the second half of the year remain rosy given the benign

inflation environment, continuously improving job situation,

modest increase in overseas Filipino workers‘(OFW)

remittances, and higher foreign direct investment (FDI) inflows.

Office. An estimated 75,000 sq m of new office net usable area

was completed in the second quarter of this year, bringing Metro

Manila’s office stock to around 7.7 million sq m. Makati CBD’s

office market remains tight due to the lack of new supply.

Vacancies in Fort Bonifacio should remain low over the next

twelve months due to sustained demand from outsourcing firms

which tempers the significant amount of additional office space

being completed in the area.

Residential. Six projects were originally slated for delivery in 2Q

2016 but only one was completed. The delay in completions is

attributed to the acute lack of skilled labor in construction. Rents

in the major CBDs continue to correct amid heightened levels of

unit completions in the outskirts.

Hotel and Leisure. More than 900 new hotel rooms were

completed in Metro Manila during the first six months of 2016.

Hotel occupancy rates in Metro Manila declined marginally

despite higher tourist arrivals and expenditures. International

tourist arrivals have steadily been growing since 2010 and the

Philippines has the potential to become a major tourist

destination in the region but the country lacks the necessary

infrastructure to compete with other ASEAN destinations and

attract more tourists. Developers should continue to invest in

hotels in the near term but watch out for oversupply of casinos in

the medium term.

Industrial. Total industrial stock in the Cavite-Laguna-Batangas

area reached almost 6,900 hectares as of 1H2016. Colliers

sees supply in the area increasing over the near- to medium-

term due to the government’s push to attract more

manufacturing investments. The current administration’s thrust to

aggressively implement infrastructure projects outside Metro

Manila bodes well for the thriving industrial sector in the fringe

provinces. The government’s efforts to attract more

manufacturing investments should lead to higher demand for

industrial lots and this, coupled with limited supply, should raise

land values in the region.

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2 Research & Forecast Report | 2Q 2016 | Colliers International

PH economy up 6.9% in 1Q; indicators point to faster 2Q growth

The Philippine economy expanded by 6.9% during the first quarter of the year. During the period, the country registered the fastest GDP growth amongst the major economies in East Asia. For the first time in nearly three decades, the Philippines outpaced China’s growth.

The economic expansion is primarily attributed to

sustained growth in investments and household

expenditures complemented by ramped up public

infrastructure spending. Gross fixed capital formation,

which refers to combined domestic and foreign

investments, grew 26% during the quarter. This is the

highest growth recorded in the past 23 quarters and

indicative of rising investor confidence in the country.

Household consumption increased by 7% due to low- to

stable prices, improved employment figures (January

2016 unemployment of 5.8% is the lowest in 10 years),

modest growth in overseas Filipino workers (OFW)

remittances, and a windfall from election-related

spending. The latter also propelled public infrastructure

expenditures which grew by almost 40%, a turnaround

from a 23% decline posted in the first three months of

2015. Despite uncertainties in the global economic

landscape, exports still managed to grow by 5.2% in the

first quarter of the year. Semiconductor exports, which

account for 40% of the country’s merchandise exports,

grew by 15%.

The industry sector rose by 8.7% from 5.3% in the first

quarter of 2015. The growth was driven by construction

(+10.8%) and manufacturing (+9.1%) subsectors. Private

construction recorded a 7.1% growth complemented by

increasing demand for office equipment such as air-

conditioning units (+49%) and office machines and other

data processing equipment (111%). The services

sector, which expanded by 7.9% from January to March

of this year, was propelled by real estate, renting, and

business activities (RERBA); transportation, storage,

and communications; banking and finance; and retail

trade. The Other Services subsector which includes

hotels, restaurants, and other tourist-related services

rose by 8%. Agriculture continues to underperform,

declining by 4.4% due mainly to the adverse effects of

the El Niño phenomenon.

The prospects for economic growth in the second half of

the year remain rosy given the benign inflation

environment, continuously improving job situation,

modestly increasing in OFW remittances, and higher

foreign investment inflows.

Inflation during the second quarter of the year rose to

1.5% from 1.1% posted in the previous quarter. Average

inflation recorded for the first half of the year is 1.3%,

well below the government’s range target of 2-4% for

2016-2018. A poll conducted by the central bank in June

showed that private sector economists are projecting an

average inflation of 1.8% for the year due to low oil

prices, cheaper utility rates, and sluggish global

economic growth.

The April 2016 Labor Force Survey (LFS) showed that

employment improved to 93.9% from 93.6% recorded in

the same period last year. The total number of

employed Filipinos rose to 39.9 million from 39.2 million

a year ago. The agriculture sector lost 1.5 million jobs

but this was offset by additional jobs generated by

Industry (+840,000) and Services (+1.41 million)

sectors.

