METRO MANILA - content.knightfrank.comcontent.knightfrank.com/research/1257/documents/en/metro-manila... · Tower One and Exchange Plaza in Makati and PSE Tektite Ortigas, merging

RESEARCH

METRO MANILA REAL ESTATE SECTOR REVIEW

METRO MANILAMARKET UPDATE Q1 2018

SNAPSHOTSEconomic Indicators

RISE OF THE ULTRA-WEALTHY FORTIFIES ROBUST METRO MANILA PROPERTY SECTORMetro Manila was identified as one of the world’s hottest cities in The Wealth Report 2018. The Philippine’s significanteconomic momentum and positive property dynamics were recognized as factors creating sizeable investor interestaround the world. With various infrastructure projects planned, Metro Manila is growing into an impressive regional huband a destination for global real estate investment.

(worth US$50M+) passed the 300mark as of the year 2017. This2017 number is a 3% increase fromthe previous year and 20% from 5years ago. By 2022, the number isprojected to reach 570, which is84% higher than the latest recordedfigure.

An attitude survey was likewiseconducted using responses fromprivate bankers and wealth adviserswho represent wealthy individuals.The survey identified that FilipinoUltra High Net Worth Individuals(UHNWI) actively collectinvestments of passion such as art,wine, jewelry, watches and luxurycars. UHNWIs are defined asUSD30 million or more (excludingprimary residence). Capitalappreciation and joy of ownershipare the top two factors FilipinoUHNWIs consider in buying suchinvestments of passion.

Continued on Page 8…

The Metro Manila property sectorfurther advances as an effect of therise in the number of ultra-wealthyin the country. The ultra-wealthyaims to further diversify theirexisting portfolios by investing in thelocal office, residential, retail,hospitality and logistic sectors.

The number of wealthy and ultra-wealthy individuals in the Philippinescontinues to increase according tothe wealth report. The report isbased on a study carried out byWealth-X, a leading global wealthand insight business that partnerswith prestige brands acrossfinancial services, luxury, not-for-profit and higher educationindustries. It estimates total privatewealth and population size by levelof wealth and investable assets.The potential market for luxuryproducts is to a great degreerepresented by the numbers statedin the report.

According to the same report, thenumber of ultra-wealthy Filipinos

2

GDP Q1 2018

6.8%

4.3%Inflation RateMarch 2018

0.8%OFW RemittancesQ1 2018

5.8%Avg. Bank LendingMarch 2018

3.01%91-Day T-BillMarch 2018

51.45Avg. PHP-USDQ1 2018

NETWORTH

POPULATION SIZE % INCREASE

2012 2016 2017 20222012

to 2016

2016 to

2017

2017 to

2022

US$5M+ 4,500 5,420 5,680 10,390 20% 5% 83%

US$50M+ 250 300 310 570 20% 3% 84%

US$500M+ 20 20 20 50 0% 0% 150%

TABLE 1Population Size of UHNWI in the Philippines

Source: The Wealth Report 2018

OFFICE MARKET IN DEVELOPMENT BOOM

Following a record-high netabsorption in the last quarter of2017, the office sector remainsvigorous in the first quarter of 2018,supported by rising rents and acontinuing boom in constructionactivities all over Metro Manila. Anestimated 1.3 million square meters(sq.m.) of new office supply isexpected to add into the total officestock within the next three quartersof the year. Furthermore, a bigportion of the upcoming officesupply is already pre-committed,signifying that the market is ready topounce on the additional spaces forhand over.

Existing Supply and Building Completions

A total of 92,273 sq.m. of freshoffice gross leasable area wentonline in Metro Manila’s centralbusiness districts in the first quarterof 2018. Fort Bonifacio welcomedtwo notable prime-grade buildingopenings: Arthaland Century PacificTower (31,045 sq.m. in GLA) andThe Philippine Stock ExchangeTower (30,000 sq.m. in GLA).

Designed by SOM New York and aLEED gold and BERDE-awardee,The Arthaland Century PacificTower has attracted multinationaland traditional companies. ThePhilippine Stock Exchange, Inc.,meanwhile, has moved from itsprevious separate trading floors inTower One and Exchange Plaza inMakati and PSE Tektite Ortigas,merging in Fort Bonifacio andoccupying about 23,000 sq.m. ofthe newly-opened The PhilippineStock Exchange Tower. Bulk of thesupply from these newly-completedprime buildings have been pre-committed prior to or at completion,both presently at less than 5%vacancy.

