What will keep Philippine property market 'hot' in 2014?

Posted at 01/23/14 6:03 PM

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MANILA, Philippines -- What's going to keep driving the growth of the Philippine property sector this year?

Leading commercial real estate services firm CBRE Philippines is confident the Philippine property sector will continue to remain buoyant in 2014, as it says more foreign investors are finally recognizing the country as a top investment spot in Asia Pacific.

CBRE Philippines chairman Rick Santos said the property sector will continue to accelerate, driven by the demand for office space from the business process outsourcing industry.

"No longer is the Philippines an underestimated market, investors now see the sweet spot that it is in all property fronts - office, residential, industrial, retail and leisure... We think 2014 will be the best market we've seen in 20 years in the Philippines, especially in the BPO outsourcing side," he said in a press briefing on Thursday.

Santos cited the Urban Land Institute's 2014 survey which showed the Philippines ranked 4th in investment prospects in Asia Pacific, behind Tokyo, Shanghai and Jakarta.

With its strong economy and young demographic, the Philippines was considered the best bet market for office, residential and retail sectors.

Santos noted luxury residential properties will also see more foreigner buyers, as China, Hong Kong, Singapore and Malaysia implement cooling measures. "For the price of 1 condo in Hong Kong, you could buy 12 here," he said.

The resurgence of the manufacturing and logistics industries will perk up the industrial property sector. Santos said many Japanese and Korean firms are now considering setting up shop here, as they grapple with issues with China and North Korea respectively.

"For Japan, it's no secret that they haven't been happy with their operations in China, with the territorial dispute over some Japanese islands... We see more Japanese groups coming here out of China. Also, some tensions between North and South Korea, we see more South Korean companies coming here. Also Japanese firms in Thailand, have been hit by 2 things - floods and the current political instability," he said.

Jan Custodio, head of CBRE Global Research & Consultancy, noted the Philippines has one of the lowest land values for industrial properties at $8.66 per square meter compared to Bangkok ($13.38 per square meter) and Beijing ($29.12 square meter).

Custodio said the international investment community has also shown renewed interest in the Philippines, especially after it received investment grade ratings last year.

BPO boom continues

However, the main driver of the property sector remains to be the BPO sector.

The BPO sector will continue to show strength this year, especially as Metro Manila and Metro Cebu are still in the top 10 list of best outsourcing destinations globally.

"The country’s outsourcing industry will still be one of the best in Asia, and as more occupiers relocate to the country, we see expansionary growth in Metro Manila’s fringes and provinces," Santos said, citing the popularity of Metro Cebu, Mactan and Clark as "lifestyle BPO sites" in the country.

Joey Radovan, vice-chairman and head of global corporate services of CBRE Philippines, said that while 75% of IT-BPO jobs are in Metro Manila, the growth in central Luzon, Visayas and even Mindanao will help the Philippines boost its BPO market share.

With the peso now at P45 level to the dollar, Radovan said the Philippines remains cost-competitive against other BPO locations like Kuala Lumpur and Ho Chi Minh.

Manila still offers the lowest prime rent across Asia at $26 per square meter per annum, followed by Bangkok with $32 per square meter and Bangalore with $33.

"The government and developers are conscious of the fact for the Philippines to remain a top BPO destination, we can't raise rents abruptly. As of today, we remain very cost-competitive," he said.

Radovan said the dwindling supply and competitive leasing activity has pushed rents up in key office districts such as Makati, Bonifacio Global City, Alabang, Quezon City and Ortigas. Makati CBD still charges the highest office rental rates, with the asking lease rate hitting an all-time high of P1,200 per square meter.

He also noted rental growth in Makati has grown 5% year-on-year, while lease rates have jumped 2.19% in Bonifacio and 11.36% in Quezon City last year.

Aside from BPOs, Radovan said industries such as insurance, banking, human resources, healthcare, environmental services, IT and liquor companies expanding within and outside of Metro Manila.

"It is still BPO that will drive the market, a big chunk of it, 80% or 90%, depending on who else is coming... One thing we observed in 2013, a lot of non-BPO occupiers are moving and acquiring office space... The more these companies expand, the more developers will be encouraged to build Grade A spaces, not just for BPOs," he said.

As for Santos' fearless forecast for 2014?

"A lot of our clients ask us, what's going to happen to the market. We see 2014 and 2015 as great trading years, they're not election years. We see 2014 and 2015 as the time to get transactions down, make things happen, land bank, develop, low interest rates, lot of demand, a lot more liquidity in the system," Santos said.