Colliers Quarterly Property Market Report Manila 1Q 2016 May 2016 Office sector drives property market growth Julius Guevara Director Research & Advisory Strong macroeconomic fundamentals continue to support the growth of the real estate sector, with continuously robust demand from the BPO market tempering the effects of high levels of office space completions. The retail property sector remains stable on the back of steadily improving purchasing power and consumer confidence. Meanwhile the residential condominium sector begins to show some strain in the face of a deluge of new condo stock. Forecast at a glance Demand BPO demand to continue rising at double digit rates, while residential condo demand will grow steadily in step with a growing economy. Retail may become more challenging as a sharp increase in new shopping center space is anticipated in 2016. Supply Office supply forecasted by the end of 2016 has slipped, but 2016 will still see an all-time high in new supply. Residential condo and retail stock will also rise at elevated rates. Vacancy rate Significant delays in office completions for 2016 will keep vacancies at low levels. On the other hand, Colliers sees residential condominium and retail vacancy rates climbing gradually in the next twelve months. Rent Colliers projects office rents to increase at the same historical growth rates given the pace of demand. Retail rents are also seen to grow steadily. However, condo rents have begun to slide amid a record number of completions this year. The Philippine economy grew by 6.9% in the first quarter of 2016. The growth was primarily driven by increased investments and household expenditures, as well as a rise in public infrastructure spending. Major credit rating firms and multilateral aid agencies are projecting GDP growth between 6% and 6.4% this year. Office Vacancies fell further despite the completion of seven buildings during the first quarter of 2016, which added some 156,000 sq m of office space in Metro Manila. With an estimated 640,000 sq m of new office space expected to be completed this year, a slight increase in office space vacancy across the major business districts of Metro Manila is anticipated. The increase, however, will be tempered by steady demand for office space fueled by BPO companies. Residential Only three residential projects were completed in Metro Manila during the first three months of the year, all located in Fort Bonifacio. For the rest of the year, Colliers expects that an additional 11,700 units will be delivered in the major CBDs, with half of the new units located in Fort Bonifacio. With the delivery of these new units over the next 12 months, rental rates in the major districts are expected to decline. Retail Metro Manila retail stock reached a total of 6.12 million as of the first quarter of 2016. Retail projects completed during the past six months include Circuit Lane Makati, SM Center Sagandaan, Uptown Parade Mall, Uptown Mall, and the retail podium of Shangri-La at the Fort. Rising household incomes due to expanding Business Process Outsourcing (BPO) and manufacturing sectors, robust OFW remittances, a low inflationary environment, increasing employment opportunities, and stable political conditions all point to a positive medium term outlook for the Philippine retail sector.
Economy up 6.9% in 1Q 2016 The Philippine economy grew by 6.9% in the first quarter of 2016, faster than the 5% growth recorded in the same period last year. The growth was primarily driven by increased investments and household expenditures; and ramped up public infrastructure spending. Fixed capital formation, which represents combined domestic and foreign investments, soared by 23.8% YoY. Household consumption, which accounts for three-fourths of the country s GDP, rose by 7%; while public construction, mainly driven by election-related spending, posted an outstanding growth of 4, a huge turnaround from a 23% contraction recorded in the same period in 2015. The industry sector grew at a faster rate of 8.7% on the back of robust mining (+11.3%), construction (+10.8%), and manufacturing (+8.1%) subsectors. The services sector posted a 7.9% growth while agriculture declined by 4.4% due to the adverse