Alveo Land’s strata-titled HighStreet South Corporate PlazaTower 1 in Fort Bonifacio (38,192sq.m. in GLA) also opened thisquarter. In addition, Ri RanceCorporate Center 1 in Bay Area isnow operational, bringing BayArea’s total office inventory closerto 550,000 sq.m. The new building

is performing exceptionally well at alow vacancy of 2%.

Notable building completions in thefringe areas include CircuitCorporate Center 1 (47,104 sq.m.in GLA) and Circuit CorporateCenter 2 (25,604 sq.m. in GLA) inCircuit Makati and the GreenfieldTower (43,697.57 sq,m. in GLA) inGreenfield District Mandaluyong.

Upcoming Supply And Development Pipeline

Bay Area accounts for more than afourth of the total Metro Manilaupcoming supply, with Three E-Com Center Bayshore Tower(79,000 sq.m. in GLA) as thebiggest contributor. Othernoteworthy upcoming officedevelopments for the year includeprime-grade Nex Tower in Makati,Jollibee Tower in Ortigas, AranetaCyberpark Tower Two in QuezonCity, and Asian Century Center,Ecoprime, and The Finance Centrein Fort Bonifacio.

3

OFFICE | Sustained Upsurge in Rents

Source: Santos Knight Frank Research

Philippine Stock Exchange Tower

The Podium West Towerand BDO Tower

Source: Keppel Land

0%

1%

2%

3%

4%

5%

6%

0

50

100

150

200

250

Q12014

Q12015

Q12016

Q12017

Q12018

Thou

sand

s

New Supply Net Absorption

Vacancy Rating

4

A number of strata-titled officebuildings are also earmarked forcompletion this year, including HighStreet South Corporate Plaza -Tower 2, Capital House, and ParkTriangle Corporate Plaza NorthTower in Fort Bonifacio andParkway Corporate Center inAlabang.

In the next two years, much of theupcoming office supply will comefrom Ortigas with the completion ofSM-KL Tower (89,000 sq.m. inGLA) and SM Mega Tower (96,000sq.m. in GLA) in 2019 andCorporate Finance Plaza, a 61-storey skyscraper slated to supplyan estimated 120,000 sq.m. ofoffice space in 2020.

Net Absorption and Vacancy Rates

The Metro Manila office marketjumpstarts 2018 with a netabsorption of 72,220 sq.m. of officespace following the six-digit record-breaking take-up in the last quarter.

Among the central businessdistricts (CBD), Fort Bonifacio andBay Area exhibited the most leasingactivity in the first quarter of theyear, with a net absorption of66,801.94 sq.m. and 24,859.15sq.m., respectively. Both CBDs hadsignificant increases in their nettake-up numbers compared to thesame period last year.

Overall Metro Manila vacancyincreased to 4.89% in the firstquarter, with occupied space nowstanding at over 4.67 million sq.m.coming from 4.60 million in the lastquarter of 2017. By building grade,vacancy for Prime buildings is at5.38% and 4.47% for Grade Abuildings.

Alabang registered the lowestvacancy in the first quarter at2.13%, largely attributed to a rise ingaming locators. With the dwindlingsupply of workspace in the usualdistricts of choice, gaming firmshave been looking into morenon-traditional areas

such as Alabang and Quezon Cityto meet their office spacerequirements.

Makati and Fort Bonifacio bothregistered vacancies below 4%.Grade A buildings predominantlyled market activity in both districts.The Curve in Fort Bonifaciorecorded an absorption of about13,500 sq.m. in office space sinceits opening last quarter. Currentvacancies in Fort Bonifacio’s primeand Grade A buildings were at5.55% and 3.13%, respectively.Makati’s prime and grade Abuildings, on the other hand, stoodat 5.24% and 2.11%, respectively.

Further north, Ortigas and QuezonCity started 2018 with vacancies of6.70% and 9.90%, respectively.

Average Monthly Rents

Metro Manila’s weighted averagelease rate got a boost of 9.11%year-on-year (YoY) rising toPHP984.93 per sq.m. in the firstquarter of the year.

Makati CBD still commanded thehighest lease rate among the MetroManila CBDs at PHP1,308.44 persq.m., up 3.85% from the sameperiod in the previous year.

Fort Bonifacio stood out in the firstquarter for registering the highestYoY rental growth of 13.86%. Theaddition of two prime-gradebuildings has significantly pulled upthe weighted average rent in thedistrict to PHP1,082 per sq.m.,following Makati in the lease raterankings.

A minimal movement in averagerents was noted in the Ortigas CBD.Rents for Grade A space remainedbetween PHP500 to PHP900 persq.m.