Economic Indicators

Indicator 2007 2008 2009 2010 2011 2012 2013 2014 2015* 1Q 2016

Gross National Product 6.1 6.0 6.5 8.4 3.2 6.4 7.5 5.8 5.8 7.6

Gross Domestic Producta 6.6 4.2 1.1 7.6 3.9 6.8 7.2 6.1 5.9 6.9

Household Final Consumption Expenditure 4.6 3.7 2.3 3.4 6.1 6.6 5.7 5.4 6.3 7.0

Government Final Consumption Expenditure 6.9 0.3 10.9 4.0 1.0 15.5 7.7 1.7 7.8 10.0

Capital Formation -0.5 23.4 -8.7 31.6 8.1 -5.3 29.9 5.4 15.1 23.8

Exports 6.7 -2.7 -7.8 21.0 -4.2 8.5 -1.1 11.3 9.0 6.6

Imports 1.7 1.6 -8.1 22.5 0.2 4.9 5.4 8.7 14.0 16.2

AHFFb 4.7 3.2 -0.7 -0.2 2.7 2.8 1.1 1.6 0.1 -4.4

Industry 5.8 4.8 -1.9 11.6 2.3 7.3 9.3 7.9 6.0 8.7

Services 7.6 4.0 3.4 7.2 5.1 7.4 7.2 5.9 6.8 7.9

Average Inflationc 2.9 8.3 4.1 3.9 4.6 3.2 3.0 4.1 1.4 1.1

Budget Surplus/Deficit (PHP Bn) -12.4 -68.1 -298.5 -314.4 -197.7 -242.8 -164.1 -73.1 -121.70 -112.49

PHP:USD (Average) 46.1 44.7 47.6 45.1 43.3 42.1 42.5 44.4 45.4 47.3

Average 91-Day T-Bill Rates (%) 3.4 5.2 4.0 3.7 1.4 1.6 0.3 1.2 1.8 1.6

Source: Philippine Statistics Authority, Bangko Sentral ng Pilipinas, Bureau of the Treasury

aat constant 2000 prices

bAgriculture, Hunting, Forestry, Fishing

cat constant 2006 prices

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OFW Remittances*

*as of May 2016

Source: Bangko Sentral ng Pilipinas

Remittances from OFWs for the first five months of the

year reached USD12 billion, up 2.7% year-on-year. The

bulk of the remittances came from the United States,

Saudi Arabia, the United Arab Emirates, Singapore,

Japan, and Qatar. The central bank attributed the

continued growth in remittances to steady inflows from

land-based OFWs; initiatives of banks and non-bank

remittance service providers to expand their international

and domestic market coverage; and sustained demand

for OFWs.

Foreign direct investments (FDI) for the first four months

of the year totaled USD3.5 billion, almost triple the

USD1.23 billion in FDI inflows posted during the same

period in 2015. The fresh investments were infused

mainly to finance and insurance; construction;

accommodation and food service; real estate; and

manufacturing activities.

The country’s economy is generally believed to have

grown by at least 7% in the second quarter owing to the

additional boost provided by election spending which

usually peaks in April, a month prior to elections. But the

country’s economic managers have reduced the 2016

GDP growth target to 6-7% from the previous 6.8-7.8%

goals set by the Aquino administration as they expect

slower growth for the second half of the year. The inter-

agency Development Budget Coordination Committee

(DBCC) said the drag will come from weak agricultural

output, dampened external demand, and the tapering-off

of election-related spending.

Strong macroeconomic fundamentals continue to push

the demand for real estate loans, with banks’ exposure in

the property market growing to PHP1.331 trillion as of

March 2016 from PHP1.09 trillion in the same period the

previous year. Real estate loans for commercial use

account for 65% of the total or PHP869 billion while

residential loans represent the remaining 35% or

PHP462 billion.

Housing licenses continue to rebound

Applications for licenses to sell for housing continued to

increase in 2016, after a net decline at the end of 2015.

The total number of licenses issued by the Housing and

Land Use Regulatory Board (HLURB) for the first five

months of the year reached 144,753, up 52% from the

95,532 units issued during the same period in 2015. The

growth was driven by the more than four-fold increase in

the number of units applied for by developers to comply

with the balanced housing unit requirement of the

government. For the past two quarters, developers have

become more aggressive in complying with the

government’s requirement of developing an area for

socialized housing equivalent to at least 20% of the total

subdivision area.

Open Market Housing posted a 70% growth with the

number of new applications reaching 14,859 from 8,745.

Licenses applied for under the mid-income and

economic housing segments grew by 60% and 18%,

respectively. Mid-income housing remains a growth

area, having posted a 97% growth during the first three

months of the year. The Socialized Housing segment

recorded an 11% growth, slower than the 81% increase

posted from January to March 2016.

HLURB Licenses to Sell*

*as of May 2016

Source: Housing and Land Use Regulatory Board

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HLURB Licenses to Sell

SEGMENT JAN – MAY '15 JAN - MAY '16 % CHANGE (YoY)

Balanced Housing Compliance Units 3,142 13,542 331

Socialized Housing 9,393 10,439 11

Economic Housing 19,333 22,901 18

Mid-Income Housing 1,460 2,339 60

Open Market Housing 8,745 14,859 70

Low-Cost Condominium 2,052 1,365 -33

Mid- and High-End Condominium 22,980 37,631 64

Commercial Condominium 1,338 1,819 36

Farmlot 40 - -100

Memorial Park 19,019 26,371 39

Industrial Subdivision 126 - -100

Commercial Subdivision 103 167 62

TOTAL (Philippines) 95,532 144,753 52 Source: Housing and Land Use Regulatory Board

Applications for the mid- and high-end condominium

segment grew by 64% from a modest 18% registered

from January to March of this year while those under the

low-cost condominium category declined by a third to

1,365 units. Commercial condominium applications

reached 1,819 units from January to May of this year

from 1,338 units in the same period in 2015.

