Sustained demand in emerging cities keeps real estate robust

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Industry Report: Property

THE REAL ESTATE sector has consistently been one of the economy’s growth drivers for years. As the government pushes for development outside the country’s capital, expanding into other urban centers is a matter of timing and pace for many developers as they search for strategic places to expand their businesses and diversify their portfolio.

The proverbial rising tide has lifted all boats, and real estate companies are finding opportunities to be on board. In the search of these key cities, what do these property developers look for?

For Century Properties Group (CPG), a residential, office, medical and retail properties developer, they look at three factors: market profile and demand; growth prospects in the area; and the current and future developments and infrastructure.

“We look at these three things combined in order to ensure [that] we are bringing the right kind of product to the market, and that future residents and tenants will unlock the best property values in their future home and community. Infrastructure and access to conveniences are also very important and must be present,” said CPG’s Chief Operating Officer Marco R. Antonio in an e-mail to BusinessWorld.

“We first look at key growth areas or cities, and what the current needs are in those areas based on their key industries and market profile. Population, density, proximity to industrial centers or places of work, city competitiveness, and demographic factors such as income, age, and livelihood sources are some of the factors we look at before deciding on the type of product to develop,” Mr. Antonio added.




For one, CPG’s “affordable housing brand” has started to head south of Metro Manila recognizing the need of home buyers in Calabarzon — the region consisting of the provinces of Cavite, Laguna, Batangas, Rizal and Quezon.

“CPG’s affordable housing brand PHirst Park Homes, which caters to first-time home buyers, is now present in three areas: Tanza, Cavite; Lipa, Batangas; and San Pedro, Laguna. In the next four to five years PHirst will roll out a total of 33,000 units in various areas in Luzon, including Calabarzon and Northern Luzon. We believe the affordable housing segment continues to be underserved with a backlog of more than 5 million homes especially in the Calabarzon Region, where most OFW (overseas Filipino workers) families are based,” Mr. Antonio said.

Calabarzon, also known as Region IV-A, is the second-largest economy among the country’s 17 regions with a share of 16.8% or P1.46 trillion of the gross domestic product (GDP) in 2017. The region grew 6.7% in 2017, faster than 2016’s 4.8%.

Similarly, the region is the second-largest contributor in terms of gross value added (GVA) in real estate, renting and business activities at 13% or P130.19 billion in 2017. The region’s GVA in the sector grew 9.1% during the year from 8.8% in 2016.

For Gokongwei-owned office developer Robinsons Land Corp. (RLC), their main consideration in expanding to other locations is their clients’ preferences.

“We primarily check, among other considerations, if our target clients have interest to locate in the area before we put up an office development. This is assuming we already have the available land to build on,” Faraday D. Go, executive vice-president at RLC said in an e-mail to BusinessWorld.

Currently, RLC have office developments in urban areas outside Metro Manila such as the Robinsons Cybergate Naga in Camarines Sur, Robinsons Cybergate Delta (Davao), Robinsons Luisita Office (Tarlac), Robinsons Starmills Pampanga Office (Pampanga), Robinsons Place Ilocos Norte Office (Ilocos), and Galleria Cebu Office and Cybergate Galleria (Cebu).

Through interviews with property consultancy firms and developers, five key cities in the Philippines were identified to have an emerging real estate industry amid steady growth in their economy, tourism and property demand. These are the cities of Clark, Cebu, Iloilo, Bacolod and Davao.

“You would notice that these areas/cities have been identified as key growth centers outside Metro Manila in previous years, but the favorable economic environment that we are currently enjoying and the real estate growth in those markets in recent years have made them regular fixtures in conversations of areas/cities to look at beyond Metro Manila,” Janlo delos Reyes, head of research and consulting of JLL Philippines told BusinessWorld in an e-mail.

In terms of office developments, Mr. Delos Reyes said that these five markets show indications of “positive” growths bet-ween 2019 to 2021.

