Manila: Still a Bright Spot for Investors in 2014

The Philippines, particularly Manila, will remain as a top destination among various investment sector categories in 2014, according to the Emerging Trends in Real Estate Asia-Pacific report from Urban Land Institute and Pricewaterhousecoopers. Many executives that were interviewed for the survey were upbeat about Philippine real estate, saying that some of the factors that contributed to high investor interest is the improving political environment and fast-paced growth of the BPO sector due to the country's English-educated and highly literate workforce.

Investment surge in  Southeast Asian Property Markets

According to the report, one of the main challenges for real estate investors next year is the strong competition among conventional asset types and the expected lower yields once the base rates go up. This problem, however, has a silver lining for the Philippines and its neighbor Asian countries. Because traditional markets cannot provide higher yields, investors are expected to look for value in niche areas -- in smaller, emerging markets in the Southeast Asia. Although the risks are higher, institutional investors who have spent time in the country and understand the market are likely to recognize the value of the country.

Manila as the top investment pick

Manila is forecasted to be the top 4 investment pick for emerging cities next year, especially since it remains as the location of choice for investors looking to outsource not just voice accounts, but also back-office functions for multinational companies. One investor interviewed by ULI and PWC commented that although the country still faces issues in lack of transparency, political leadership, and excessive corruption, the Philippine economy has strong fundamentals that make it a promising country to invest in. "I think it's definitely still an underdog, but fundamentals there look good. I like the Philippine economy from a demographics perspective and they do manufacture more than people think."  The city is also benefiting from its young demographic, consistently high capital inflows from local citizens working abroad, and its culture's strong affinity to the West.

Manila currently offers cap rates ranging between 9 and 10 percent, development returns at 15 to 20 percent and a yield spread of 350 to 450 basis points over financing costs -- a trend expected to continue until the end of 2014.