JLL reveals PH Philippine Property Market will remain vigorous for the second half of 2019
JLL’s thorough research and expert analysis covers the 2nd Q 2019 Metro Manila, Cebu and Davao property markets and the 1st H 2019 Calaba (Cavite-Laguna-Batangas) industrial property market. And based on JLL’s comprehensive study, the state of the Philippine real estate industry remains dynamic- and poised to attract more investments in the ensuing months. METRO MANILA PROPERTY MARKET OVERVIEW (2Q19) OFFICE PROPERTY MARKET SUPPLY An estimate of 156,100 square meters of office space was added to the total stock owing to the completion of eight (8) buildings, bringing in the aggregate supply added for 2019 to 336,700 square meters of office space. Development completions in 2Q19 are spread in several locations across the districts of Metro Manila within the Cities of Makati, Muntinlupa, Paranaque, Pasay, Quezon and Taguig. The biggest of this development is MWM Terminal Inc.’s PITX Tower 4 in Paranaque City, which spans 19,200 square meter. This is followed by Double Dragon Center West with 17,600 square meters; 100 West Building in Filinvest Makati with 14,300 square meters and SM City Fairview Tower 1 with 12,600 square meters. As of 2Q19, total supply of office spaces from Grade B to A developments approximately totals to 8.1 million square meters of office space with the majority located in Taguig City followed by Makati City backed by the presence of established CBDs – Makati and Bonfiacio Global City (BGC). The high demand and concentration of office developments has spilled to its fringe areas with the presence of Mckinley Hill and Mckinley West in Taguig City and office developments rising along Chino Roces Avenue and other townships. DEMAND Metro Manila maintained a manageable vacancy level at 6% amid continuous additional office spaces from development completions. Taguig City holds majority of the office spaces untenanted as majority of the recent development completions are in BGC. Coming in second is Makati City, followed by Quezon City. Offshoring and Outsourcing (O&O) remain as the major demand driver, taking-up approximately 128,100 square meters of office space in 2Q19. For the whole of 1H19, around 181,000 square meters of office space was absorbed by O&O firms. However, there has been a slow q-o-q take-up of office spaces from O&O firms in Metro Manila as they have expanded more in the provinces, owing to the limited PEZA approvals for IT centers especially in Metro Manila. In 2Q19, only two buildings were granted PEZA accreditation with one located in Taguig City and the other in Iloilo City. Moreover, the government’s Administrative Order No. 18 for 2019 imposes prohibition of reviewing and granting PEZA applications for properties located in Metro Manila to allow the creation of more special economic zones in the provinces. Online Gaming remains the second top office space occupier in the whole of 1H19 leasing a total of 160,000 square meters of office space in Metro Manila with around 119,200 square meters of office space transacted in 2Q19. For the said quarter, a POGO leased a whole building in Quezon City with a Gross Leasable Area (GLA) of 10,400 square meters and also leased significant amount of office spaces in two buildings within Paranaque City. As of June 2019, 56 POGOs have been registered with PAGCOR. Pharmaceutical companies came as a surprise as a major demand driver to leased office spaces in 1H19, taking up an estimate of 45,100 square meters mainly due to their expansions within Metro Manila. Fourth top office space occupier for 1H19 are flexible workspace operators leasing 14,400 square meters of office space in Metro Manila. Major foreign and local operators remain to be aggressive in their expansion plans and are seeking to increase footprint both in CBD areas and secondary business hubs. In 2Q19, WeWork opened its second facility in the country at RCBC Plaza in Makati CBD. RENTS Makati City remains to have the highest quoted rent mainly due to the presence of Prime Office buildings within Makati CBD. Limited available office supply in Makati CBD, robust demand, and presence of prime office buildings pushed landlords to command higher rents. Next would be Taguig City due to robust space demand in BGC with up-to-date building facilities. On the other hand, buoyant occupancy from online gaming in the Bay Area pushed rental rates further. Meanwhile, asking rents of developments to complete from 2H19-2022E are close to the range of rents of existing developments with Taguig City leading the higher end of the spectrum due to more construction of Grade A developments in BGC. Buildings that are registered with USA’s LEED (Leadership in Energy and Environmental Design) or the Philippine Green Building Council’s BERDE certifications have been influencing the increase in value of rents due to quality technology and equipment used for buildings to be environmentally sustainable in the long run. RESIDENTIAL CONDOMINIUM PROPERTY MARKET SUPPLY More than 2,000 units are completed in 2Q19, mostly coming from Makati City and Taguig City. The latter half of the year is expected to deliver around 35,500 units more, recording a peak, should there be no construction delays. Makati City and Quezon City house majority of both existing and future condominium supply. Growth is noticeable in Pasay City in the next three years due to the uptick of investments in Bay City. SM Prime Holdings, Inc. holds majority of both existing and future supply, on the back of being the lead contributor in various cities, particularly Pasay City where more than 90% of the pipeline belongs to the developer. DEMAND Average vacancy rate in Metro Manila is recorded at 2%, with Pasay City and Paranaque City pulling down the rate due to online gaming tenants, while employees and students drive the leasing activities for Makati City