Rising rents were likewise evident inthe other Metro Manila businessAverage rents in the businessdistricts of Quezon City increasedby an aggregate of 11.39% YoYto PHP843.90 per sq.m. while

DsitrictWeighted Avg.

Lease Rate (PHP/sqm/mo.)

Vacancy Rate

Makati 1,308.44 3.48%

Fort Bonifacio

1,082.15 3.97%

Alabang 741.08 2.13%

Quezon City 843.90 9.90%

Ortigas 675.11 6.70%

Bay Area 761.73 2.21%

TABLE 2Q1 2018 Office Data


FIGURE 1YoY New Supply (sq.m.), Net Absorption (sq.m.), and Vacancy Rating

FIGURE 2Weighted Average Lease Rate (PHP/sq.m.) vs Growth Rate



0%

1%

2%

3%

4%

₱600

₱700

₱800

₱900

₱1,000

₱1,100

Q12014

Q12015

Q12016

Q12017

Q12018

Weighted Average Rent (PHP)

Rental Growth Rate (%)

5

the resale price of the pre-sellingprime office building Alveo FinancialTower range from PHP245,000 toPHP265,000 per sq.m.

In the Ortigas CBD, the selling priceof office units in older buildings goas low as PHP80,000 per sq.m.However, newer buildings arecommanding higher prices, as unitsare quickly taken up. One of thenewest developments in the area,The Glaston Tower of Ortigas andCo., presently sells at PHP177,000per sq.m.

Selling prices of office space in FortBonifacio range from PHP150,000to PHP280,000 per sq.m.. Most ofthe preselling buildings are alreadysold out. Units for resale in HighStreet South Corporate Plaza arepriced around PHP 275,000 persq.m.

Outlook

Looking ahead, lease rates are alsoforecasted to continue rising drivenby the strong optimism in thePhilippine property market. Districtstargeting and accommodatinggaming locators are expected toincrease their asking rents for officespace with the perceived highdemand.

Banking on the country’s youngand skilled population whichcontinues to attract investors,outlook on the Metro Manila officemarket remains bullish. With muchsupply coming in, areas withweaker demand may experiencesoftening in rents, although notforeseen to continue in the longrun. Rents are still not asnegotiable and this position isexpected to be sustained allthroughout the year. A large portionof the upcoming office supply isalready pre-committed, signifyingthat the market is ready to pounceon the additional spaces for handover in the coming periods.

the Bay Area’s average asking leaserate was at PHP761.73 per sqm, upby 5.71% YoY.

YoY rental growth rates in Alabanghave consistently increased sinceQ1 2017. Average lease rate in thedistrict increased by 10.66% YoY toPHP741.08 in the first quarter of2018.

Offices for Sale

The continuous rise in rents hascaused more and more developersto consider selling office spaces invarious stages (pre-selling,construction and post-development). Demand furtherstrengthens as buying instead ofrenting office spaces tends to lowerdown overall cost implications tothe occupiers.

The capital values of existing officesin the Makati CBD are estimatedfrom PHP120,000 to PHP200,000per sq.m. In addition,

The Glaston Tower

Source: Ortigas & Company

DEMAND AND SUPPLY PRESSURES CONTINUE TO PUSH RESIDENTIAL PRICES UPWARDSRESIDENTIAL | Chinese market further boosts investment demand

6

The sustained momentum of thePhilippine economy has largelyinfluenced the performance of thelocal condominium sales market inthe first quarter of 2018. Residentialdemand is consistently expanding,justifying regular price increasesacross residential classifications inthe Metro.

Investor demand became moreevident as a major demand driver ofthe residential condominium sector,with the massive investmentactivities pushing the demand forresidential properties at asignificantly faster pace. Overallmonthly take-up in Metro Maniladuring the quarter averaged 27units coming from 22 and 18 unitsin the previous quarter and year,respectively. In terms of unitabsorption, approximately 91% ofthe total supply has already beenabsorbed by the market in the firstquarter. This is a notableimprovement from the previousquarter’s record of 89% and lastyear’s figure of 76%.

The robust demand is attributed tothe rising interests on residentialproperties coming from Chinesenationals, which is a product of therekindled ties between thePhilippines and China. Developerscredited strong sales take-up to thesaid foreign market, stemming fromthe expansion of Chinese businessprocess outsourcing (BPO) firmsand offshore gaming operators, andunderpinned by the boominggaming and entertainment industryin the country.

Aside from business expansions,Chinese nationals are likewiseattracted to the huge projectedreturns of condominium investmentin the country. The Chinese have alarge buying and investment

capacity. Moreover, residentialproperties in the Philippines arerelatively cheaper than propertiesabroad. USD1 Million can buy 170sq.m. of residential condominiumspace in the Philippines comparedto just 66 sq.m. in Beijing.