“Our data shows north of 450,000 square meters (sq.m.) of upcoming office supply in Cebu, Davao, and Bacolod. This is also supported by stable demand where we see current pre-commitment levels of around 25%-35% on average, which we expect to rise as these developments near completion. Meanwhile, Clark and Cebu are leading transaction activity outside Metro Manila,” he said.

Mr. Delos Reyes also mentioned that the offshoring and outsourcing (O&O) sector continues to be the main growth driver of office demand in these five cities: “This is supported by leasing demand from traditional corporate occupiers — local firms from various industries (i.e. ESL, insurance, financial services, professional services, etc.) taking up spaces in office and commercial buildings,” he said.

“We also see demand from online gaming (particularly in Cebu) and flexible workspaces (i.e., serviced offices and co-working, to a certain extent).”

Similarly, on the residential side, JLL’s Mr. Delos Reyes said that their pipeline is stable with more than 10,000 condominium units spread across Cebu City, Bacolod City, and Davao City.

“Pre-selling market varies across market with select condominium developments in more mature areas (such as Cebu) re-gistering current sales take-up of around 75% to 100%,” he said.

Moving forward, the residential market remains driven by local individuals buying properties for end-use or leasing to local and foreign tenants working or residing in these cities, JLL’s Mr. Delos Reyes said.

“Nonetheless, there’s foreign investment in Cebu from Chinese and Japanese buyers,” he added.

CLARK, PAMPANGA
Central Luzon, which includes Pampanga, remained the third largest economy among the 17 regions in the country. Next to the National Capital Region and Calabarzon, the region’s share in the country’s GDP is at 9.7% or P844.71 billion of the overall GDP in 2017. The region grew 9.3% during the year, slower than the 9.5% recorded in 2016.

The region’s real estate sector has the fourth largest share in the overall sector in the country at 6.2% or P62.07 billion in 2017. The region’s GVA in real estate grew 7.5% during the year, faster that 2016’s 5.6%.

Pampanga Chamber of Commerce and Industry, Inc. Vice-Chairman Jesus S. Nicdao said in a conference in May 2018, the regions’ growth was boosted by the high-impact projects under the government’s “Build Build Build” infrastructure program, including the New Clark City, the Clark International Airport, and the Manila-Clark and Subic-Clark Railways.

As part of the Duterte-administration’s economic strategy, the expansion of the Clark International Airport, which will help decongest the Ninoy Aquino International Airport, is expected to increase its passenger capacity to eight million upon completion of its new terminal building. Its first phase is expected to be completed by June 2020.

Moreover, the 9,450-hectare New Clark City will be the country’s first smart, disaster-resilient, and sustainable city. It will be designed to accommodate residential, commercial, agro-industrial, educational institutions, and information technology developments. Ongoing construction of roads and railway projects inside the city potentially provide interconnectivity and better logistics within the region.

Mixed-use developer CPG’s Mr. Antonio said, “We are seeing a phenomenal growth story in Central Luzon, which has the highest number of occupied housing units and in particular, Clark City, where a lot of action is happening right now given its emergence as the second-largest market for office after Metro Manila. As massive infrastructure projects are under way to make Clark connected and highly accessible, Century wishes to ride on this growth momentum by serving the real demand in the office and residential markets.”

In an e-mail to BusinessWorld, real estate consultancy Santos Knight Frank said that the former US airbase is the gateway to North Luzon.

“The area has grown today to become the nearest business hub north of Manila with a large tract of developable land, improving infrastructure and a new planned airport terminal. In [our] 2017 data, Clark area recorded 250,000 sq.m. of GLA for office spaces, while average occupancy rate was at 87%.

For its part, Colliers International noted in its March 2018 report that Clark City remains a major BPO hub in the region.

“In 2016, Clark was ranked by Tholons as the 97th most attractive location for outsourcing operations in the world. However, in 2017 and 2018, the city slipped out of the Top 100 list. Despite the decline, Clark continues to attract major BPO locators and remains a key back up site for Metro Manila-based operations. Clark, together with Angeles and San Fernando, employs more than 20,000 outsourcing workers,” it said.

