Real estate prospects up

The Philippine real estate market continues to perform well, according to this month’s market insight from Pinnacle Real Estate Consulting Services Inc.

According to Pinnacle research consultant Jose Romarx Salas, Pinnacle’s research consultant, demand for office space in Metro Manila is still very robust, with occupancy rates ranging from 94 to 98 percent  in the different business districts.

Not surprisingly, the business process outsourcing (BPO) industry’s continued expansion represents the biggest demand driver. In response to this, developers are pushing ahead with their projects to capture this pent-up demand. Rents have been inching up, even with new buildings coming online, due to the tight supply. Thus, the market has been experiencing space crunch.

The study noted that while Ortigas, Alabang and Quezon City offer alternative sites, Makati CBD and Bonifacio Global City remain as the preferred office locations.

“Since Makati remains the location of headquarters of major companies and global businesses, developers and investors have been looking for old buildings that can be renovated or re-developed. Some big companies even acquired existing buildings that can be converted for their own use and occupancy,” it said.

The same study revealed that while rental rates are increasing due to space limitations, these are still within tolerable limits. Rents in Premium Grade A are still slightly higher than P1,000 per sqm per month, while rents in Grade A have an average of P750 per sqm per month. Small and old buildings in Makati are offering rents at an average of P550 per sqm per month.

Pinnacle said that the very strong demand for Fort Bonifacio Global City (BGC) lots has pushed accommodation values even higher than in Makati land values, since most lots in BGC are below the 16- floor area ratio (FAR). BGC is indeed the preferred location of BPOs. “The interest in BGC’s office market has further thickened with the recent acquisition of five buildings of the Net Group by no other than SM Group, at an estimated tag price of P18 billion. Meanwhile, asking prices in BGC are way above the P30,000 accommodation value. The cross section at BGC, however, does not directly compete with Makati CBD. Makati still caters to the corporates and traditional offices, while BGC buildings (green and all) mainly cater to BPOs. BGC and Makati are actually complementing one another, which is a welcome decongestion of Makati CBD,” it added.

The residential market similarly remains upbeat.

The study observed that while various developers have been more discerning with their project launches, the residential market continues to be very active. “The high-end segment remains to be strong and top brands of the Ayala, Century Properties, Filinvest, Robinsons, and Rockwell Groups have been introducing products catering to the rich and famous. It is no wonder that rents in luxury high-end condo units are well above P200,000 per month, depending on the floor areas. Rents in the villages, given the very limited supply, remain to be strong ranging from P300,000 to P500,000 per month,” it said.

For the mid-market and affordable segments, the prevailing low interest rates and high liquidity allow both developers and buyers access to various financing schemes, Pinnacle noted. Various developers continue to tap the availability of financing from the banks and even from international players. These financing institutions assure them access for land banking as well as to complete their ongoing residential projects. This highly liquid regime likewise gives their projects a better likelihood of being sold as this would open their units for sale to a larger market, locally and internationally, it said.

The Filipinos’ affinity to malls and their propensity to spend have been keeping the retail owners with enviable cash liquidity, and real estate developers happy. The study noted that retail owners have been raking in from overseas Filipinos and their families, and from the ever-increasing number of BPO employees. “Even for self-employed or small businessmen, or the traditional employees, disposable incomes continue to rise over time and these incomes funnel to the malls. With a lot of office and residential developments, various retail platforms have been introduced as well, such as the mini-grocery and convenience store setups. Some developers have either setup their own retail division or forged alliance with well-known retailers,” it pointed out.

The study emphasized that successful retailers have been dictating lease rates, terms and conditions of occupancy, delivery, and even control the supply chain, thereby, putting pressure on the suppliers to lower cost. “As in the previous years, retail malls have been generating one of the highest, if not the highest yields, in the property sector. It is projected that further consolidation shall happen in major retail platforms, and niche players would continue to look for untapped platforms in specialized markets,” it added.

So what’s in store for the local property market?

Pinnacle expects the office sector to remain a favorite given the very tight office supply. “Developers and landlords should take advantage of the “pre-leasing” phenomenon to fill up their spaces, and/or fasttrack their constructions. Yields shall remain strong and could easily outpace interest rates. The major decision points are what market to target (BPOs or traditional companies), what technology to use (green or traditional building),  and what percentage to sell (pre-leasing or pre-selling),” it explained.

Meanwhile, the study said that commercial spaces offered by the retailers shall continue to enjoy the highest yields.

Pinnacle noted that “retail malls have been expanding their tenant-mixes that include major government offices and collection agencies to attract more and more foot traffic. The general concept is to attract shoppers in the mall and keep them in for as long as possible by offering various services and products. For niche players, they should consider location-specific opportunities, especially for smart shoppers that avoid long queues and tight parking in malls, and prefer relaxed shopping and dining.”

As for the residential sector, the study said: “the residential sector is highly opportunistic. Luxury residential development is always resilient but more expensive to build. Mid-market is very competitive and location-specific. Demand for affordable and socialized housing has been north of three million, but the marketing is based on volume and highly supported by a number of government agencies, and the margin per unit is relatively lower. The common trend is mixing residential with office and retail developments. More importantly, it is instructive to conduct accurate market scanning on the sizes, amenities and pricing of the residential products to be offered; and how much retail and office spaces to be blended in the mix.”

Things are looking up for the hotel sector and the study projects that with the investment grade status of the Philippines and record tourist arrivals, this is the best time to put up hotels. But developers have to decide wisely what “star” to put up (which is location-specific); whether it would be owner-operated or managed by well-known brands; and whether the hotel development should co-locate with the casinos or traditional tourism areas.

In conclusion, the study said: The Philippines is in a very good position to sustain the upbeat Property Market. Even with the destruction caused by Yolanda, most players seeing the opportunities after the crisis. The Philippine government, together with various local and international groups, has generated billions of pesos for rehabilitation and reconstruction. All sectors are now indeed growth areas, with some caveats in the residential and retail segments. Great opportunities are abound, and are supported by real demand, strong economy, and positive business climate.”

A lot of industries rely directly or indirectly on the real estate sector and given the latter’s growth’s huge multiplier effect, things are looking up for the economy.

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