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Moving towards a brighter future
AS ONE of the fastest growing economies in the world, the Philippines continues to surpass expectations. The country has consistently grown by more than 6 per cent in GDP over the last six years. Foreign direct investments into the Philippines reached a record of US$10 billion last year, reflecting strong investor confidence.
Santos Knight Frank, the leading real estate service provider in the country, believes that various indicators - the Philippines' sound macroeconomic fundamentals, enhanced ties with China and an aggressive push for infrastructure expansion - point to an even brighter future for the country.
The Philippines' property sector is one of the primary beneficiaries of that growth via the expansion of industries such as business process outsourcing (BPO), tourism, retail, logistics and manufacturing. Demand from these industries has multiplier effects on property. In particular, the BPO industry, which directly employs more than 1.3 million people, has not only taken up commercial spaces but also helped raise income levels, consumption and urban residential demand.
Most importantly, Chinese investments that are part of the Belt and Road Initiative will play a key role to sustain the growth momentum.
The improved bilateral relations with China has led to about US$24 billion of funds pledged to the Philippines during President Rodrigo Duterte's Beijing visit in 2016 - investments which will likely fuel infrastructure expansion through the administration's Build, Build, Build programme.
Since then, Chinese arrivals to the Philippines have grown by 43 per cent in 2017 to one million tourists. Santos Knight Frank also forecasts the continuous rise of Chinese gaming companies in the Philippines, with positive implications on the office market in Metro Manila and Cebu.
Encouraged by strong demand, developers have ramped up the number of projects across the country. In Metro Manila alone, close to 1.4 million sqm of new office space is set to come online this year, according to data from Santos Knight Frank. During the first quarter of 2018, weighted average lease rate in this market rose 9.1 per cent year-on-year to 984.93 pesos (S$25) per sqm per month while vacancy was at 4.9 per cent.
On the other hand, the entry and expansion of BPO companies in secondary cities such as Cebu, Clark, Iloilo, Davao and Bacolod are driving more developments into these markets.
Occupiers are not only attracted by competitive lease rates, but most importantly the large English-speaking and highly skilled talent pool within these locations. Metro Cebu, with a population of almost three million, will see more than 47 per cent increase in office stock between 2018 and 2020, according to Santos Knight Frank's forecast. During the first half of 2018, weighted average lease rate increased by 2.1 per cent to 548.31 pesos per sqm per month.
Residential demand is consistently expanding in major hubs of Manila and Cebu, driven mainly by buyers on the lookout for capital appreciation and leasing opportunities. Strong take-up has also been attributed to the foreign market, primarily South Korea, Japan and China which buy bulk condominium units for investment purposes. On the leasing side, Chinese gaming companies have availed large volume of residential inventory for employee housing.
The strong demand and supply pressures in cities have driven prices up. For instance, residential units at the Bay Area - a new growth hub within Metro Manila - rose by 47 per cent year-on-year during the first quarter of 2018 and were selling at between 123,000 pesos to 264,000 pesos per sqm. During the same period, property prices in Makati City increased by 18 per cent year-on-year due to the limited supply of luxury residences in the area.
While malls in many parts of the world are being replaced by e-commerce, malls continue to be built in the Philippines. Much of the demand comes from F&B outlets, which drove retail vacancy across Metro Manila to a meagre 1.3 per cent during the first quarter of 2018.
Around half a million sqm of gross leasable area is upcoming in Metro Manila between 2018 and 2020 - a growth of 14.8 per cent in stock.
With a strong growth forecast for the Philippines' property sector, the government's infrastructure programme will remain critical. About 75 projects with a combined worth of US$36 billion are lined up under the Build, Build, Build umbrella, which will provide new road networks and airports to decongest cities and open regional areas for development and progressive growth.
- The article is contributed by Santos Knight Frank.