Applications under the Commercial Subdivision segment

increased from 103 to 167 while those under the

Memorial Park category grew by 39% to 26,371 units

from 19,019 units.

Republic Act No. 10884 or The Act Strengthening the

Balanced Housing Program lapsed into law on July 17,

2016. This amends the law to include provisions to define

socialized housing condominiums or medium-rise

buildings, which were previously not included. This is a

game changer since it now allows the construction of the

lower priced socialized housing in urbanized areas,

where housing has become very expensive, and

provides more affordable financing schemes for those

that qualify. Furthermore, this amendment lowers the

socialized housing development compliance for

horizontal development from 20% to 15%, while vertical

developments now have a socialized housing compliance

of 5%, regardless of whether the developer avails of

incentives. These amendments will lead to an increase in

socialized housing developments, where the housing

backlog is the largest.

Land value appreciation slows

Land Values

Source: Colliers International Philippines Research

Makati CBD land values rose by 4.2% in the second

quarter of the year, slower than the 4.6% rise posted in

1Q 2016. Fort Bonifacio values increased at a slower

3.6% to PHP460,865 per sq m. Land value appreciation

in Alabang decelerated to 3.8% from 8% in 1Q 2016.

Prices in Alabang averaged PHP132,137 per sq m.

Colliers projects land values in major business districts

will rise between 13% and 17% over the next 12 months

due to the lack of available land assets coupled by

growing investor interest.

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Comparative Land Values (PHP / sq m)

LOCATION 1Q 2016 2Q 2017 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY)

Makati CBD 378,000 - 668,000 394,000 - 696,000 4.23 448,000 - 793,000 13.85

Fort Bonifacio 315,000 - 574,000 326,000 - 595,000 3.60 367,000 - 670,000 12.57

Oritgas Center 140,000 - 237,000 146,000 - 246,000 4.00 164,000 - 277,000 12.64






Forecast New Office Supply (Net Useble Area)

LOCATION AS OF 2015* 2016F 2017F 2018F 2019F 2020F TOTAL

Makati CBD 2,853,034 13,250 37,891 29,962 40,300 183,453 3,157,891

Ortigas Center 1,380,282 14,503 60,617 45,673 236,145 - 1,737,220

Fort Bonifacio 1,170,503 271,412 345,649 224,319 176,893 29,634 2,218,411

Eastwood 300,264 - - - 28,220 - 328,484

Alabang 396,541 35,562 95,658 23,268 70,019 35,010 656,056

Mandaluyong 284,550 - 74,202 50,215 72,900 - 481,866

North EDSA-Triangle 341,855 98,559 69,787 131,098 33,666 39,894 714,861

Pasay City Reclamation 257,422 79,798 55,493 180,496 31,307 159,572 764,089

Other locations** 526,754 41,226 159,618 199,122 153,643 120,343 1,200,706

TOTAL 7,511,205 554,310 898,915 884,152 843,093 567,906 11,259,582


*Revised figures

**Manila, Pasay, Quezon City, and other fringe locations

Office Buildings in fringe areas dominate completions in 2Q

An estimated 75,000 sq m of new office net usable area

(NUA) was completed in the second quarter of this year,

bringing Metro Manila’s office stock to around 7.7 million

sq m. Polaris in Alabang is the largest building completed

offering an NUA of 23,800 sq m, representing one-third

of the total additional space delivered during the period.

The completion of Ortigas Technopoint One raised

Ortigas Center’s office stock by around 14,500 sq m.

Other buildings that went online from April to June 2016

are in the peripheral areas of major business districts,

including MJ Corporate Plaza (16,600 sq m) in Chino

Roces, Makati; UP Town Corporate Center (5,400 sq m)

in Quezon City; and Starmall Las Piñas IT Hub (14,400

sq m) in Las Piñas. The delivery of additional office

space in the fringe areas indicates the growing demand

for office space outside the major business districts.

No building was completed in Fort Bonifacio in 2Q 2016,

unlike in the previous quarter where the business district

accounted for more than half of the new office space.

The completion of Metrobank Center, originally

scheduled in the second quarter, has been pushed back

to 4Q 2016. Other office buildings in Fort Bonifacio

expected to go online this year include Inoza Tower,

Vista Hub, Citibank Plaza, and W City Center. Fort

Bonifacio covers nearly half of the total amount of office

space projected to go online this year. We expect One

Felicity Center in Quezon City and Scape in Pasay, both

initially set for completion in 2Q 2016, to go online in 3Q

2016.

