HIDDEN AGENDA By Mary Ann Ll. Reyes
(The Philippine Star) | Updated April 30, 2014 -
The business process outsourcing (BPO)
industry remains the driver of the demand for office spaces not only in Metro
Manila, but the entire Philippines
In a recent study, Pinnacle Real
Estate Consulting noted that after experiencing more than 20 percent annual
average growth in the past 10 years, industry estimates point to a slower 15
percent annual growth beyond 2016 for the office market.
For 2014 and 2015, the average of 20
percent growth is still doable, it said. “At present, vacancy of Premium Grade
A and Grade A buildings is at an all-time low of below five percent across the
major business districts. Grade B and C buildings may have higher vacancy
levels, but these buildings would eventually absorb the overspill of demand for
office. Some of these buildings may even be up for redevelopment, whether into
an office, residential or mixed used building.”
It added that big space users have
been committing to pre-leasing agreements to avoid the space crunch. In recent
months, pre-selling of office spaces have been picking up, which used to be
unheard of after the Asian financial crisis in 1997.
Depending on the vacancy of the
buildings, rents are projected to increase between three to seven percent this
year.
There are a lot of opportunities in
the office market, the study emphasized.
For instance, developers are now more
confident in constructing office buildings since they can get pre-commitments.
Meanwhile, owners of old buildings may consider capturing the demand by
retrofitting their facilities or they may consider redeveloping altogether.
Also, joint developments with building
owners, even with condominium corporations, are becoming common especially when
they don’t want to sell the land or would want to share on the upside of the
development.
For straight-forward office projects,
developers may opt to sell to recoup their investment faster, or may choose the
recurring income. In most cases, developers would want to find the balance
between selling some floors and retaining some floors for leasing, it added.
Opportunities still abound for the
office market given the high occupancy rate and an average yield of 10 percent.
“Developers and landlords should take advantage of pre-leasing and pre-selling.
Owners of old buildings would have to decide sooner or later if they want to
retrofit their buildings to capture the pent-up demand for office, or redevelop
their buildings altogether,” the study said.
I am often asked about how the
residential market is doing and what the prospects are.
According to Pinnacle, the residential
market will continue to be very active given that the demand for housing is
projected at 3.9 million, and possibly reaching six million in the next few
years without serious intervention.
And how about the mid-market which has
been bustling with activity? Is the bubble about to burst?
The Housing and Land Use Regulatory
Board (HLURB) and Pinnacle Research statistics show that from 2013 to 2017,
there are 301 ongoing condominium projects in Metro Manila totaling to 134,421
units. The mid-market segment accounts for the largest chunk at 37 percent or
49,997 units. Studio and one- bedroom units account for 77 percent or 104,028
units. Assuming that all of these projects are completed on time, these numbers
are still well below the target of one million housing units by 2016 of the
Subdivision and Housing Developers Association, Inc. (SHDA) to bridge the gap
in housing requirements, Pinnacle stressed.
As for the high-end segment, the study
says it continues to be vibrant, especially with the sales abroad and to foreigners.
This segment is only the active segment in leasing, with rents well above
P200,000 per month, depending on the sizes. Rents in the villages generate the
highest levels ranging from P 300,000 to P500,000 per month.
And now for the underserved affordable
and socialized segments. Pinnacle mentioned that only 24,981 units are
targeting these two segments in Metro Manila. This is understandable since
majority of the socialized and economic housing projects are located outside
Metro Manila to take advantage of lower land prices, it added.
“The residential sector is a very big
market. Luxury segment on one end and the affordable and socialized housing on
the other end remain to be underserved. Luxury is typically more expensive to
build, but the margins are higher. Socialized and economic housing projects
have lower margins on per unit basis, but developers may get a number of fiscal
and non-fiscal incentives that would push profitability higher, Pinnacle study
elaborated.
“Mid-market is very competitive and
location-specific. This is the segment where due diligence would pay off in
terms of market scanning the sizes, amenities and prices of the residential
products to be offered, and perhaps, how much retail and office spaces to be
blended in the mix. The leasing out of mid-market residential is another gap in
the market that may need to be served soon,” the study pointed out.
As for the other sectors, this is what
Pinnacle has to say:
“Commercial spaces in retail malls
shall continue to generate the highest yields to the big retail owners. For
niche players, they should consider location-specific opportunities, especially
for smart shoppers that avoid long queues and tight parking in malls, and
prefer relaxed shopping and dining.
“The hotel sector is riding on the
investment grade status of the Philippines and record tourist arrivals. The
ASEAN integration and the increased in air-link with Japan would further boost
the total number of visitors. Finding the right location, the right size, right
brand are some of the key questions for developers.
“The industrial sector is in a stable
growth as more and more foreign companies and investors have been coming back
to the Philippines. Applications to get PEZA accreditation to locate in economic
zones and even to build new ecozones are on the rise as well.
“The Philippines is poised to sustain
the growth in the real estate market. All of the sectors are on expansion mode
due to real demand, liquid financial market and strong economy. Positive
business climate and servicing the market gaps would likely be a continuous
boon to diligent actors in the property market.”
_____________________________________________________________
