Short-term leases to temper rising RFO vacancy

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2016 2017F condominium units Colliers Quarterly PHILIPPINES RESIDENTIAL 1Q 2017 11 May 2017 Short-term leases to temper rising RFO

accounting for two-thirds of the new supply. While rents in major CBDs are declining, prices continue to grow albeit at a slower pace.

in the Manila Bay Area, where the demand for luxury projects has spilled over.

units as long as the leasing schemes conform with the developers' market positioning and do not lead to a deterioration of the units'

To entice more consumers to acquire RFOs, Colliers recommends that developers offer these units through rent-to-own schemes and be more

Colliers also sees the demand for worker accommodation projects being sustained over the medium term.

Forecast at a glance Demand Colliers sees luxury condominium takeup being sustained by demand from expatriates and affluent families.

Supply About 22,000 additional units will be completed this year, about five times higher than the number of units delivered in 2016.

1 F condominium units Colliers Quarterly PHILIPPINES RESIDENTIAL 1Q May 2017 Short-term leases to temper rising RFO vacancy Joey Roi Bondoc Research Manager Completion of residential condominium projects for the first three months of the year picked up after a sluggish 1Q Colliers sees about 22,000 additional units being completed this year in the major business districts, with the Manila Bay Area accounting for two-thirds of the new supply. While rents in major CBDs are declining, prices continue to grow albeit at a slower pace. The demand for luxury units is stable and this encourages affordable and mid-income developers to pursue high-end projects especially in the Manila Bay Area, where the demand for luxury projects has spilled over. Colliers encourages developers with significant ready-foroccupancy (RFO) units to lease out the units either individually or as shared units as long as the leasing schemes conform with the developers' market positioning and do not lead to a deterioration of the units' perceived value. To entice more consumers to acquire RFOs, Colliers recommends that developers offer these units through rent-to-own schemes and be more aggressive in providing flexible and extended payment terms. Colliers also sees the demand for worker accommodation projects being sustained over the medium term. Hence, developers should look at either building or acquiring existing projects catering to this market. Forecast at a glance Demand Colliers sees luxury condominium takeup being sustained by demand from expatriates and affluent families. Millennials working in CBDs will drive the demand for rental housing in the fringes. Supply About 22,000 additional units will be completed this year, about five times higher than the number of units delivered in The bulk of the new supply will come from the Manila Bay Area, driven by affordable to mid-income projects. Vacancy rate Vacancies in Makati CBD and Fort Bonifacio should rise marginally to 14% and 15% over the next 12 months. Ortigas Center vacancy should be relatively stable at 6% to 7%. Rent We expect rents to drop by about 1% to 3% over the next 12 months. Metro Manila Residential Stock* 30,000 25,000 20,000 15,000 10,000 5,000 25% 20% 15% 10% 5% - 0% Residential Stock (LHS) YoY Change (RHS) *Includes Alabang, Araneta Center, Eastwood City, Fort Bonifacio, Makati CBD, Manila Bay Area, Ortigas Center, and Rockwell Center

Residential Supply Forecast (units) LOCATION AS OF 2016 2017F 2018F 2019F 2020F TOTAL Alabang 3,700 900 820 - - 5,500 Araneta Center 4,200 300 - - - 4,500 Eastwood City 7,500 980-630 - 9,100 Fort

2 Residential Supply Forecast (units) LOCATION AS OF F 2018F 2019F 2020F TOTAL Alabang 3, ,500 Araneta Center 4, ,500 Eastwood City 7, ,100 Fort Bonifacio 24,200 8,500 3,800 3,000-39,700 Makati CBD 21,600 4,700 1, ,400 Manila Bay Area 8,800 5,500 8,500 2,600 2,100 27,600 Ortigas Center 16,200 1, ,700 Rockwell Center 4, ,200 Total 90,700 22,500 15,400 8,100 3, ,000 Completions in CBDs pick up The completion of residential condominium projects for the first three months of the year picked up after a sluggish 1Q Five residential projects were completed from January to March. These include Breeze Residences (2,100 units) in the Manila Bay Area; CDC Millennium Residential Apartments (130 units) and The Pearl Place-Tower B (410 units) in Ortigas Center; The Venice Luxury Residences-Emanuele (250 units) in Fort Bonifacio; and Valero Grand Suites (220 units) in Makati CBD. About 3,100 residential condominium units were completed in 1Q 2017, more than triple the number of units delivered in the same period last year. SMDC s Breeze Residences in the Manila Bay Area accounted for two-thirds of the total units delivered in the first three months of the year. Close to an additional 20,000 units are expected to be delivered in Metro Manila for the rest of the year. The bulk of the supply will come from the Manila Bay Area, driven by SMDC s affordable to mid-income projects. From about 8,800 units as of end-2016, Colliers sees the Manila Bay Area s stock surging by more than 200% to more than 27,000 units in Aside from overseas Filipino workers (OFWs), demand in the emerging business hub is fueled by casinos, BPOs, and offshore gaming firms. Meanwhile, Fort Bonifacio s supply is expected to reach nearly 40,000 units from about 24,000 as of end Overall, Colliers sees about 12,300 units being completed in Metro Manila annually from 2017 to Vacancy rates continue to rise across major CBDs Vacancy in Makati CBD rose to 13.7% in 1Q 2017 from 13.3% in the previous quarter. Colliers projects vacancy in Makati CBD rising to about 14% to 15% over the next 12 months given the projected completion of an additional 4,500 units, about a fifth of the projected new supply this year. Colliers also attributes the projected increase in Makati CBD vacancy to the completion of mid-income projects in the fringes areas such as The Beacon-Amorsolo Tower in Chino Roces corner Arnaiz Avenue, Makati. Notable projects due to be completed within Makati CBD include Kroma Tower by Ayala Land, Three Central by Megaworld, and Shang Salcedo Place by Kuok Properties. Fort Bonifacio s vacancy reached 12.4% from 11.7% in 4Q The business district will account for nearly 40% of the projected additional supply this year. Thus, we see vacancy rising to about 15% in the next 12 months, the fastest among the major CBDs. Projects due to be completed this year include One Uptown Residences by Megaworld; and Avida Towers BGC 34th Street and The Sequioa at Two Serendra by Ayala Land. Makati CBD Residential Vacancy 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Makati CBD Residential Vacancy 2 Colliers Quarterly 11 May 2017 PHILIPPINES RESIDENTIAL Colliers International