Moving forward, Colliers expects that the volume of new

office space completed by the end of 2016 will be much

lower than initially projected. Construction delays have

plagued many of the projects now being built, leading to

a significant decrease in actual completions. This will

mean that the market will continue to be tight until 2017,

so office developers will not need to worry much about

falling rental rates, at least for the short term.

Makati CBD vs. Metro Manila Office Stock


Vacancies in Makati CBD and Fort Bonifacio continue to decline

Makati CBD’s office market remains tight due to the lack

of new supply. The vacancy rate in Makati CBD for 2Q

2016 was almost flat at 1.65%, down by 3 basis points

from the previous quarter. Vacancies in premium

buildings increased to 0.5% from 0.3% while those for

Grade B buildings rose to 1.3% from 1.1%. The

increases, however, were offset by a decline in

vacancies among Grade A buildings, including Petron

Megaplaza and Tower 6789. Overall vacancy in Makati

CBD has been declining since 4Q 2015. Colliers

expects vacancies in the business district to continue to

drop since no new office buildings are coming up until

2018, apart from the reintroduction of the renovated

Insular Life Building in 2017.

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Makati CBD Comparative Office Vacancy Rates (%)

GRADE 1Q 2016 2Q 2016 2Q 2017F

Premium 0.31 0.46 0.37

Grade A 4.58 3.71 3.02

Grade B & Below 1.05 1.25 1.02

All Grades 1.68 1.65 1.34


Makati CBD Office Supply and Demand


Vacancies among Fort Bonifacio office buildings dropped

from 2.6% to 1.7% due to strong leasing in Grade A

buildings such as Net Park, SM Aura, One World Square,

and Net-1 Center. The strong take-up among Grade A

buildings more than offset the rise in vacancies in Grade

B buildings. Fort Bonifacio has long established its

position as the country’s major hub for higher value

Knowledge Process Outsourcing (KPO) services. Colliers

predicts vacancies in Fort Bonifacio will remain at around

1.7% over the next twelve months due to sustained

demand from outsourcing firms, which should temper the

significant amount of additional office space being

completed in the area. In the past few years demand has

usually picked up during the second half, thus it could be

surmised that availability would continue to tighten by the

end of the year. Colliers has also observed strong pre-

leasing activity in some of the buildings that will only be

completed in the next 12 months.

Relocations from established CBDs to emerging areas

such as Aseana City are now being seen, which could

be attributed to cost considerations given the lower

rates in these emerging areas. This trend is seen to

continue moving forward.

Stable growth in rental rates across major CBDs

For the second quarter of 2016, premium rental rates in

Makati CBD reached PHP1,293 per sq m a month, up

by 1% QoQ. Rents also grew faster among Grade A

buildings, with average rent reaching PHP 919 per sq m

from PHP915 per sq m a month, representing a 0.4%

rental rate growth. Rents for Grade B buildings were

essentially flat at PHP843 per sq m. Rates in Makati

CBD continue to rise due to the lack of available office

space coupled with sustained demand from both BPO

and non-BPO companies. Colliers sees rents in the

business district rising between 5% and 10% over the

next twelve months.

In Fort Bonifacio, Grade A office rents averaged

PHP897 per sq m a month, up by 0.3% QoQ. Grade B

rents rose 1.8% QoQ to PHP782 per sq m. Colliers

expects rents in Grade A buildings to accelerate by 8%

to 10% over the twelve months.

Average rents in Grade A buildings in Ortigas Center

reached PHP667 per sq m from PHP663 in the first

quarter, representing a 0.5% growth QoQ. Grade B

rents rose 0.6%. We project that rents in Ortigas Center

will increase by 6-10% over the next twelve months.

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Comparative Office Rental Rates (PHP / sq m / month) Makati CBD (based on net useable area)

GRADE 1Q 2016 2Q 2016 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY)

Premium 1,120 -1,430 1,130 – 1,440 0.98 1,210 – 1,540 6.86

Grade A 720 – 1,100 720 – 1,110 0.46 800 – 1,220 10.08

Grade B 590 - 840 590 - 840 0.14 620 - 880 4.49






Capital value growth continues to exceed rental rate growth

Premium office space in Makati CBD yielded an average

price of PHP179,163 per sq m, a 2.5% increase from to

the first quarter of 2016. Values for Grade A buildings

increased by 3% to end up with an average value of

PHP118,450 per sq m. Grade B buildings posted a 2.9%

growth QoQ to PHP87,082. Colliers sees Makati CBD

capital values growing between 5% and 13% over the

next twelve months. Grade A capital values in Fort

Bonifacio averaged PHP133,175 per sq m, up 1.4%

QoQ. The growth recorded is slower than the to 4.6%

increase in the first quarter of the year. Grade B capital

values rose 2.8% QoQ. Colliers projects capital values

for Fort Bonifacio buildings will grow between 7% and

12% over the next twelve months.

In the short term, Colliers sees both land and constructed

office space capital values increasing at a faster pace

compared to rental rates, leading to a further yield

compression. Interest rates are not seen to significantly

increase in the near future due to global conditions,

giving developers and investors continuous access to

capital for their acquisitions. This yield compression will

push developers to look into developing in emerging

CBDs such as Aseana City and Arca South, where land

values are still much lower and more attractive yield-wise

compared to Makati CBD and Fort Bonifacio.

