At least two sectors of the property market are not too badly affected by erosion of investor confidence in the wake of the global economic slowdown, a consulting firm said.

The silver lining, said international property advisor CB Richard Ellis (CBRE), may lie in the business process outsourcing (BPO) sector, the main driver of the growth in office space, and the rising number of tourists that should support the hotel industry.

CBRE chairman Rick Santos said at a news briefing that the strong take-up of office space by BPO companies in the past three years revived the Philippine property market.

And despite the financial crisis and the expected slowdown in global growth, multinationals are expected to continue to outsource services “to survive and thrive” in these critical times.

CBRE is even optimistic that the gap between demand and supply in the office sector will narrow by the end of the year with as much as 501,925 square meters of leasable office space to be taken up by end-2008.

“We are very confident that we won’t see a spike in vacancy rates. It may slide to about 5 to 6 percent (end of the year) from 4 percent (third quarter 2008) but demand is picking up and we usually see the most active in take-up come in in the fourth quarter,” CBRE general manager Trent Frankum said.

In its recent market report, CBRE noted that in the Makati central business district, vacancy rates in the “prime grade A office market” or offices on Ayala Avenue, considered the Wall Street of the Philippines, widened to 3.24 percent in the second quarter, from 1.39 percent in the same period the past year with rents averaging at P1,045 per square meter a month.

Vacancies

Added vacancies in the Philamlife Tower and RCBC Plaza in the Makati business district were the more pronounced during the period. Philamlife Tower’s vacancy rate alone spiked to 8.8 percent in the second quarter from full occupancy in the previous quarter. Rental rates in the building at P1,300/sqm, one of the highest in the country, was likely the reason for the non-renewal of lease contracts by its tenants, CBRE said.

CBRE also observed that companies were finding current rental rates in the Makati business district to be too high even if some developers had lowered average rates to P872/sqm for secondary Grade A sites, or just outside the Ayala Avenue perimeter.

As a result, companies have begun studying their transfer to other locations such as lower grade buildings within the Makati business districts (CBRE considers buildings in the Legaspi and Salcedo areas as Grade B and C) or in other business districts such as Fort Bonifacio, Ortigas Center, Quezon City and Alabang in Muntinlupa City.

New buildings

BPO buildings in Metro Manila expected to open in the fourth quarter this year are Glorietta 5 (16,164 sq m, by Ayala Land Inc.) in Makati, Solaris Tower One at De la Rosa St. (46,868 sq m, by Ayala Land) in Makati, Net Quad (22,500 sq m, by 19.1 Realty) in Fort Bonifacio Global City, Three World Square (25,000 sq m, by Megaworld Corp.) in Fort Bonifacio Global City, The Fort Legend Towers (17,000 sq m, by Monolith Construction & Development Corp.) in Fort Bonifacio Global City, AIC Burgundy Empire Tower (65,000 sq m, by AIC/ Burgundy) in Ortigas Center, Rockwell Meralco Business Center Tower 1 (21,558 sq m, by Rockwell Land Corp.), 1880 Eastwood (31,500 sq m, by Megaworld) in Eastwood, Quezon City, Global One Center (31,800 sq m, by Megaworld) also in Eastwood, Robinsons Cybergate 3 (42,000 sq m, by Robinsons Land) in Mandaluyong City, Mayflower Building (50,000 sq m, by Greenfield) in Mandaluyong, Building 4 and 5 in the University of the Philippines North Science & Technology Park (more than 21,000 sq m in all, by Ayala Land) in Quezon City, Newport Office Building (20,264 sq m, by Megaworld) in Pasay City, and Metropolitan Park Plaza Phase 1 (12,000 sq m, by Federal Land) also in Pasay City.

Other growth sites identified by CBRE for offices are Bay City at the Manila Bay City Park, and Northgate Cyberzone in the Alabang business district.

Despite the recession in the United States, outsourcing and offshoring will continue to be a cost effective and high value alternative to ailing US companies who need to survive the short-term weakness.

Even companies in India, the Philippines’ main rival in the outsourcing industry, are expanding to the Philippines since the cost of labor here is still cheaper than in India.

Bright spot

Apart from the BPO sector, another bright spot for the property market is tourism with arrivals projected to rise to 3.4 million this year from 3.0 million in 2007.

Metro Manila hotels, with a total of 14,149 rooms, registered an improved occupancy level for 2007 at 73.0 percent from 71.95 percent in 2006.

“There are tourists that can’t get hotel rooms in the past. With oil prices coming down, traveling will be more affordable,” Santos said.

Government spending on infrastructure such as the Subic-Clark-Tarlac Expressway (completed last July), South Luzon Tollway expansion (that would widen the expressway linking Alabang to Calamba City and extend to Santo Tomas town in Batangas province) and Southern Tagalog Arterial Road (opened in March, an extension of the 22-km four-lane concrete stretch that links Santo Tomas and Lipa City in Batangas) will help ease travel.

Ongoing infrastructure spending to upgrade and build new airports across the nation will also help improve access to the country’s top tourist destinations and spur development outside of Metro Manila.

These new and upgraded airports include the P7.8-billion Laguindingan airport in the southern province of Misamis Oriental, which may be completed by January 2012, the P4.2-billion Panglao Bohol Airport, P8.8-billion Silay-Bacolod airport opened last January, and the new P8.8 billion Iloilo airport opened last year.

In terms of hotel rooms, Ayala Land, Alliance Global, SM Investments Corp. and the Shangri-La group have lined up projects to boost tourism in the country.

Hotel giant Kingdom Hotel Investments has tied up with Ayala Land to build a 300-room Fairmont hotel, a 30 suite Raffles hotel and 189 Raffles branded residential condominium units—all in the Makati business district.

The Government Service Insurance System and San Miguel Properties Philippines Inc. have also joined forces to build a service apartment type of hotel in Makati that would cost roughly P1.7 billion. In Fort Bonifacio Global City, Shangri-La is putting up a 500-room luxury hotel, and in the Manila Bay area, Alliance Global and Star Cruises are taking the lead in a $1.55-billion project to build a hotel complex that may offer 3,040 rooms and a theme park.

SM Investments is embarking on a P2.4 billion project along Manila Bay for a 500-room Radisson hotel beside its Mall of Asia giant retail complex and an 80 large suites and presidential suite to be dubbed Regent Manila Bay.

Santos said that the major challenge of the tourism industry continues to be to increase hotel and resort rooms to accommodate the expected growth in tourist arrivals to 3.5 million this year. Domestic travels have surged due to more affordable air fares and the emergence of popular tourist destinations like Boracay, Palawan, Mindoro, Bohol, Cebu and Davao.

“Hong Kong and Singapore are having a hard time (Singapore has gone into recession). I think people will focus on Southeast Asia. The Philippines is seen as a much cheaper place to go on a holiday,” Santos said. With editing by INQUIRER.net