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The Philippine real estate has been one of the promising investment options in the Southeast Asian region for years now. Backed by its strong macroeconomic fundamentals – sustained growth in production and consumption, highly conducive investment climate, robust tourism performance and booming public and private construction growth, among others, investment entry has remained a highlight of the local economy.
To top this, local governments’ initiative of hastening the priority infrastructure projects further improves the general investment confidence of both local and foreign investors. Nowadays, it’s a usual sight in most highly urbanized and commercialized centers of business in the Philippines, other than the Mega Manila, that cranes are seen towering amid urban sprawls. This is but one of the most apparent indicators of the booming real estate industry in the Philippines.
Among others, the office sector has had the most noise during 2019 especially with the surge of take-up from offshore gaming operators in the Philippines. In Metro Manila alone, around 900,000 to 1,000,000 sqm of office spaces are expected to inflate the supply by 2020. Demand drivers would come from the industries of outsourcing companies, online gaming operators, traditional offices and flexible workspace operators.
Online gaming to maintain momentum despite government restrictions
The growth of offshore gaming and outsourcing businesses in the Philippines is still expected to sustain the market for 2020 – driving the occupancy and rental costs in major business districts in the Philippines. In metropolitan regions in the Philippines, namely Metro Manila, Metro Cebu and Metro Davao, the average occupancy rate in Grade B and A office buildings closed at around 93.43% last 2019. Bay Area in Pasay City recorded the highest saturation of office space take-up considering the huge demand coming from the offshore companies operating in the Philippines.
As early as 2017, JLL Philippines – one of the country’s premier real-estate services firm – has been reporting the POGO to be growing, even at a faster pace, than the IT-BPM sector. The growth rate was at an annual average growth rate of 61 percent from 2017 to 2019, while IT-BPM grew at a slower 36 percent for the Metro Manila real-estate market. However, JLL said, IT-BPM demand is still stable and will remain the leading real-estate demand driver in Metro Manila, mainly due to developments in the POGO industry, including government restriction of new applications, crackdown on illegal Chinese online gaming activities, and rise in tax collections.
The supply constraints and policies shift POGO office space demand to periphery areas of the Metro and other key cities in the country. Thus, giant POGO hubs are already in place in Cavite City and Angeles City, Pampanga, to accommodate the industry movement.
With the office space demand shifting outside of Metro Manila come other real-estate opportunities, including residential, hospitality and retail. POGO employees take up hotels as an alternative to housing, driving up hotel occupancy. Similarly, housing requirements drive up sales take up, selling prices, and rents of mid-segment developments.
So it’s full speed ahead for the Philippine real estate. This is according to PRIME Philippines, a city enabler property advisory firm headquartered in Quezon City. The company offers specialized services in Property Acquisition & Disposal, Commercial and Industrial Sale/Leasing, Project Management, Research & Advisory, and Documentation Services. At its recent forum on February 5, the Philippine Real Estate Market Overview, Trends, and Forecasts 2020: A CoffeeBreak series, PRIME discussed positive developments in the real estate industry despite the recent crisis brought by the Mt. Taal Volcano eruption and the COVID-19 global scare. Cholo Florencio, AVP of Property Advisory, PRIME Philippines, said that not too many major businesses and properties were damaged in Calabarzon due to the volcano eruption. And with the easing out of fears of the nCov virus, PRIME expects more movement in the real estate industry. PRIME itself is opening its satellite office in Shanghai this summer and the firm expects the share of Chinese clients to jump to 40% in the near term, Florencio told BusinessMirror.
“We will be the first local, Pinoy real estate consultancy firm to expand globally,” he said.
Residential condo and office spaces are on the rise in Quezon City
At the homefront, Quezon City is the largest office space demand takers in the Philippines with the ongoing construction of key infrastructure projects such as Skyway, MRT7 and Mega Manila Subway. Huge demand from traditional and outsourcing companies have supported both the residential and office space market of the city. Demand coming from multinational companies also pose a positive stance for office developers considering that most of their employees working in their headquarters located within the main CBDs are coming from the north, particularly Quezon City and Bulacan. Considering the apparent mindset of the millennial market of prioritizing the proximity of workplace to home, Quezon City stands the strongest option evidenced by the influx of flexible workspaces in the city. This is on top of the highly competitive rate for quality office spaces in the city which recently, an online gaming operations firm has taken advantage of, taking around 15,000 square meters of gross leasable space at pre-leasing stage.
Similarly, market for residential condominium units in Quezon City remains bullish considering its position as the most cost-effective source of recurring income for most investors in Metro Manila, alongside Alabang CBD. Its average annual yield is estimated at around 4.11% which is significantly higher than that in Bonifacio Global City of only around 3.16% as per records during 1H 2019. For 2019, around 10,000 additional units were reportedly completed in Quezon City, comprising almost 25% of the total residential condominium supply pipeline in Metro Manila. Some of the demand drivers for the residential condominium market in Quezon City are the following: corporations taking bulk spaces for their employees and high-net worth individuals investing in condominiums near universities and business districts.
Clark in Pampanga is also at the frontline with office and residential developments are picking the investment interest of local and international developers and investors owing the ongoing construction of New Clark city and the popularity it gained during the recent 30th Southeast Asian Games in December 2019.
REIT, CITIRA and ease of doing business
At the forefront of all the exciting news about the real estate industry in the Philippines is the Real Estate Investment Trust (REIT) which has been storing huge returns potential for its participants. With the easement of widely debated proponents of this law, namely, minimum public ownership, VAT-exemption, and enhancement of the qualification of third-party professional managers, this vehicle is expected to take off significantly in the next quarters to come. Other regulations such as the Corporate Income Tax and Incentives Rationalization Act (CITIRA) are also key changes to watch out for considering its potential major effects on the ease and cost of doing business in the Philippines.
The Philippines left the previous year with significant learnings and experiences from all the major events particularly in the business sector – we lost several great taipans, multiple natural hazards struck the country and key regulations have played a huge role in the overall investment play of the country. The business sector left these along with the imposed martial law in the region of Mindanao. For almost two years and a half, the region was under the said rule and in some areas, there had been concerns in business slowdown. The business core of the region, Davao City, however, proved otherwise. It has been resilient, businesses expanding locally and economic activities not wavering, despite the external woes. Now that the region is finally free from such uncertainties especially in the business perspective, the region is expected to grow stronger. In January alone, demand for commercial spaces have gone up and positive investment sentiments have widely spread immediately.
“Mindanao has always shown faster growth than any other region in the country… faster than Manila, faster than Cebu!” said Montenegro highlighting positive economic turns for the region and explaining how the subregional economic initiative, BIMP-EAGA, provides many potential opportunities for Mindanao to open new gateways for ASEAN trade and industry.
Under the Duterte administration’s ambitious “Build, Build, Build” program, the infrastructure masterplan for Mindanao include expansion and modernization of various airports, seaports, and maritime facilities, the development of the Mindanao Railway System, and the modernization of the region’s public transportation system which will pilot test in Davao. All these are part of the P7-trillion budget the government has allocated for infrastructure spending until 2022.
“Mindanaoans are expected to benefit from all these projects which we also expect to attract more foreign investors to the region,” he said.