Makati CBD Office Capital Values


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Comparative Office Capital Values (PHP / sq m / month) Makati CBD (based on net useable area)

GRADE 1Q 2016 2Q 2016 % CHANGE (QoQ) 2Q 2017F %CHANGE (YoY)

Premium 161,000 - 188,000 165,000 - 193,000 2.51 178,000 - 208,000 7.79

Grade A 95,000 - 135,000 98,000 - 139,000 3.01 110,000 - 157,000 12.97

Grade B 69,000 - 100,000 71,000 - 103,000 2.85 75,000 - 109,000 5.11






Forecast Residential New Supply

LOCATION AS OF 2015 2016F 2017F 2018F 2019F TOTAL

Makati CBD 19,337 3,660 3,100 1,072 598 27,767

Rockwell 4,159 - 346 492 269 5,266

Fort Bonifacio 22,206 6,730 4,125 2,311 2,075 37,447

Ortigas 16,250 1,355 899 422 570 19,496

Eastwood 7,548 - 988 - 632 9,168

TOTAL 69,500 11,745 9,458 4,297 4,144 99,144


Residential Delays in condo completions suppress supply levels

Only one of the six projects originally slated for delivery

in 2Q2016 was completed – the Alphaland Makati Tower

with 480 units. This represents a delay of more than

2,300 units from being added to the condominium stock.

The delay in completions is attributed to the acute lack of

skilled labor in construction. General contractors are

feeling the pinch in the lack of labor, given the high

number of construction projects being pursued not just in

Metro Manila but all over the country. Delays are also

seen in all property sectors, with residential and office

being the most affected. The problem in skilled labor is

also exacerbated by the desire of these laborers to seek

higher paying jobs abroad, lowering the number of

employable labor in the country.

Apart from the six projects that have been delayed, some

of the projects that are likely to be completed over the

remainder of the year are The Stratosphere and Park

terraces Tower 3 in Makati CBD; the Avida CityFlex

Towers BGC Tower 2 and The Venice Luxury

residences-Emanuele in Fort Bonifacio; and Sonata

Premiere Residences in Ortigas Center.

Makati CBD Residential Stock


Makati CBD, Fort Bonifacio vacancies continue to rise

Makati CBD Comparative Resi. Vacancy Rates (%)

GRADE 1Q 2016 2Q 2016 2Q 2017F

Luxury 8.33 9.79 11.90

Others 9.76 10.41 11.84

All Grades 9.58 10.33 12.29


Makati CBD Residential Vacancy


During the second quarter of 2016, residential

condominium vacancies in Makati CBD grew from 9.6%

to 10.3%. The Premium segment posted the largest

increase in vacancy to 9.8% from 8.3%. Vacancies in

Grade A units also rose to 7.7% from 7.4%. Among the

major contributors to increasing vacancies in Makati

CBD is the delivery of new units in its fringes and other

major CBDs like Fort Bonifacio.

Overall vacancy in Fort Bonifacio rose to 9.2% from

8.6% as vacancies increased across all segments.

Vacancies in Premium buildings rose to 9% from 8.7%

while those in Grade A and Grade B segments rose to

8.5% and 10.5%, respectively. Colliers sees a

significant rise in vacancies in Fort Bonifacio residential

buildings given the completion of a significant amount of

condo units. We project that vacancies in Fort Bonifacio

will swell to 11.1% from 9.2% over the next twelve

months. Nearly 60% of the total number of additional

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Makati CBD Residential Vacancy





units to be completed this year will be in Fort Bonifacio.

Overall vacancy in Ortigas Center dropped to 7.2% from

8.5%. Among the business districts covered, only Ortigas

Center recorded a decrease in vacancies. Take-up in

both Grade A and B segments was strong during the

period, particularly for the latter where vacancies

dropped to 6.4% from 8.3%.

Rental rates continue to soften

Prime 3BR Units Residential Rents


Residential rental rates continue to soften across major

business districts. Rates in Makati CBD dropped by

1.2% to PHP858 per sq m a month from PHP869 per sq

m. The decline is slower than the 1.6% drop recorded in

1Q 2016, reflecting slow absorption amid lack of new

completions. Rents also dropped in Fort Bonifacio (-

1.5%) and Rockwell (-0.4%). Colliers sees the continued

decline in rental rates given the additional 10,000+ units

slated for completion for the remainder of the year in the

major CBDs. Over the next twelve months Colliers sees

rental rates in Makati CBD, Fort Bonifacio, and Ortigas

Center declining between 4% and 7%.

With these trends, condominium investors whose units

are now being completed face a very challenging rental

market environment. In order to assist their unit buyers

in achieving their expected rental yields, residential

condominium developers should explore creative rental

models.

