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Property sector sustained growth in Q1

THE property industry continued to grow across all segments alongside the country’s flourishing economy in the first quarter of 2014.

“The Philippine real-еstatе market is sustaining its momentum with the country’s bullish economy, young demographics and consumption-driven market,” said Rick Santos, CEO, chairman and founder of CBRE Philippines.

Investor confidence in the country, he added, remained strong and fortified by recent events, such as the state visit of United States President Barack Obama, the World Economic Forum and the credit-rating upgrade to “BBB” by Standard & Poor’s.

Among the property sectors, the office segment continued to advance in the first three months of the year, with new completions coming on stream during the period.

The depreciation of the country’s currency, and the appreciation of those of other nations, further attracted locators to open shop in the country, thus, resulting in lucrative office segments across the various central business districts (CBD) in Metro Manila. Again, the information technology and business-process outsourcing (IT-BPO) industry remained the biggest occupier of office spaces.

Overall vacancy rating in Makati City declined to 1.79 percent from 2.01 percent last quarter, as new locators quickly absorbed office space of over 20,810 square meters (sq m). Leasing fees surged by 11.1 percent for prime spaces and 8.3 percent for Grade A as supply tightened.

Office rents hiked by 4.75 percent quarter-on-quarter in prime spaces and 18.49 percent quarter-on-quarter in Grade A offices in Makati. Average rental rate hit P1,023 per sq m per month, up 10.40 percent quarter-on-quarter.

New supply in Fort Bonifacio reached more than 60,000 sq m. The prevailing rental fee of P776 per sq m per month pushed strong demand, which eventually pulled down vacancy rates from 2.85 percent to 2.23 percent.

From January to March 2014, Alabang offices saw a spike in its vacancy rate as it reached 5.09 percent, as well as an increase in lease rates to P600 per sq m per month from P595 per sq m per month in the previous quarter. More than 15,000 sq m were added to the office-space inventory, as new locators took more than 6,700 sq m during the period.

The Quezon City CBD experienced high absorption of office space during the quarter in review, with a take-up of almost 25,000 sq m. An additional 34,000 sq m of office space pushed vacancy rates from 1.15 percent to 3.04 percent. Rents contracted by 0.01 percent quarter-on-quarter, as it dropped to P641 per sq m per month.

In Ortigas vacancy rates slipped to 0.72 percent from 1.78 percent in the previous quarter. Office space absorption amounted to more than 5,300 sq m. Lease rates went down to P570 per sq m per month from P572 per sq m per month.

With the Philippine economy being consumption-driven, the growth in the retail sector was heightened by the strong buying power of the local populace. This was evident in the launch of both new and redeveloped shopping malls, as well as the influx of a number of international brands in the three-month period.

“The robust domestic consumption demand continues to push expansions of global brands and retail space in the country,” Santos said.

The mall developments brought in a total inventory of 248,000 sq m in gross floor area for rent to various retail concepts.

Leading the expansion is SM Megamall, which reclaimed anew its monicker as the biggest mall in the Philippines and Southeast Asia, with leasing capacity of up to 506,435 sq m. Other retail establishments thatinfused additional space supply are Shangri-La Mall’s six-level East Wing, Fisher Mall, Fairview Terraces, Century City Mall, Blue Bay Walk and Central Square.

On a global scale, international brands were launched within weeks of each other and have taken up a couple of floors in newly opened shopping hubs within the capital. Foreign brands such as Old Navy, Camaïeu and F&F opened its respective stores during the quarter.

To further accommodate the growing consumer market, new retail trends have emerged; one of which is the mushrooming of retailers targeting the IT-BPO sector either in stand-alone setups or as ground floor occupiers of office buildings. Also, community malls are on the rise.

Even national players are into acquisition of local and provincial brands. Also becoming popular strategies in the retail market are business partnerships among industry players and alliances between global brands and local developers.

In the residential market, vertical housing kept on exhibiting stable demand. Due to the limited developable area in Metro Manila, selling prices went up. Units in luxury and high-end projects were being sold at an average cost of P165,000 per square meter. On a take-up basis, for instance, condominium projects near Makati averaged at 22 units per month for luxury and high-end condominiums, and 16 units per month for mid-price units.

Concurrent with the solid performance of manufacturing operations in the country was the rise in industrial property demand.

“Manufacturing expansion driven by domestic demand and exports pushes developers to add to the supply of industrial spaces,” Santos said.

As such, major economic zones in the country are experiencing increasing capital inflow resulting in declining vacancy rates. Rental rates and leasehold land values were seen to be stable during the quarter. The heightened demand is yet to affect the prevailing rates as supply of industrial space remains sufficient.

Adding support to the continued expansion of the property sector is the recovery in building activities. After coming from a blip in the previous quarter, the entire construction industry remains bullish this quarter in review. New hotel branches are also being built.

In the infrastructure front, government projects such as highways and roads are now being constructed. New property players also entered the industry, coming up with additional projects in the pipeline for mixed-use properties. But still, there were also some property developers that exit the picture, or have scaled down operations during the period.

The government is expected to push ahead with reforms, including improving the social and physical infrastructure to promote more inclusive growth, fighting corruption and boosting employment. While the projected growth presents moderate expansion, this provides a positive environment for the property sector to continue its growth alongside the economy throughout the year.

Source: Businessmirror | June 24, 2014


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