3 PHP / sq m / month 2001 PHP / sq m Metro Manila Comparative Luxury 3BR Residential Rental Rates (PHP / sq m / month) LOCATION 4Q Q 2017 %CHANGE (QoQ) 1Q 2018F %CHANGE (YoY) Fort Bonifacio 640-1, , % % Makati CBD 560-1, , % 550-1, % Rockwell Center 780-1, , % 760-1, % Due to the lack of developable land, Ortigas Center will account for only 7% of the additional supply this year. Hence, vacancy will be relatively stable at around 6% to 7%. The business hub s vacancy in 1Q 2017 was 6.6%, practically unchanged from the previous quarter. Among the projects due to be completed for the remainder of the year are Zitan by Greenfield Development, The Currency by Crown Asia, and The Sapphire Residences-East Bloc by Robinsons Land. Makati CBD Comparative Residential Vacancy Rates GRADE 4Q Q Q 2018F Luxury 13.98% 15.47% 16.76% Others 13.18% 13.39% 13.90% All Grades 13.29% 13.65% 14.25% Rents continue to drop Rental rates for premium three-bedroom units in Makati CBD declined by 1.7% to PHP823 (USD16.5) per sq m a month from PHP837 (USD16.7) per sq m in 4Q The drop was slightly faster than the 1.4% decline recorded in 4Q. We expect the rental decline to ease to between1.3% and 1.5% over the next 12 months. Premium 3BR-Unit Residential Rents 1,200 1, Fort Bonifacio Makati CBD Rockwell Center Rental rates in Fort Bonifacio slid by 1.9% to PHP817 (USD16.2) per sq m a month from PHP835 (USD16.7) per sq m. Colliers sees rents in Fort Bonifacio declining by about 2%-2.5% over the next 12 months. Rockwell rents declined by 2.2% to PHP910 per sq m a month. We project rental rates to drop by a slower 1% to 1.2%. Slower increase in capital values Premium 3BR-Unit Residential Capital Values 250K 200K 150K 100K 50K K Fort Bonifacio Makati CBD Rockwell Center Prices continue to grow across major CBDs, albeit at a slower pace. Capital values for Makati CBD residential properties rose by 3.2% to PHP186,000 (USD3,700) per sq m in 1Q 2017 from PHP180,300 (USD3,600) per sq m in the previous quarter. Fort Bonifacio prices increased by 2.7% to PHP173,000 (USD3,500) per sq m. The increase is slower than the 5.5% growth posted in 4Q Prices in Rockwell Center reached PHP202,600 (USD4,100) per sq m, up by a slower 2.3% from 5% in the previous quarter. Colliers projects slower price increases over the next 12 months. We see Makati CBD prices increasing by only 10% from about 14% previously. Colliers also sees Fort Bonifacio and Rockwell Center prices growing at a slower rate of 7% to 9% this year from 8% to 10% previously. 3 Colliers Quarterly 11 May 2017 PHILIPPINES RESIDENTIAL Colliers International