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Metro Manila Residential Condominium Comparative Luxury 3BR Rental Rates (PHP / sq m / month)


Makati CBD 590 - 1,140 580 - 1,130 -1.22 550 - 1,070 -5.08

Rockwell 810 - 1,100 800 - 1,100 -0.38 790 - 1,080 -1.61

Fort Bonifacio 670 - 1,070 660 - 1,050 -1.48 620 - 990 -6.11


Comparative Residential Lease Rates (High-Rise) 3BR, Semi-Furnished to Fully Furnished

LOCATION MINIMUM AVERAGE MAXIMUM

Apartment Ridge/Roxas Triangle

Rental Range (PHP / mo) 150,000 200,000 300,000

Average Size (sq m) 286 303 330

Salcedo Village



Legaspi Village



Rockwell



Fort Bonifacio


Average Size (sq m) 138 223 310 Source: Colliers International Philippines Research





Makati CBD Comparative Residential Lease Rates for Exclusive Villages (PHP / mo) 3BR - 4BR, Unfurnished to Semi-Furnished

VILLAGE LOW HIGH

Forbes Park 250,000 650,000

Dasmarinas Village 230,000 600,000

Urdaneta Village 250,000 360,000

Bel-Air Village 230,000 350,000

San Lorenzo Village 140,000 250,000

Magallanes Village 120,000 250,000

Ayala Alabang Village 130,000 280,000


Capital values drop across CBDs, except Ortigas Center

Capital values declined across major business districts

except Ortigas Center, where prices increased by 1.9%

QoQ, faster than the 1.5% growth posted during the first

three months of the year. Makati CBD values dropped

2.7% QoQ while Fort Bonifacio prices declined by 2.5%.

Eastwood and Rockwell also recorded lower prices

during the period under review, with their capital values

declining by 0.5% and 1.2%, respectively. Colliers sees

capital values declining slightly over the next 12 months

due to a subdued outlook on the residential market.

Prime 3BR Units Residential Capital Values


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Metro Manila Residential Condominium Comparative Luxury 3BR Capital Values (PHP / sq m / month)


Makati CBD 107,000 - 197,000 104,000 - 191,000 -2.67 100,000 - 184,000 -4.02

Rockwell 122,000 - 203,000 120,000 - 200,000 -1.23 119,000 - 197,000 -1.36

Fort Bonifacio 115,000 - 185,000 112,000 - 181,000 -2.52 104,000 - 148,000 -7.01 Source: Colliers International Philippines Research





Hotel and Leisure New hotel rooms raise Metro Manila’s stock to about 22,000

More than 900 new hotel rooms were completed in Metro

Manila during the first six months of 2016. The figure

accounts for nearly a third of the total number of rooms

projected to be delivered this year. The new rooms

brought the metropolitan area’s stock to around 22,000

rooms. Two new hotels, Belmont Luxury Hotel with 480

rooms and Conrad Hotel with more than 200 rooms were

completed, accounting for more than 70% of new stock

delivered during the period. The soft opening of Shangri-

La at the Fort added about 200 keys to Metro Manila’s

hotel room stock. The remaining rooms (376 rooms for

Shangi-La at the Fort and more than 100 for Conrad

Manila) should be delivered by the third quarter of 2016.

The PHP6.5 billion six-star Conrad Hotel is positioned

atop the two-level S Maison, a high-end retail complex.

The posh hotel houses four contemporary event halls

and two ballrooms spanning 4,000 sq m. It also has a

luxury spa, a 24-hour fitness center, and an outdoor

function space overlooking the city. Meanwhile, Shangri-

La at The Fort is one of the tallest towers in the country

and features Horizon Homes, a collection of distinct

homes situated on the top floors with views of the

metropolis; upscale retail shops; and Kerry Sports

Manila, a comprehensive lifestyle and leisure club. It also

features a pillarless Grand Ballroom that can

accommodate up to 1,200 guests.

Metro Manila Hotel Room Stock


Other hotels likely to be completed this year are the 250-

room Seven Seas (formerly World Hotel) in Makati City;

the 440-room Seda Hotel-Vertis North in Quezon City;

and the 1,000-room Okada Manila in Entertainment City,

Parañaque.

The hotel projects to be delivered this year are a mix of

3-star and 5-star hotels. The estimated 3,100 additional

rooms expected to be completed by the end of the year

are higher than the 1,700 new rooms introduced in the

metropolis in 2015. This signifies the anticipated

increase in demand for accommodation amid the

sustained economic growth. The increase in commercial

activities has propelled the demand for business class

accommodation, especially in Metro Manila, which

accounts for 37% of the country’s economic output.

Focus on New Hotel Room Supply


Occupancy down despite rise in tourist arrivals, receipts

Foreign tourist arrivals to the country during the first five

months of the year reached 2.52 million, up 14% from

2.22 million in the same period a year ago. South Korea

remained the country’s largest market with 576,332

arrivals, accounting for 23% of total foreign visitors.

Other major tourism markets include the United States,

China, Japan, Australia, Taiwan, and Canada. Among

the top contributors to foreign arrivals, China recorded

the highest growth of 81% with 285,348 visiting the

country from January to May 2016 despite an economic

slowdown. China remains as the world’s largest source

of tourists and statistics indicate that Chinese are

increasingly venturing to other parts of Asia, including

the Philippines.

