Davao as an attractive property investment hub

(First of two parts)

Colliers Philippines organized a Davao Property Forum on May 22. Together with Inquirer Property editor Tek Samaniego and Damosa Land first vice president Cary Lagdameo, we discussed how Davao City’s property sector is responding to the pandemic and how developers are future-proofing projects. We tackled a wide range of topics and provided insights and recommendations to stakeholders.

A good part of the panel discussion focused on the resiliency of Davao’s office sector.

Davao City is one of the most competitive outsourcing destinations in the country, and one of only three Philippine cities that are in Tholons’ Top 100 global sites for outsourcing. However, the COVID-19 pandemic will likely lead to slower office leasing all over the Philippines, including Davao City.

Despite the challenges, Colliers sees office leasing opportunities for urban hubs outside of Metro Manila including Davao especially when market sentiment starts improving early 2021.

Economic analysts and credit rating firms are projecting a rebound in 2021. The Philippine central bank, while projecting GDP to contract by 0.8 percent in 2020, is looking at a 7.8 percent rebound in 2021.

If this materializes, we are likely to see a recovery in office space leasing and this should spill over to key outsourcing destinations outside Metro Manila including Davao, one of the fastest growing regions from 2016 to 2018. In our opinion, a recovery in 2021 is likely to be anchored by demand from traditional and outsourcing occupiers.

In 2019, the IT and Business Process Association of the Philippines (IBPAP) said growth in employment in the sector can be attributed to outsourcing sites outside Metro Manila, including Davao. While investors take a wait-and-see stance due to uncertainty, we see economic recovery in 2021 stoking office space demand in Davao and this should lead to creation of more BPO jobs.

More office leasing in integrated communities

Colliers now sees companies looking for space in integrated communities to improve their business continuity plans. We see firms gravitating towards integrated communities to maximize their live-work-play amenities.

In Davao City, about 43 percent of new space due to be completed in 2020 is within an integrated community. Live-work-play will be the name of the game in Davao City.

Davao remains a viable outsourcing hub outside Metro Manila. Tholons, an outsourcing advisory firm ranked Davao City as the 95th most competitive outsourcing destination in the world.

Among the factors considered in the annual poll are quality of manpower; cost and infrastructure; risk and quality of life; and digital innovation. Davao’s economy expanded by 9.6 percent yearly from 2016 to 2018, the fastest among regions.

Colliers sees Davao as a competitive office site outside of Metro Manila due to its skilled manpower. The city produces about 15,000 college graduates every year with about 46 percent having degrees in Business, Math, Science and Information Technology. The city is also considered an education hub for the entire Mindanao group of islands.

Hence, it is no longer surprising to see BPO firms keeping Davao City on their investment radar.We believe that disaster resiliency is also likely to be among the major considerations of outsourcing firms when choosing alternatives to Manila. In this category, Davao is a key option as it is ranked as the third most disaster-resilient city in the country, according to the Cities and Municipalities Competitiveness Index in 2019.

More Peza space needed

Colliers Philippines further believes that developers need to highlight their Philippine Economic Zone Authority or Peza-accredited spaces especially if they want to capture the spillover demand from Metro Manila.

Colliers projects about 41,300 sqm of Peza supply in Davao City in the next 12 months. With limited available Peza-accredited space in Metro Manila and the imposition of a Peza moratorium, outsourcing firms are expected to look for other locations with adequate Peza office supply and Davao should be able to capture a portion of these investments.

Build, Build, Build in Davao

We believe that Davao will be among the beneficiaries of the government’s Build, Build, Build program. In our opinion, developable land around the proposed Davao Coastal Road, Davao Monorail, Mindanao Railway Project (MRP), and the Davao Bus Rapid Transit (BRT) should further be assessed for their feasibility for township projects that feature condominiums, offices and institutional facilities such as clinics or hospitals. These infrastructure projects due to be completed even beyond the term of the current administration should ensure the viability of adjacent township projects.

In our opinion, a rebound in the region’s economic growth and Davao City’s office leasing demand are likely to have a positive effect on the residential segment—both for condominium and house and lot projects.

How are developers capturing the interest of investors and end-users? Will we see a pent-up condominium demand in 2021? Will the housing preferences of Davao-based overseas Filipino workers evolve given the pandemic and social distancing protocols? More on Davao residential sector next week.