Christophe Vicic
The Philippine property sector is forecast to remain resilient despite economic headwinds brought about by the depreciation of the peso, upsurge in inflation and rise in interest rates.
Stable fundamentals characterizing the Philippine real estate market, which include a young and growing population supporting healthy spending, consumption, competitive occupancy costs, and the emergence of new assets for investment, will drive growth in the Philippine property industry moving forward.
In 2019, the demand for office spaces by business process outsourcing (BPO) firms will figure prominently.
These firms are likely to take up significant office spaces as they expand their operations in the Philippines.
The Philippine Economic Zone Authority (Peza) recorded an 8.82-percent year-on-year growth in BPO investment pledges from January to September 2018 amounting to P12.39 billion.
These pledges are likely to translate to more office space to be taken up by BPO firms in the near term.
The improvement of the Philippines’ overall ranking to 2nd place in Tholon’s 2018 Top 50 Digital Nations from 2017’s overall 3rd placement for Outsourcing Destinations is likely to maintain the country’s competitiveness as an ideal BPO location.
These are some of the reasons why precommitment levels of office buildings in central business districts (CBDs) remain healthy with BPO companies leasing office spaces ranging from 1,000 to 2,500 square meters.
There is also increasing investor interest from both foreign and local flexible workspace operators to enter and expand in the Philippines.
WeWork, a US coworking and office space provider, is launching their first coworking facility in BGC. Spaces, an Amsterdam-born firm under the International Workplace Group, recently opened their first coworking facility in BGC as well.
The industrial sector and logistics industry will also flourish in 2019.
The expansion of Clark International Airport coupled by the “Build, Build, Build” projects within Clark in the pipeline (e.g. Subic Cargo Railway project) has spurred growth for investments in Clark City, Pampanga.
Supported by the transportation and housing of imported and exported goods within ready-built facilities in industrial parks, the industrial sector and logistics industries are foreseen to benefit from both the Clark Airport expansion and Subic Railway project.
Overall, growth prospects within the Clark Freeport Zone are also positive due to the spillover effect of infrastructure developments in the pipeline. With the Build, Build, Build projects in the pipeline and the government’s infrastructure push in North Luzon, investors are keen toward putting investments in Clark City, particularly within the province of Pampanga.
Surrounding provinces like Tarlac are also seen to benefit from the government’s infrastructure push, creating a spillover effect to other provinces.
A significant factor that will affect the Philippine real estate market is the uncertainty over government policies and laws. Foreign companies are reported to have a wait-and-see attitude on investing in the Philippines due to uncertainties over the new set of government officials to be elected in 2019.
The Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill has also pushed precautionary measures for foreign companies to enter and expand operations in the Philippines should both fiscal and nonfiscal incentives be unfavorable to them.
Despite these apprehensions, Peza is forecasting an uptick in investments should the new set of leaders and the Trabaho bill be favorable to Peza-registered companies and developers.
At present, the administration’s Build, Build, Build initiative supports the property sector as a whole as infrastructure projects provide accessibility to different developments in existing asset classes like office, residential, retail and hospitality.
It also helps with emerging asset classes like coworking and dormitels. Infrastructure developments are also a key toward population connectivity and mobility, expanding catchments for property developments outside Metro Manila.
At present, The Philippines is one of the markets commanding lower rents across office and retail sectors compared to other established and mature markets across the Asia-Pacific region.
The 2018 average shopping center rent for the Makati CBD is $593 per square meter a year compared to $4,166 per sqm a year for Orchard Area/District 9 in Singapore or $711 per sqm a year for Central Bangkok Thailand.
For Grade A office rents, Makati has an average of $235 per sqm a year while Singapore CBD has 738 per sqm a year and Bangkok has $250 per sqm a year average Grade A rent. This makes the Philippines an appealing destination for business due to competitive occupancy costs and affordable labor.
As JLL’s country head, my biggest challenges will involve facilitating the ease of transaction with regard to foreign investment interests in the Philippine property market, ensuring that these investors find the right local partners for a sustainable growth in the property sector, alongside expanding our local reach.
We are seeing a sizeable number of new developers/private individuals tapping the Tier 2 and Tier 3 markets locally.
Partnering with Philippine firms and investors is something JLL is definitely going to focus on for 2019. JLL’s data and research point towards continued growth and development for the Philippine economy and the Philippine property sector despite economic challenges and uncertainties.
I am highly optimistic that the Philippine real estate industry will thrive in 2019 and am very hopeful that it will continue to prosper in the years to come. —CONTRIBUTED