Tourism receipts for the period totaled PHP106.6 billion,

13.5 % higher than the PHP93.9 billion posted in the

same period in 2015. The Average Daily Expenditure

(ADE) of a visitor in May 2016 rose by about a fifth to

PHP5,580.

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Number of Hotel Rooms





Visitor Arrivals*

*as of May 2016 Source: Colliers International Philippines Research

Despite the higher tourist arrivals and expenditures,

occupancy rates in Metro Manila declined slightly to 69%

from 70% in the second half of 2015. Occupancy rates

were partly fueled by the hosting of two major tourism

events – the ASEAN Tourism Forum which brought in an

estimated 1,600 delegates and Routes Asia, one of the

biggest conventions for aviation executives around the

globe that hosted more than 1,000 delegates. Election-

related spending also had a positive impact on hotel

occupancy during the period as major political parties

mounted rallies across Metro Manila, bringing in their

allies from other parts of the country. The hotly-

contested presidential elections also attracted foreign

media personnel and poll watchers, which partly raised

hotel occupancy in Metro Manila and other key cities

across the Philippines. These events, however, failed to

offset the increase in the number of hotel rooms in the

metropolis.

Improved infrastructure to sustain tourism growth

The new administration has pledged to prioritize the

bidding for the five airports as these were among the

public-private partnership (PPP) projects that were

stalled under the previous administration. The airport O &

M projects will cover the operation and maintenance of

five regional airports in Bohol, Cagayan de Oro, Davao,

Bacolod, and Iloilo. The private partners for the airport

PPP projects will provide the capital investments required

to upgrade the capacities of the airports in terms of

passengers and freight. With upgraded regional airports,

foreign tourists will no longer have to pass through the

overstretched Ninoy Aquino International Airport (NAIA)

to visit scenic spots or do business in the South. This will

not only ease foot traffic at NAIA and decongest the

country’s capital (about 70% of all arrivals still come

through Manila), but will also drive growth towards other

regional centers. This should provide the impetus for

investors to build more hotels and other tourism-related

establishments to absorb the influx of both local and

foreign tourists. However, this will take years to

implement, so tourism growth will be suppressed until

these issues are addressed.

International tourist arrivals have steadily been growing

since 2010 and the Philippines has the potential to

become a major tourist destination in the region but the

country lacks the necessary infrastructure to compete

with other ASEAN destinations and attract more tourists,

especially the high-spending ones. The development of

the regional airports is a crucial first step in ensuring

that the Philippines has adequate infrastructure to

absorb the targeted 6.5 million international visitors this

year and the projected 12 million foreign arrivals by

2022.

The country has been benefiting from cheaper cost of

travel around the region coupled by Asians’ rising

discretionary incomes. The Philippine tourism sector will

also gain from the ASEAN bloc’s air transport deals with

Russia, China, Japan, South Korea and the European

Union (EU). The hosting of the Miss Universe pageant

in January 2017 is likely to raise tourist arrivals and

hotel occupancy rates in Metro Manila particularly in the

Bay area.

The overall increase in tourism and the improvement of

international airports outside of Metro Manila will lead to

an increase in hotel demand, but not necessarily for

Metro Manila hotels. The improvement in airport

infrastructure in the regional destinations will remove the

necessity for a pitstop in Metro Manila, leading to a

decline in occupancy rates in the capital. Furthermore,

the current clampdown on spurious spending in

mainland China has resulted in a severe decline in

revenues for the new casinos built in the Manila Bay

Area. These casinos were built on the thesis that the

mainland Chinese high rollers will spill over from Macau;

unfortunately with the Chinese government strictly

monitoring gambling activity, these casinos will have to

contend to lower revenues and occupancy rates. More

than two-thirds of the additional hotel rooms expected to

be completed till end-2018 will come from casino hotel

projects which could further depress occupancy rates in

Metro Manila.

Colliers sees hotel occupancy rates in Metro Manila

stabilizing between 60% and 70% over the next twelve

months, given the projected completions especially in

the Bay area.

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Industrial Number of manufacturing ecozones up

As of 1H 2016, there are 195 manufacturing economic

zones in the Philippines, up from 187 in the second half

of last year. The Philippine Economic Zone Authority

(PEZA)-registered property was almost flat at 58,430 ha

from 58,000 ha in 2H 2015. PEZA data showed that

there are eight new manufacturing zones added to the

country’s industrial stock, including EDAMPI Industrial

Park in Cavite and First Philippine Industrial Park lll in

Batangas. Both are currently classified as developments-

in-progress.

Total industrial stock in the Cavite-Laguna-Batangas

area reached 6,898 ha as of 2H 2016, a mere 1%

increase HoH. Colliers sees supply in Cavite, Laguna,

and Batangas increasing over the near- to medium-term

due to the government’s push to attract more

manufacturing investments . Manufacturing is a major

job-generating sector and promoting it is a major plank of

the current administration’s economic agenda to

generate more employment opportunities in the

countryside.

