Neighbors Bet on “Asia’s Rising Tiger”
A significant share of net Foreign Direct Investments into the country during January-October 2018 came from Asia, specifically Singapore (45.3%), Hong Kong (13.2%), China (9.5%) and Japan (9.2%). Investments from China have grown substantially over the previous year, with a net FDI of USD 189.3 million in 2018 from USD 13.3 million in 2017. This trend is likely to continue in 2019 as more capital from China flows into industries like infrastructure, manufacturing, offices, residential and hospitality.
Office Sector – Rising Rents and Growing Supply
The office sector ended 2018 on a high note with a 9% rental growth year-on-year and a relatively high net absorption of 282,000 sqm during the fourth quarter. Overall vacancy rate in Metro Manila was recorded at a healthy level of 4.9%, driven by 318,000 sqm additional supply during the last part of the year. BPOs and traditional offices continued to drive that demand, evident from the high net absorption in Bonifacio Global City and Ortigas where tenants are primarily from this segment.
In 2019, Santos Knight Frank forecasts continuous growth in rent as demand remains strong. More office space will be infused into the market and accommodate the demand. About 1.2 million sqm of new office stock will be added this year.
The Co-working Phenomenon
Santos Knight Frank data shows 135 locations in Metro Manila that are categorized as co-working, serviced and shared offices. Most of these are concentrated in the financial districts of Makati (38%) and Taguig (27%). With the arrival of international operators WeWork and Common Ground, major developers such as Ayala and Robinsons have also moved into the market with their own brands ClockIn and workable, respectively.
The co-working phenomenon touched down in Cebu where a handful of pioneers such as The Company and iioffice operate. Santos Knight Frank believes that it is only a matter of time before international and more local operators with established presence in Manila enter Cebu.
Boom of Co-living Spaces
Co-living spaces, primarily for employees, have grown popular in Makati, Bonifacio Global City and areas with high concentration of workers from industries such as BPOs. Lessees prefer to relocate themselves nearer their workplace to avoid problems and costs associated with transportation. Thus, residential developments both for sale and lease have become secondary and halfway residences for employees coming from different areas.
New co-living projects include First Georgetown’s GRID in Makati and Centro nin Kaaram in Naga City. Primary players in co-living include Ayala with The Flats and SM with MyTown.
Urbanization and Gentrification in Manila
Gentrification is driving new developments on the fringes of financial districts, such as Bonifacio Global City and Makati, where co-living spaces are built for employee housing.
With most of Manila urbanized, areas such as the C5 corridor have attracted renewed attention. The corridor is now home to new townships underway, namely Arcovia City (Megaworld), Parklinks (Ayala Land and Lucio Tan group) and Bridgetown Business Park (Robinsons Land), all of which are driving capital values up around their areas.
Makati is also set for a major transportation development with the construction of a subway system. The new infrastructure is expected to improve capital values and rejuvenate interests for the city.
The Golden Era of Tourism
Tourism and hospitality have enjoyed high growth rates over the last few years. The Department of Tourism revealed that international arrivals increased by 7.2% during the first 11 months of the year to 6.4 million despite the rehabilitation of Boracay. The booming industry is also fueled by local travel, which sees more than 60 million domestic trips made annually.
Data from Santos Knight Frank reveals that more than 6,400 hotel rooms are upcoming in Metro Manila until 2023, with nearly 2,900 expected to open in 2019.
Santos Knight Frank sees the growth of Philippine tourism in the countryside. International events, such as Clark’s hosting the Southeast Asian Games 2019, will put the spotlight on emerging cities and real estate developments. In addition, the recent launch of Mactan Cebu International Airport’s second terminal and the new Panglao Island airport will further increase international connectivity in secondary cities.
In response to growing tourist volume, developers have been investing in the hotel industry across the Philippines. Branded hotels are expanding not only within the capital but also in locations such as Zambales (Rosewood), La Union (dusitD2, a Dusit brand), Bacolod (Citadines, an Ascott brand), Davao (Dusit) and Cebu (Dusit, Sheraton, Radisson and Citadines). Meanwhile, homegrown players are also expanding their tourism and hotel portfolio, such as Ayala with the Seda hotel brand and its new tourism estate, Sicogon Island.
Changing Dynamics of Retail
E-commerce in the Philippines grew by 30% annually since 2015 to a USD 5 billion industry in 2018, according to a study by Google and Temasek. But while e-commerce has replaced brick-and-mortar retail in the U.S., both Internet and traditional retail have thrived in the Philippines amid changing customer preferences.
The growth of e-commerce has led malls to follow different strategies. For instance, community malls such as CityMall (DoubleDragon Properties Inc.) have focused on basic necessities. Most malls in Metro Manila focused on experiential shopping, adding more or renovating existing space for international brands, co-retail, pop-up concepts and dining.
In 2019, malls will add 250,000 sqm of space – a 5% growth from current stock. A large part of this is predicted to be F&B, with 45% of current retail space dedicated to this segment.
Developers Move into Industrial and Logistics
With a short supply of warehouses and industrial parks within and outside Metro Manila, the industrial and logistics sector is an under-served market which developers such as Ayala Land, Metro Pacific, DoubleDragon Properties and Anchor Land are moving into.
In 2019, areas such as last-mile delivery hubs, inner-city distribution centers, cold storage and warehouse facilities will be in demand. This trend is not only seen in the Philippine but also Asia Pacific at large, where e-commerce is reshaping the logistics of goods.