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Why logistics is next big thing for Philippine real estate sector

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E-commerce giant Lazada has been scaling its logistics with the expansion of its warehouse and storage hubs in the Philippines. -- FILE PHOTO

THE LOGISTICS sector is expected to be the “next big thing” to watch in Philippine real estate, as it presents growth opportunities for developers amid the ecommerce boom, according to a report by Santos Knight Frank.

In its report “The Future of Logistics: A Real Estate Perspective,” Santos Knight Frank noted the logistics industry is seen to continue growing, alongside the economy and the property market.

“It is presently going through a remarkable evolution as market players consider escalating land values, transportation challenges, changing market dynamics and increasing competition in their strategy formulation and feasibility studies. Technology is playing a vital role that will define the future of logistics in the country,” Santos Knight Frank said.

“New regional areas will emerge as logistic battlegrounds, supported by improvements in accessibility and realization of infrastructure programs,” it added.

Some of the country’s top conglomerates have started developing industrial estates, and entered the logistics sector.

Ayala Land Inc. is venturing into industrial parks and warehouse facilities through Prime Orion Philippines, Inc. (POPI), which has been renamed as Ayala Land Logistics Holdings, Corp. Last April, the logistics unit broke ground for the P172-billion Laguindingan Technopark in Cagayan de Oro.




Additionally, the Ayala Group also owns 49% of the online shopping platform Zalora.

SM Investments Corp. (SMIC) has a minority stake in country’s largest integrated supply chain operator, 2GO Group Inc.

Metro Pacific Investments Corp. (MPIC) expanded into logistics in 2016 through the acquisition of a 12% stake in Air21. It also acquired a 20-hectare property in Cavite, as it plans to expand its warehouse business under Metropac Movers, Inc.

JG Summit Inc. has invested in internet platform Sea Limited, which operates Shopee. Its budget carrier Cebu Pacific last year said it was converting two of its planes to expand into cargo transport.

Filinvest Land, Inc. is planning to develop a logistics and industrial park in New Clark City, while the Marajo Group has introduced Space Solutions in Makati.

“These developers and companies place value on the smart application of technology to boost productivity and efficiency, offering value-added services and end-to-end solutions to clients, continuous expansion plans and capacity enlargement,” Santos Knight Frank said.

As more players enter the logistics sector, Santos Knight Frank expects more technology-based and highly efficient warehouses and logistics platforms to sprout up.

CHALLENGES
There is growing demand for last-mile delivery hubs, inner-city distribution centers and warehouse facilities in Metro Manila. However, Santos Knight Frank noted that industrial land values have gone up, with Makati and Mandaluyong hitting P250,000 per square meter (sq.m.). In Valenzuela, Taguig and Muntinlupa, industrial land values are estimated at P10,000 per sq.m.

On the other hand, lease rates for industrial land have remained stagnant. Rents in Makati and Mandaluyong range from P400 to P650 per sq.m. per month, while those in Parañaque, Muntinlupa and Las Piñas range from P200 to P350 per sq.m. a month. In Valenzuela and Quezon City, rents of warehouse are between P150 to P250 per sq.m. a month.

“Given the present land values, construction costs and lease rates in Metro Manila, it has been increasingly difficult to achieve an ideal internal rate of return (IRR) of 15% for a traditional warehousing business model. In fact, a warehouse project under the current situation will result to an average payback period of 18 years with an IRR ranging from 5% to 10%,” Santos Knight Frank said.

It further noted that the asking price of land has to drop by 70% to allow a project to get at least 15% IRR with payback period of almost 10 years.

“Constructing a warehousing facility used purely for storage within Manila will result to a longer payback period and less attractive profitability numbers. For this reason, developers seek locations in provincial areas with more developable land and reasonable land values,” Santos Knight Frank said.

With the strong demand for warehousing and limited supply of land, Santos Knight Frank said the warehousing business should provide more value-added services and increase profitability. — V.M.P.Galang

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