Some of the major outsourcing companies in the area are Alorica, Cloudstaff, Convergys, iQor, Sutherland, TaskUs, TATA Consultancy, Teletech, Stellar, and VXI, Colliers added.

In an email to BusinessWorld, Colliers International’s senior manager for research Joey Roi H. Bondoc noted that Metro Clark has the potential to attract Knowledge Process Outsourcing (KPO) firms aside from its present occupiers.

“At present, Metro Clark’s BPO firms mainly provide voice and back-office services but the potential shift to higher value KPO services such as animation, finance and accounting, and health information management (HIM) should be supported by a large number of STEM (science, technology, engineering and mathematics) graduates. This should help the city attract more outsourcing locators in the near term,” he said.

Between 2019 and 2021, Colliers’ Mr. Bondoc expect the completion of more than 60,000 sq.m. new office spaces, or about 20,000 sq.m. per annum, to be delivered by SM, Megaworld, and Robinsons Land.

Meanwhile, JLL’s Mr. Delos Reyes expects a future supply of 176,440 sq.m. for Clark with pre-commitment level at 40% by 2021.

Similarly, residential developers ramp up their activities in the area due to the infrastructure projects in Clark.

Colliers said in its March report last year that even as the area is more inclined to house and lots, condominiums will eventually grow its number to complement the office developments in the area. Moreover, demand will also be driven by OFWs and foreign tourists.

“While still in its infancy, we believe that the condominium market in Metro Clark is starting to gain ground as the more affluent families and OFWs are looking for viable investment options. A number of Korean, Chinese, and American tourists that have visited Clark, Angeles, and San Fernando are now looking for condominium units to live and invest in,” it said.

“Over the coming years, we see Metro Clark becoming the hotbed for condominium development in the entire Central Luzon region as these residential towers complement the office projects in the pipeline,” it added.

Currently, there are only 2,200 condominium units in Metro Clark. Projects like the joint venture Sharp Clark Hills by South Korea’s POSCO Engineering & Construction and JB Cresta Corp. will increase condominium units by 508 in 2020, while Tierra Lorenzo by Torre Lorenzo Development Corp. will increase condominium units by 381 in 2021, Colliers noted.

CEBU CITY
According to the Philippine Statistics Authority (PSA), Metro Cebu is the premier urban and major business, industrial and services center in the Central Visayas region. The region is the fourth-largest economy in the country, accounting for P551.180 billion or 6.4% of the total GDP in 2017. Meanwhile, the regions GDP grew 5.1% during the year, slower than the 8.6% in 2016.

The region’s real estate sector grew 7.9% in 2017, faster than the 7.1% recorded in the previous year. It remains the third-largest contributor to the country’s overall real estate output, with a share of 6.2% or P62.33 billion in 2017.

“Metro Cebu is part of Central Visayas which is considered a hotspot for medium, small, micro enterprises (MSMEs)…We encourage developers to construct office space that could accommodate non-outsourcing and traditional businesses that require smaller space. Developers should be more flexible and keep in mind that the expansion of the Cebu economy drives the growth of traditional firms such as those involved in engineering and logistics that occupy smaller office space. This is particularly important for office towers that will be built around the Uptown/Downtown area which remains as the preferred location of traditional and non-BPO businesses,” said Colliers’ Mr. Bondoc.

He also said that office locators can consider developments in prospective areas such as Mandaue and Mactan.

“We recommend that developers build office towers within integrated business hubs as these townships enhance living and working conditions. Developers should explore parcels of developable land especially in [these] areas that would benefit from the completion of major infrastructure projects such as the expanded Mactan-Cebu International Airport, Cebu Cordova Expressway Link, Cebu Bus Rapid Transit (BRT), and Cebu-Negros bridge,” Mr. Bondoc said.