The Cavite-Laguna-Batangas area remains the country’s

major industrial hub with the provinces’ manufacturing

output accounting for half of the Cavite-Laguna-

Batangas-Rizal-Quezon (CALABARZON) region’s gross

domestic product (GDP). Aside from Japanese and

Chinese investors’ decision to transfer manufacturing

operations to the Philippines from China, the

CALABARZON region will also benefit from the growing

interest among Taipei-based manufacturing firms to put

up facilities in the country. Also crucial in funneling

manufacturing investments to CALABAZON is the revival

of a rail cargo between the ports of Manila and an inland

container terminal facility in Laguna. International

Container Terminal Services, Inc. (ICTSI) is partnering

with MRAIL, the railway subsidiary of Manila Electric Co

(Meralco) for the PHP10 billion project. The project is

likely to get approval from the government as it is in line

with the current administration‘s goal of pursuing rail

projects in “major key-points in the country.”

Philippine Industrial Supply Stock by Region of

Highest Supply (Manufacturing)

Source: Philippine Economic Zone Authority

Industrial Supply Stock (Manufacturing)*

Region IV-A 2H 2015 1H 2016 Change (HoH)

Cavite 2,426.45 2,451.45 1.03%

Laguna 1,437.50 1,439.91 0.17%

Batangas 2,971.55 3,006.59 1.18%

TOTAL 6,835.50 6,897.95 0.91%

*PEZA accredited economic zones as of March 2016 Source: Philippine Economic Zone Authority

Industrial Vacancy Rates (Manufacturing)*

Region IV-A 2H 2015 1H 2016

Cavite 13.33% 7.93%

Laguna 1.32% 3.91%

Batangas 19.41% 18.39%

TOTAL 11.29% 10.09% *PEZA accredited economic zones as of March 2016 Source: Colliers International Philippines Research

Overall vacancy improves

An insignificant increase in industrial stock coupled with

a slight uptick in demand led to a decline in the overall

vacancy of Cavite, Laguna, and Batangas industrial

stock to 10.1% as of 1H 2016 from 11.3% in the second

half of 2015. Cavite recorded the largest drop in

vacancy to 7.9% from 13.3% due to reductions in

Daiichi Industrial Park, Suntrust Ecotown Tanza, and

Cavite Technopark. Batangas recorded a slight drop in

vacancy to 18.4% from 19.4% while vacancy in Laguna

increased to 3.9% from 1.3% due to a rise in vacancy in

Carmelray Industrial Park l.

R-III 57.7%

R-IV 14.7%

R-VII 7.7%

R-X 5.8%

R-VIII 4.8%




Copyright © 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.

For more information:

Julius Guevara Director Research & Advisory +632 858 9050 [email protected]

Joey Roi Bondoc Research Manager Research & Advisory +632 858 9057 [email protected]

Contributors:

Randolf Ilawan Research Assistant Research & Advisory +632 858 9068 [email protected]

David Young Managing Director Philippines +632 888 9988 [email protected]

Industrial Lease Rates (Manufacturing)*

(PHP / sq m / mo)

Region IV-A 2H 2015 1H 2016

Leasehold (Land) 59.33 63

Lease Rates (SFB**) 218 222

*Average in Cavite, Laguna, and Batangas **Standard Factory Building Source: Colliers International Philippines Research

Region IV-A Industrial Land Values


Industrial land values to increase steadily

Average land leasehold rates in Cavite, Laguna, and

Batangas rose by 6.8% HoH to an estimated PHP63

from PHP59 per sq m a month. Leasehold rates for

warehouses and logistics facilities in the areas covered

increased to PHP222 from PHP218 per sq m per month.

Colliers expects industrial land and building leasehold

rates to grow over the next twelve months given the

resurgence of the manufacturing sector, especially in the

predominantly-industrial CALABARZON region. The

government’s efforts to attract more manufacturing

investments should lead to higher demand for industrial

lots and this, coupled with limited supply, should raise

land values in the region.

Key infrastructure to drive industrial sector growth

The current administration’s thrust to aggressively

implement infrastructure projects outside Metro Manila

also bodes well for the thriving industrial sector in

Cavite, Laguna, and Batangas. Better and well-

maintained roads and rail and air transport infrastructure

will ensure the seamless transport of manufactured

goods and significantly cut down the costs of doing

business in the region.

Interest in Central Luzon in terms of industrial activity

has been increasing, especially with developments such

as Clark Green City and Ayala Land’s Alviera project in

Porac, Pampanga being publicized. However because

of the location cost difference between Central Luzon

and CALABARZON, Colliers believes that low value

manufacturers will prefer the former because of the cost

advantages, while those that are in higher value

manufacturing such as electronics will continue to shift

southwards. Nevertheless, demand will continue for

industrial space, and we see more industrial-related

developments as part of township developments being

pursued by the major developers nationwide,

particularly in areas where infrastructure support is

available.

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Documents

PHILIPPINES - truelogicf.tlcollect.com/fr2/716/37132/Phil_Knowledge_2Q2016.pdf · 2016-08-09 · decades, the Philippines outpaced China’s growth. The economic expansion is primarily