PH real estate market a bright spot in Asia, says Savills local affiliate, 03-26-2014

MANILA - The Philippines' real estate market would continue to be one of the most attractive in Asia given the country's robust economic growth and business process outsourcing (BPO) sector, according to the local affiliate of London-listed Savills.

In a briefing today, KMC MAG Group vice president Yves Luethi said Manila is "very attractive " to investors because of its "sweet spot" demographics, talented labor pool, continuously growing BPO and tourism sectors, strong domestic consumption and higher government spending. 

He said Manila still has a relatively low price level within the region. 

According to a Urban Land Institute report, Manila ranked as the fourth most preferred city in Asia Pacific for real estate investors, outperforming Singapore, Hong Kong and Sydney. 

Tokyo topped the list followed by Shanghai and Jakarta. 

"The growth in the business process outsourcing sector, the entrance of global players into the local economy, and strong private consumption continue to make the Philippines' real estate market one of the most attractive in Asia," Michael McCullough, KMC MAG Group managing director said. 

"With the country's continued economic growth, low interest rates, and capital costs, we expect the local real estate sector to continue performing well," he added. 

The Philippine economy grew by 7.2 percent last year from 6.8 percent in 2012. For this year, the government is aiming for growth of 6.5-7.5 percent.

KMC MAG Group said the current outsourcing trend in developed economies is expected to bring in additional foreign investments to the Philippines, with the information technology-business process outsourcing (IT-BPO) industry looking to create up to 124,000 jobs this year. 

In the leasing market, KMC MAG Group noted that employment generated by the IT-BPO sector will push annual take up to 400,000 square meters. 

However, there is only an additional 320,000 square meters of office space available this year. This shortage is expected to translate to an increase in rentals, with the growth driving current rental prices to pre-financial crisis levels. 

The growth in the IT-BPO sector will also remain a major influence in the serviced office market, with at least three new serviced office centers opening to keep up with the demand for space. 

"We expect more IT-BPO companies to come in and invest in the country, due to its young, educated, English-speaking labor force, affordable labor costs, and taxation benefits for investors," McCullough said. 

"The consistent growth in the IT-BPO industry has driven demand to the extent that developers are confident in building without pre-committed tenants," he added.

Another potential high-growth industry, tourism, is driving investments in the hotel sector. With the Department of Tourism targeting 10 million arrivals by 2016, real estate giants such as the International Hotel Group and the SM Group have made plans to strengthen their brands and open new rooms, with around 8,000 new rooms to be introduced in Metro Manila by 2015. 

Meanwhile, strong private consumption, which accounts for nearly 70 percent of the domestic economy, continues to fuel the growth in the residential and retail markets. The growth in Filipinos' purchasing power has driven demand for subdivisions, townhouses, and condominiums, and has also attracted global retailers looking to gain a foothold in the country. 

"Local developers have noticed the increase in purchasing power, particularly among the middle class, and are now responding to this growth by expanding their portfolios and partnering with international investors for new developments," McCullough said. 

In Metro Manila, the three top business districts continue to experience activity in both residential and office sectors. Makati and Bonifacio Global City continue to attract multinational corporations, IT-BPO companies, and entrepreneurs, as well as the high-end and luxury residential sector, with Bonifacio Global City having the highest take-up in 2013.  

"In Makati, vacancy rate in the office sector is temporarily high, but the demand created by shortage in prime office space can absorb the vacancy," McCullough said. 

"Meanwhile, in Bonifacio Global City, the vacancy rate is expected to lower due to the strong demand, despite the continued expansion in its inventory," he said.

Ortigas is shaping up to be a potential BPO hub, given its accessibility to labor from nearby areas such as Pasig, Quezon City, San Juan, Taguig, and Marikina. 

"Ortigas has the lowest vacancy rate among all of the business districts; however, we expect this to change because of the new supply. Among the business districts in Metro Manila, Ortigas also has the lowest average rate for Grade A office space, which can make it an attractive location for IT-BPO companies looking to invest in the Philippines," McCullough said.