Similarly, Colliers’ research manager recommends the development of flexible workspace in malls, saying demand in such work setup can be fuelled by the growing numbers of MSMEs and start-ups as well as the worsening traffic in Cebu.

Meanwhile, Santos Knight Frank said in an e-mail that Cebu’s attractive tourist destinations boost residential property demand in the city.

“Cebu City is one of the few destinations where the Philippines’ renowned beaches are just a drive away from your office building and the airport. This has made Cebu [city] an ideal place to live, work, shop and play. We continue to see more residential demand in Cebu [City] for both investment and end-use purposes,” it said.

Cebu City’s local government claims to be the tourism gateway for the Central and Southern Philippines. The city remains the “top draw” for tourists in Central Visayas with tourist arrivals accounting for 4,877,047 foreign and domestic arrivals out of the 6,974,647 or at least 70% of all visitors as of April last year, Department of Tourism 7 Director Shalimar Hofer Tamano said in a press conference last April 20.

In the next months up to 2020, JLL’s Mr. Delos Reyes expects an additional 315,000 sq.m. with pre-commitment level at 15% to 20% to Cebu’s office supply.

For Colliers’ Mr. Bondoc, Cebu City’s leasable office stock reached 1.05 million sq.m. as of end-2018. An estimated 320,000 sq.m. is projected to be added to Cebu’s stock between 2019 and 2020, which translates to an annual supply of about 160,000 sq.m. per annum.

ILOILO CITY
Western Visayas, which includes Iloilo province and its namesake capital city, is the sixth-largest regional economy, accounting for 4% or P350.82 billion of total GDP in 2017. Its GDP grew 8.4% in 2017 from 5.9% the previous year.

Similarly, the region had the sixth-largest share in the country’s overall real estate output, accounting for 2.5% or P24.73 billion of the country’s GVA in real estate, renting and business activities. Its GVA for the sector accelerated to 7.2% in 2017, from 3.7% the previous year.

“With connectivity to Asia’s main hubs via its international airport, Iloilo has been welcoming new investments with concentration in Megaworld’s Iloilo Business Park and Ayala Land’s Atria. BPOs and contact centers are key drivers of office take-up in the city and have also helped bolster retail and residential property demand,” said Santos Knight Frank in an e-mail.

For Colliers’ Mr. Bondoc, he said that the city is still “ripe for growth,” as growth has been limited in a few districts.

“Majority of Iloilo’s office stock is in Mandurriao [one of the seven districts of Iloilo City], primarily due to projects by the national developers Ayala Land, Megaworld and SM Prime. Another national developer, Robinsons, has a few office spaces in its Robinsons Place mall in Iloilo City proper. Local developers, meanwhile, also have a few office space developments spread between Mandurriao and the city proper with the likes of Plazuela de Iloilo (1 and 2), Cornerstone Business Center, The Crown Building and JC Building, among others,” he said.

He explained that in the province of Iloilo, generally, the pre-leasing market is not yet as active as in Manila.

“[I]t appears that demand is largely a function of readily available supply. And given the limited space available in the market, growth has been limited,” he said.

Nonetheless, Mr. Bondoc said that Iloilo City remains a good location for real estate developments “given a supportive local government, ongoing interest from investors, and a reliable labor pool…Furthermore, the infrastructure plans will strengthen interconnection across locations and improve accessibility.”

Thus, Colliers’ Mr. Bondoc recommended that given the improved accessibility, both local and national developers consider other locations, namely Jaro, Savannah, and Molo for new office projects.

An estimated 5,400 sq.m. new office supply will be delivered by Megaworld Corp. this year, an addition to Iloilo’s leasable office stock of 142,000 sq.m. recorded as of end-2018, Mr. Bondoc said.

“The proximity of condominium developments to Iloilo’s business district has resulted in increased preference for condominiums among Ilonggos. This is driven by demand from BPO employees and OFW families who are looking to relocate into the city center from municipalities outside the city,” Colliers said in its report released in March 2018.

