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Manila rising, and so are rents

Posted on November 27, 2012

MANILA’S CHANGING skyline demonstrates a city coming up in the world.

The Philippines’ capital is in the throes of a property boom described as the best in two decades, reflecting increasing confidence in an economy that only recently began shedding its image as one of the region’s basket cases.

Nowhere is it more obvious than at Bonifacio Global City, carved out from Manila’s biggest army base. Originally sold by a cash-strapped government in the mid-’90s, building only got underway in earnest during the last six years after Ayala Land, Inc. took ownership.

"Work here is 24 hours," said Renel Reyes, an engineer and property manager overseeing a 30-storey tower due to be completed by the year-end.

Soon to be home for Nickel Asia Corp. and local conglomerate Aboitiz Equity Ventures, Inc., NAC Tower is just one of several tower blocks under construction.

Located near Makati, the main business district that grew up in the 1970s, Bonifacio is a project in progress, but rents at P800 per square meter ($19.5) are already catching up with its older, established, but saturated rival.

Though rents paid in Makati have recovered almost 30% in the last three years, they are still way below the peak of P1,200/sqm ($29) paid before the global financial crisis hit in 2008, data from property manager and consultancy Jones Lang La Salle Leechiu (JLL) shows.

That makes renting in Manila’s business districts far cheaper than Hong Kong, Shanghai or Singapore. But then infrastructure remains a drawback, as anyone arriving at Manila’s airport quickly realizes.

Still, as Bonifacio lures companies tired of Makati’s cramped spaces with its sprawling parks, luxury hotel chains and Italian supercar makers have followed the money. Lamborghini opened its first Philippine showroom, side by side with Ferrari, in Bonifacio, while Hyatt and Shangri La hotels are opening there soon.

Office space in most new buildings are snapped long before completion. At the NAC Tower, for example, only six floors remain un-let, but Mr. Reyes said they have potential takers.

Take up of new office space this year is set to hit a record 400,000 to 450,000 sqm, up as much as 25% from last year, according to Jones Lang and CBRE Philippines, another of the country’s biggest property manager and advisers.

"Pre-leasing is back," said Rick Santos, chairman of CBRE. "We are now experiencing the best real estate market in the Philippines in the last 20 years."

The primary driver of demand for office space comes from business process outsourcing (BPO) firms catering for European and American multinationals that want to cut costs.

With one of the region’s fastest growth rates, GDP grew 6.1% in the first half, the Philippines has shown resilience in the face of falling demand in the West and China that other more export driven economies must envy.

Analysts say the Philippines could achieve its first investment grade sovereign debt credit rating in the next 12 months.

Strong private and public consumption has underpinned growth, while inflows of foreign capital have driven the stock market to new peaks and the peso to near five-year highs.

An anti-corruption drive launched soon after President Benigno S. C. Aquino III came to power in 2010 has help the Philippines’ image.

Low inflation, low interest rates, and a ready supply of reliable, English-proficient labor are strong draws.

The vibrancy is evident in Bonifacio, where shops are open until midnight and fast-food chains and coffee shops cater round the clock, mainly for call center employees.

The BPO sector accounts for 80-90% of office space take up in the country, and is a major source of employment for the country’s nearly half a million new college graduates annually. The industry is forecast to double its current employee base of more than 600,000 by 2016, fuelling sustained growth in demand for office space.

But steady growth in demand from the traditional front office market such as banks, insurance firms, and representative offices is also fuelling the property boom.

CBRE’s Mr. Santos saw the Philippines, known as the world’s call center capital, fast becoming Asia’s back office banking hub.

JP Morgan Chase, HSBC, Bank of America, Citibank, ANZ and Deutsche Bank have all transferred critical back office processes to Manila in the last five years, while Wells Fargo is among the more recent newcomers.

Rents are expected to stabilize in coming years as new office space totalling at least 1.3 million sqm become available in 2013 to 2015, according to Jones Lang, with little danger of property bubbles as supply is just keeping up with demand.

Outside Manila, a similar transformation is unfolding, with industrial parks, especially those close to the capital and devoted to manufacturing, drawing more foreign firms than ever before, despite cribs about the high price paid for power.

"What we are seeing now is the re-emergence of manufacturing, which is really good for the economy because manufacturing employs people that the BPO industry won’t employ," Lindsay Orr, Jones Lang chief operating officer, said. -- Reuters