Decongestion and infrastructure critical to sustaining growth

Manila Bulletin.Com by Tricia V. Morente, 11-30-2014

Traffic congestion in Metro Manila may not necessarily be a bad thing-at least, as far as real estate demand is concerned.

"It's very telling that we're now seeing a lot of interim housing solutions in the city," says Jose Carmelo Porciuncula, head of Capital Markets and Investments of KMC Mag Group, Inc. at the recent property brief organized by the real estate services firm.

The bed spacing market, according to Porciuncula, is actually very big. While information on this segment has yet to be officially consolidated, the Philippine capital is seeing office workers biting the bullet at P3,000 to P5,000 a month on bed space. "The middle class is now looking for efficiency-we're seeing weekday houses where the family shares a one- or two-bedroom, and then on weekends come home to their primary homes outside the city. We're getting to a point where they can actually afford a solution that isn't exactly cheap because you're looking at a mid-cost, nicely made condominium worth at least P3.5 to P4 million. So while traffic hasn't [directly] affected property development per se, it's driving additional spending towards real estate, whether on the leasing or acquisition side," Porciuncula says.

Be that as it may, there is an urgent need to decongest Metro Manila. With the Philippines' continuing economic growth attracting the attention of foreign investors, the KMC MAG Group points to two key issues the country needs to focus on to sustain the momentum it currently enjoys. "The long-term economic growth of the Philippines is dependent on whether or not it can address the issue of decongestion and make smart, sustainable decisions to improve its infrastructure," avers Michael McCullough, managing director of KMC MAG Group. If the Philippines can bring the growth in Manila to other areas within the country and support that with the necessary infrastructure, McCullough says, "We see no reason why it wouldn't fulfill its promise of being the next Asian Miracle."

New CBDs rising

Within Metro Manila, the office and commercial property sector remains a landlord market. "There is still so much demand," Porciuncula reports. Since 2009, demand has been steadily rising. In the second to third quarter of 2014 alone, average rental rates rose from P764.1 to P768.5 per square meter in Makati; P868.5 to P874.3 per square meter in Bonifacio Global City (BGC); and from P689.5 to P690 per square meter in Ortigas.

"The increase in price is driven by the shortage in supply," explains Porciuncula. "We're seeing single-digit vacancy rates below five percent across the central business districts (CBDs). In terms of take-up, that's quite impressive especially if you look at it from a regional standpoint," he adds.

According to KMC MAG Group Vice-President Yves Luethi, efforts to decongest the metro have become more visible, with business parks and special economic zones being built in provinces outside Metro Manila, such as Cavite, Laguna, and Batangas, and in areas outside Luzon like Cebu, Davao, Cagayan de Oro and Zamboanga.

"Within the metro, investors and developers are exploring Quezon City and Bay City as potential central business districts to spread out job opportunities, foot traffic and even investments more evenly within Metro Manila," Luethi says, adding that his firm is seeing a lot of positive movements in Quezon City. "All the big developers are there, and the government has been very supportive. Green building regulations are already being implemented in the office and commercial space. And being the largest city in Metro Manila, it will help in bringing the workplace closer to the people," he says.

Similarly, the emerging Bay City near Roxas Boulevard is another area that spells great potential as a business district. Currently established as an entertainment and tourism hub, with City of Dreams Manila about to open and Solaire slowly winning market share, Luethi expects to see a strong influx in the tourism sector. Business parks and mixed-use developments are on the rise as well, with the growing developments of ASEANA City, Federal Land's Metropolitan Park, and the SM-backed Future City. "While land prices are slightly increasing in these areas, we see it growing to be one of the major hubs for office locators and entertainment. There will be a high demand for residential as well, which will be coming in from the foreign market," Luethi says.

Still a matter of political will

All things needed to sustain the Philippines' growth trajectory are in place. "In terms of Metro Manila, infrastructure projects have been proposed. The Philippines is enjoying the best credit ratings it has ever had, and it has the knowledge and support of institutions like the Japan International Cooperation Agency, among others," Luethi says.

It all boils down to, not surprisingly, political will.

The tourism sector, for one, would stand to benefit from government support especially in terms of infrastructure. "Unfortunately, growth is stagnant at this point. If you look at the growth rate of tourism from January to August year-on-year, it's stagnant. We believe that the DOT's target of around 10 million arrivals by 2016 will be hard to achieve," Luethi avers, adding that if one were to look at the hotels and leisure industry, "ours are pretty low compared to our neighbors in Asia, which offer the same end product actually."

With the Department of Tourism dubbing 2015 as "Visit the Philippines" year, the country will have to invest heavily in this area in order to grow the industry and compete with its Southeast Asian neighbors. "The Philippines has a lot of sights and experiences to offer but it has to catch up fast," says McCullough. "The biggest hindrance to growth for this sector is the lack of and quality of the infrastructure. A concerted effort by the public and private sector to improve the country's infrastructure will not only spark the growth of the hotel and leisure industry, it will also drive economic activity in various parts of the country," he ends.