For his part, JLL’s Mr. Delos Reyes, expects a 35,000 sq.m. future supply of office spaces between 2019 and 2021.

BACOLOD CITY
Same as Iloilo city, Bacolod city is another city in Western Visayas also considered as a growing hub for BPO companies.

“Bacolod is a fast-growing BPO hub in the Visayas region. In 2017, data from Santos Knight Frank recorded more than 100,000 sq.m. of GLA (gross leasable area) for office spaces,” said Santos Knight Frank in an e-mail.

“In the residential front, Bacolod recorded 15 actively marketed condominium developments, with 83% absorption [rate],” it added.

Colliers’ Mr. Bondoc shared the same assessment, saying Bacolod City is in need of more office buildings for call centers, HIM firms, and online English tutorial centers.

“[T]hese are among the major outsourcing investments that Bacolod City is projected to receive over the near to medium term,” he said.

However, he pointed out that office expansion was restricted: “We see overall vacancy in the city rising only marginally to about 8% over the next twelve months… Several [BPO occupiers] have been expressing interest to locate in Bacolod but their plans are shelved by the lack of space,” Colliers’ Mr. Bondoc said.

Bacolod City has been active in attracting outsourcing investments as local officials consider the BPO industry as a major job-generating sector.

The City’s business permits registration surged in the last three years to 23.2% in 2018 with 23,187 business permits from only 18,817 in 2015, according to its municipal government.

Similarly, Bacolod City was ranked by the Philippine Chamber of Commerce and Industry as one of the top three most business-friendly local government unit in the country in 2017.

Colliers’ Mr. Bondoc encourages BPO locators to consider Bacolod City as their expansion or backup site given the city’s “skilled labor pool, adequate infrastructure and streamlined business registration system.”

He noted that an additional 24,000 sq.m. of office space will be delivered by Ayala Land, Inc. from this year to 2020, in addition to the city’s current stock of about 114,000 sq.m. as of end-2018.

In the residential front, JLL’s Mr. Delos Reyes expects a future supply of 1,300 residential units with take up of already at 15% to 95% between 2019 and 2021.

For its part, Colliers said in its March 2018 report that Bacolod City’s houses and lots remain more in demand compared to condominiums, with 2,600 horizontal units launched in 2017 alone while only 494 condominium units were added to its pipeline, which are all due for completion to 2021.

“While we recognize the slower take-up of condominiums characterized by several projects far from near sold-out levels (including those launched in 2013), we foresee the potential of condominiums alongside the growth of the business sector,” it said.

DAVAO CITY
Davao region posted the second fastest economic growth at 10.9% in 2017, faster than the previous year’s 9.5%. The region, with Davao City as the regional center, was the fifth largest economy in the country, accounting for 4.3% or P369.80 billion of the total GDP.

Likewise, the region’s real estate sector is the fifth largest among the regions with its GVA in real estate, renting and business activities accounting for 2.7% or P27.30 billion in 2017. The region’s GVA in the sector maintained its 6.8% growth during the year from the year before.

“There is renewed focus on Davao by President [Rodrigo R.] Duterte, who hailed from this region. In 2017, data from Santos Knight Frank for Davao recorded more than 100,000 sq.m. of gross leasable area for office spaces, while average occupancy rate was 82%. In the residential front, there were about 50 actively marketed residential developments, with 83% absorption.,” said Santos Knight Frank in an email.

The city has been implementing projects to fuel business opportunities in the area. One is the project proposed by the National Development Corp. to build a food terminal complex near the Davao Fishport Complex in Toril, Davao City. This will have seven components, namely a trading center, cold storage facility, commercial or industrial spaces, and warehouses for trading activities. Another is the 23-kilometer road from Toril to Cabaguio, which will include toll ways and a center median that can accommodate piers.

For JLL’s Mr. delos Reyes, Davao is also an area to watch out for, with 47,000 sq.m. of future office space supply in 2019 to 2021 with pre-commitment level at 70 to 75%. — Vincent Mariel P. Galang

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