In addition, prices of residentialproperties across the Metrocontinue to soar in the first quarterbacked by strong demand.However, the supply environmentplaces an upward pressure on theprice of condominiums in MetroManila, which includes the limitedavailable inventory, fast progress ofdevelopment, and the presence ofnotable residential brands in thearea where a project is located.

Among the central businessdistricts (CBDs), Taguig City andBay Area recorded the highestyear-on-year (y-o-y) increase inproperty prices with 47% and 30%

Continued on Page 8…

AreaUnits

Sold (%)

Avg.

Monthly

Take-up

Makati City 94.1% 15.8

Taguig City 94.7% 10.4

Quezon City 87.8% 32.2

Ortigas* 85.8% 43.3

Alabang 73.7% 10.5

Bay Area 98.6% 50.0

METRO

MANILA90.7% 26.7

TABLE 3Q1 2018 Residential Condominium Sales Market Statistics

*Includes parts of Mandaluyong, Pasig, and San Juan


₱90,000

₱137,000

₱64,000 ₱71,000 ₱82,000₱123,000

₱418,000

₱480,000

₱178,000₱197,000 ₱199,000

₱264,000

0

100,000

200,000

300,000

400,000

500,000

600,000

Makati City Taguig City Quezon City Ortigas Alabang Bay Area

FIGURE 3Indicative Average Selling Prices per Area (PHP/sq.m.)


RETAIL DEVELOPERS FURTHER PROMOTE RETAIL AS AN EXPERIENCE RETAIL | Mall renovations display retail market strength and potential

7

Metro Manila shopping malldevelopers are quick in respondingto the increasing demand of mallgoers for a different and brand-newshopping and retail experience. Thisis partly due to the imminent threatof e-commerce and onlineshopping but mostly because of theevolving lifestyles of the consumermarket.

Robinsons Galleria in Ortigas Centerrecently unveiled the renovated andexpanded wings, and food courtarea of its more than 20-year-oldshopping mall. Both the mall façadeand interiors were likewiseupgraded to give the guests atotally different feel. At present, thescenic elevators are being improvedto complete the overall mallexperience. Moreover,Samgyupsalamat and Cabalen areupcoming restaurants highlyanticipated by the dining market.

The Shangri-La movie houses(Shang Cineplex) are presentlybeing renovated to boost the funand entertainment aspect of themall experience. New restaurantshave already been added toincrease the dining options availablewithin the mall.

Overall retail space vacancy in themajor Metro Manila malls is at anastounding 1.30% as of the firstquarter of 2018. Average indicativelease rates range from a low ofPHP700 per sq.m. per month to ahigh of PHP2,000 per sq.m. permonth. Makati posted the highestretail rents at an average ofPHP1,600 per sq.m. per month.Conversely, Alabang’s averagerents were recorded at PHP1,100per sq.m. per month, the lowestaverage amongst the Metro ManilaCBDs.

TABLE 4Q1 2018 Retail Data


AreaTotal GLA

(sq.m.)Available Space

(sq.m.)Lease Rate (PHP/sq.m.)

Vacancy Rate

Quezon City 934,451 5,011 1,533 0.54%

Ortigas 674,073 12,590 1,325 1.87%

Makati 373,071 6,853 1,600 1.84%

Fort Bonifacio 376,483 3,232 1,508 0.86%

Bay Area 508,600 3,350 1,300 0.66%

Alabang 354,527 10,743 1,100 3.03%

Total/Average 3,221,205 41,779 1,349 1.30%

Shangri-La Mall


INDUSTRY SECTOR LARGELY CONTRIBUTING TO OVERALL ECONOMIC GROWTH INDUSTRIAL | Continuous Rise in Industrial Property Demand

8

As in the previous periods, theindustry sector recorded the highestgrowth rate among the majoreconomic sectors in the first quarterof 2018. Industry growth was fasterat 7.9% compared to the 6.5%growth in the same period of lastyear. The growth of the sector wasmainly driven by manufacturing.

The country’s soundmacroeconomic fundamentals andfavorable demographics continue toattract local and foreigninvestments resulting to a robustindustrial sector. Moreover, as theretail market further expands,logistics, warehousing andmanufacturing requirementscorrespondingly increase. Inaddition, the emergence of e-commerce has been recognized asa stimulus for higher logisticsproperty demand. E-shopping hasincreased demand for warehousingand storage units, as online retailersrequire more distribution space thantraditional retailers since they needto individually pack items per client.