4 Metro Manila Comparative Luxury 3BR Residential Capital Values (PHP / sq m) LOCATION 4Q Q 2017 %CHANGE (QoQ) 1Q 2018F %CHANGE (YoY) Fort Bonifacio 110, , , , % 118, , % Makati CBD 85, ,500 97, , % 108, , % Rockwell Center 188, , , , % 201, , % Mid-income developers venture into luxury Colliers sees a stable demand for luxury, three-bedroom units in major CBDs such as Makati, Rockwell Center, and Fort Bonifacio. The take-up is fueled by demand from expatriates and affluent families looking for units to stay and invest in. Prime residential buildings in Makati such as Raffles Residences, Discovery Primea, The Residences at Greenbelt, and One Roxas Triangle continue to attract consular officials as well as high-ranking executives of MNCs and top Filipino companies holding offices along Ayala Avenue and in nearby Salcedo and Legazpi villages. Rockwell's Rizal Towers and Luna Gardens continue to enjoy healthy occupancies as they are among the primary choices of expatriate families. Meanwhile, Fort Bonifacio s Essensa, Pacific Plaza Towers, Regent Parkway, and One Serendra are able to sustain high occupancies as they complement the surge of multinational knowledge process outsourcing (KPO) firms in Fort Bonifacio. Major KPO firms such as Google, Towers Watson and Deutsche Knowledge Services have established operations in Fort Bonifacio while the planned transfer of the Philippine Stock Exchange should entice more multinational finance companies to open shops in the area. The influx of these multinational firms should bring in more foreign workers and further raise the demand for luxury condominium units in the business district. Expatriates are also drawn to Fort Bonifacio due to the presence of international schools such as the British School Manila, International School Manila, and the Manila Japanese School. The demand for luxury units is spilling over to other business districts such as the Manila Bay Area. The Consunji-led DMCI Homes, primarily known for its midincome projects, has started developing its luxury condominium project in the emerging business district. Meanwhile, SM Prime is partnering with Federal Land to build a PHP5 billion luxury residential project on a 3,500- sq m lot between Ritz Towers and Discovery Primea along Ayala Avenue, Makati. British architect Norman Foster will do the project. While prices have yet to be disclosed, it is interesting to find out if the project will break the PHP300,000 per sq m average price of Ayala's ultra-luxury Park Central Tower. Developers with significant RFOs urged to tap short-term lease market Over the past three to five years, a number of developers have been very aggressive in launching studio and one-bedroom units, now accounting for 70% of residential stock in Metro Manila. For companies that have significant ready-for-occupancy (RFO) units, Colliers believes that leasing out these units either individually or even as shared units makes sense, as long as the leasing schemes do not go against the market positioning of the properties and do not lead to a deterioration of the projects perceived value. An example is Century Properties Siglo Suites which helps owners effectively lease out units to short-, medium-, and long-term guests and tenants. The scheme also strengthens and enhances the security of owners and residents. With an oversupply of studio and one-bedroom units, we encourage developers to look at offering their properties to the short-term lease market since demand is primarily fueled by: Surge in foreign tourist arrivals with about 60% of international visitors making a pit stop in Metro Manila; Increase in domestic tourists with an average of 500,000 domestic tourists visiting Metro Manila each year; 4 Colliers Quarterly 11 May 2017 PHILIPPINES RESIDENTIAL Colliers International

5 Millennials who comprise about 40% of the work force and heavily use shared economy services such as AirBnB; and OFWs who spend vacation in the country s capital. Developers take aim at rental housing As developers try to corner a larger fraction of the rental housing pie, they must ensure that their developments have amenities similar to condominium developments in the CBDs. Since the target occupants are millennials, Colliers proposes that firms apportion amenities and facilities such as gyms, retail shops and lounges with fast broadband internet connection. Colliers sees the demand for worker accommodation projects being sustained over the medium term given the growing number of highly-mobile young urban professionals who cannot afford to own their own apartment yet or rent a condominium unit within Makati CBD, Fort Bonifacio, and Ortigas Center. The halfway houses are for CBD employees who want to live near their place of work. These types of accommodation units are also more practical for employees working in CBDs as the worsening traffic in Metro Manila only makes their commute to and from work more unbearable. Mobility of employees will only improve once the committed infrastructure projects that will pass through major business districts in Metro Manila are completed. These include the proposed Manila Bus Rapid Transit (BRT) system and the Subway system which has 13 stations connecting Quezon City and NAIA Terminal 3. SM Investments Corporation s foray into the rental housing market indicates the growing demand for this type of housing. The Philippines leading conglomerate has acquired a 61% stake in Philippines Urban Living Solutions, Inc. (PULS), the operator of MyTown dormitory buildings. At present, PULS manages five buildings offering more than 1,000 beds. For more information: Contributors: Randwil Dinbo Macaranas Senior Research Manager randwil.macaranas@colliers.com Joey Roi Bondoc Research Manager joey.bondoc@colliers.com David A. Young Managing Director Randolf Ilawan Research Assistant Richard Raymundo Deputy Managing Director Copyright 2016 Colliers International. The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. 5 Colliers Quarterly 11 May 2017 PHILIPPINES RESIDENTIAL Colliers International

STABLE OCCUPANCY DESPITE RAMPED UP SUPPLY

COLLIERS QUARTERLY RESIDENTIAL MANILA Q3 2018 20 NOVEMBER 2018 Joey Roi Bondoc Manager Research Philippines +(632) 858 9057 Joey.Bondoc@colliers.com STABLE OCCUPANCY DESPITE RAMPED UP SUPPLY Summary &