and Quezon City. A solid preselling market in Metro Manila is observed, evident from high sales take-up figures of future developments. Paranaque City is lagging behind other districts, primarily due to a large number of available units in a development located in the city’s outskirts. Another demand driver comes from the leasing market. The leasing market for upper-mid to luxury developments source demand from corporate housing needs of expatriate employees of O&O firms, MNCs, and embassies. Additionally, local and foreign high-net worth investors continue to drive the sales market for upper-mid to luxury developments – with the purpose of either renting out the units or flipping them upon capital appreciation. Meanwhile, individuals that make up starting families, young professionals, and upgraders make up the end-user demand profile of mostly mid-range developments. RENTS AND SELLING PRICES The strong leasing market, driven by expatriate employees, stimulated rents in Makati City and Taguig City, becoming the highest across districts. On the other hand, rents in Pasay City and Parañaque City are influenced by healthy demand from online gaming employees. As far as selling prices go, Makati City commands the highest prices for both existing and future supply, while prices in Paranaque City have continuously gone up, evidenced by the prices of future supply, due to the large interest in Bay City. RETAIL PROPERTY MARKET SUPPLY Total existing stock as of 2Q19 stood at 6.5M square meters. Quezon City leads all markets with a share of 27%, followed by Manila City and Pasay City with 13% and 11%, respectively. Forecast supply to add 673,500 square meters (2019E-2022E) with Paranaque City cornering majority of the future stock at 29% (Ayala Malls Bay Area – 192,000 square meters). DEMAND Average vacancy registered at around 3.0%, with Taguig City market posting strong occupancy (at around 98%) and Pasig City having the highest vacancy (at around 8-9%) due to the expansion of The Podium. F&B brands continued to lead the retail demand. Some of the new foreign Food and Beverage (F&B) brands that entered in 2Q19 are Shake Shack in Central Square in BGC, Original Cake in SM San Lazaro, Famous Amos in S Maison, and Taiwan’s One Zo in Promenade Food Court Greenhills. F&B brands that expanded during the quarter include Tiger Sugar, Botejyu, J.Co, Soban, Pound by Todd English and Pho Hoa. Fast fashion brands in the like of clothing and apparel, shoes and bags also dominated the retail market in 2Q19. Known brands that had expansion include Parfois, Charles and Keith, Onesimus, Ever New, Terranova, Superga, and Daniel Wellington. Several skincare brands, especially Korean brands opened in 2Q19. Known brands include The Saem, the Face Shop, and Innisfree. As part of re-entering the Philippine market, Innisfree opened second branch in SM Megamall. RETAIL RENTS Average rentals range PHP 1,100 to 2,700 per square meter per month. HOSPITALITY PROPERTY MARKET SUPPLY One hotel opened in 2Q19, providing an additional 93 rooms to the total hotel stock, specifically in Manila. 1H19 additions are at 486 rooms, brought upon by Sheraton Manila City and Hotel Lucky Chinatown. 2H19 is expected to bring an additional 4,800 rooms to the market, pushing up stock to over 41,000 rooms. Key hotels are multiple Red Planet hotels, Aruga by Rockwell Phase 3, Dusit D2 the Fort, multiple Seda developments, Novotel Manila, Hotel Okura, and Park Inn North EDSA. Succeeding years look to taper off, with significant increase in stock in Paranaque, Makati, Quezon City, and Taguig. The bay area (Pasay + Paranaque) and Makati take up majority of hotel stock, with future supply still dominated by the three cities. DEMAND AND ITS DRIVERS Paranaque commands highest occupancy, brought about by strong pull of casino gamers and supplemented by its location near NAIA, pushing occupancy to above 90%. Other areas are seen to have occupancy within the 70 to 80% range. Makati and BGC, meanwhile, remain a strong business/ corporate, as well as MICE destination. In Quezon City, demand is driven mostly by MICE events from local companies and government. ROOM RATES Based on Deluxe room category rates, Manila City and Muntinlupa City hold the largest price per room because of The Manila Hotel and Crimson Hotel. Taguig room rates start at 11,000 because of the more upscale nature of hotels in the city and the profile it commands, specifically in BGC. METRO CEBU PROPERTY MARKET OVERVIEW (1H19) OFFICE PROPERTY MARKET SUPPLY Total existing stock as of 2Q19 stands at 1.1M square meters. Cebu City leads all markets with a share of 87%, followed by Lapu-Lapu with a 7% share and Mandaue with a 6% share. Forecast supply to add 301,000 square meters (2019E-2022E) with Cebu City cornering majority of the future stock. Among the largest gross leasable areas are Central Bloc 2 by Ayala Land, Inc. and Cebu Holdings, Inc. (42,600 square meters) and One Montage by Innoland Development Corporation (42,000 square meters) DEMAND Total vacancy for Metro Cebu registered at 6%, with Cebu City posting strong occupancy and Mandaue City having the highest vacancy at 23% due to the demand being concentrated in Cebu Park districts. A total of 36,500 square meters were taken up in Q2 2019 with the biggest share being in Cebu City at 51%. Demand drivers are Online Gaming in Lapu-Lapu City and ESL schools in Cebu. Cebu has around 150 ESL schools with students from South Korea, Japan, China, Vietnam, and Russia. Of the upcoming supply for Metro Cebu, 26%% has been pre-committed. Only Cebu City has known pre-commitments totaling to 27.%. OFFICE RENTS
JLL continues to be optimistic and excited about the future of the Philippine real estate industry and expects the 2nd half of 2019 and beyond to provide many opportunities for real estate stakeholders, that will surely redound to the country’s economic good.