The dwindling supply ofwarehouses and industrialproperties within Metro Manila stillpresents a dilemma to retailers andan opportunity to industrial spacedevelopers at the same time.Cavite, Laguna and Batangas(South Luzon), and Pampanga,Tarlac and Bataan (Central Luzon)already enjoy increased interestsfrom investors due to their proximityto the capital.

In South Luzon, industrial lots areselling from PHP3,300 to 7,000 persq.m.. On the other hand, landselling prices in North Luzon rangefrom PHP3,600 to PHP4,500 persq.m. while land lease prices gofrom PHP20 to PHP45 sq.m. permonth. Rental rates of factorybuildings vary from PHP120 to 280per sq.m. per month in Cavite,PHP170 to 270 per sq.m. permonth in Laguna and PHP170 to300 per sq.m. per month inBatangas. In the PampangaEconomic Zone, 6 factory buildingsare available for lease at a rate ofPHP125 per sq.m. per month.

Proximity and availability oftransport infrastructures are factorsincreasing the attractiveness of anarea as an industrial site, especiallywith the continuous upsurge in fuelprices. Upcoming road networks,such as CALAX and Metro ManilaSkyway 3, are expected to furtherboost desirability and operations ofindustrial zones outside MetroManila.

Light Industry and Science Park


the city’s average price growth of15%. The worsening traffic situationin Metro Manila compelledcommuters to seek living spacesproximate to their workplaces.

Strong demand for middle-incomecondominiums in the nearby fringesof Alabang and Ortigas pushedproperty prices in these businessdistricts to grow by 15% and 8% y-o-y, respectively. People continueto move away for the city cores asthe number of affordable optionswithin the city keep on diminishing.

Continued from Page 5 Residential

growth rates, respectively. Thestrong demand and supplypressures in these areas led tofurther price increases in order tobe at par with the prices of otherdevelopments in the area. In theBay Area, for instance, projects thatwere launched at a middle-incomeprice of PHP120,000 per sq.m. fora 24 sq.m. unit now sells at a luxuryprice of approximately PHP190,000to PHP200,000 per sq.m.. TaguigCity and Bay Area prices now rangefrom PHP137,000 to PHP480,000per sq.m. and PHP123,000 toPHP264,000 per sq.m.in the saidareas, respectively.

Property prices in Makati Cityincreased by 18% y-o-y, withpresent prices ranging fromPHP90,000 to PHP418,000 persq.m.. The growth was mainly dueto the escalating prices of luxurycondominiums in the area. Makati’sluxury segment experienced a 36%growth in prices. In Quezon City,however, it was the affordablecondominium segment thatcontributed largely to the city’sprice growth. Prices under theaffordable segment faced a y-o-ygrowth of 23%, which is higher than

Continued from Page 2 Cover

42% of the Filipino attitude surveyrespondents cited that their ultra-high net worth clients’ exposure toproperty had increased in 2017.Moreover, 52% disclosed that theirUHNWI clients have propertyinvestments, excluding primaryresidence and secondary homes, inthe Philippines and 20% outside thecountry. Furthermore, 45% revealedthat their Filipino UHNWI clients arethinking of investing in a property,other than their primary residenceor second home, in the Philippinesand 21% outside the country, overthe next few years.

On the average, Filipino UHNWIsown 2 to 3 homes. In addition, 28%of the relationship managerssurveyed shared that their FilipinoUHNWI clients are planning to buyan additional home within thecountry and 15% outside thecountry in the next 12 months.

The market for luxury Philippineproperties also includes UHNWIfrom foreign countries. The WealthReport 2018 reveals that UHNWIfrom Malaysia, Singapore andSouth Korea presently own propertyinvestments in the Philippines, asthe Philippines ranked 13 out of 176countries where Asians ownproperty investments. Moreover,affluent individuals from Hong Kongsignified intentions of furtherinvesting in the Philippines.Furthermore, South Korean UHNWIexpressed the high possibility ofbuying an additional home in thePhilippines over the next 12months.

Data from The Wealth Report 2018uncovered various opportunitiesthat investors and propertydevelopers can capitalize on. Theresidential sector presentsnumerous golden prospects.However, the retail, office, logistics& warehousing, infrastructure andhealthcare sectors are particularlybecoming of more interest to thepresent and future real estatemarket players.

9

The Royalton and The Imperium


Santos Knight Frank Research provides strategic advice, consultancy services and forecasting to awide range of clients worldwide including developers, investors, funding organizations, corporateinstitutions and the public sector. All our clients recognize the need for expert independent advicecustomized to their specific needs.

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