effects of El Niño phenomenon. Inflation rose to 1.1% for the first three months of the year from 1% in 4Q 2015. Despite this, the inflation rate for the period under review is still below the low end of the government s announced annual inflation target of 2-4% for 2016-2018. The country s employment rate has been improving given the increase in the number of jobs created due to the resurgence of the manufacturing sector; continual demand for BPO employees as existing firms expand while more companies establish operations in the country; and ramped-up infrastructure spending partly fueled by election-related expenditures. Results of the Philippine Statistics Authority s (PSA) January 2016 Labor Force Survey (LFS) showed that the number of employed Filipinos rose from 38.4 million in January 2015 to 39.2 million in January 2016. The number of manufacturing and construction-related jobs rose by 800,000 YoY to 6.43 million while the wholesale and retail trade subsector employed 7.55 million workers in 2015 from 7.06 million in the previous year. Meanwhile, the total employees under the accommodation and food service activities group reached 1.79 million from 1.70 million a year ago. The demand for additional jobs in the latter was partly driven by increased spending from both foreign and local tourists and the Filipinos rising preference for dining out which is greatly influenced by their evolving working practices. Major economic growth drivers for 2016 include the implementation of major infrastructure projects particularly those under the public-private partnership (PPP) program; new manufacturing projects from China, Japan, and other Southeast Asian economies; continued remittance and BPO revenue growth; lower fuel prices; and election-related spending. Economic Indicators Indicator 2015 1Q 2016 Gross National Product 6.10 6.00 6.50 8.40 3.20 6.40 7.50 5.80 5.80 7.60 Gross Domestic Product a 6.60 4.20 1.10 7.60 3.90 6.80 7.20 6.10 5.90 6.90 Household Final Consumption Expenditure 4.60 3.70 2.30 3.40 6.10 6.60 5.70 5.40 6.30 7.00 Government Final Consumption Expenditure 6.90 0.30 10.90 4.00 1.00 15.50 7.70 1.70 7.80 10.00 Capital Formation -0.50 23.40-8.70 31.60 8.10-5.30 29.90 5.40 15.10 23.80 Exports 6.70-2.70-7.80 21.00-4.20 8.50-1.10 11.30 9.00 6.60 Imports 1.70 1.60-8.10 22.50 0.20 4.90 5.40 8.70 14.00 16.20 AHFF b 4.70 3.20-0.70-0.20 2.70 2.80 1.10 1.60 0.10-4.40 Industry 5.80 4.80-1.90 11.60 2.30 7.30 9.30 7.90 6.00 8.70 Services 7.60 4.00 3.40 7.20 5.10 7.40 7.20 5.90 6.80 7.90 Average Inflation c 2.90 8.30 4.10 3.90 4.60 3.20 3.00 4.10 1.40 1.10 Budget Surplus/Deficit (PHP Bn) -12.40-68.10-298.50-314.40-197.70-242.80-164.10-73.09-121.70-3.47 d PHP:US$ (Average) 46.10 44.70 47.60 45.10 43.31 42.09 42.45 44.40 45.40 47.29 Average 91-Day T-Bill Rates (%) 3.40 5.20 4.00 3.70 1.37 1.58 0.32 1.24 1.80 1.56 Source: Philippine Statistics Authority, Bangko Sentral ng Pilipinas, Bureau of the Treasury a at constant 2000 prices b Agriculture, Hunting, Forestry, Fishing c at constant prices d as of January 2016 *revised figures 2 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
1995 1996 1997 1998 1999 2000 2015 2016 billion USD 1996 1997 1998 1999 2000 4Q16F 1Q17F PHP / sq m OFW remittances for the first two months of the year reached USD 4.6 billion, up 6.1% from USD 4.3 billion recorded in the same period last year. Analysts are confident that OFW remittances will weather the adverse effects of the oil price reductions on the Gulf economies. The central bank is projecting a 4% growth in remittances for this year. Major credit rating firms, foreign banks and multilateral aid agencies are projecting a GDP growth of between 6% and 6.4% this year. Under the Aquino presidency GDP growth was at 6.2% per annum, the fastest recorded in the past 40 years. Despite this the economic growth has not been inclusive, with the Philippines having the highest unemployment and poverty rates amongst ASEAN-6. The Philippine peso (PHP) continued to depreciate against the U.S. dollar (USD) during the first three months of the year, reaching PHP47.3 from PHP45.5 at the end of 2015. Consensus forecasts put exchange rates at a higher PHP46 to PHP47 range by end-2016. Among the factors seen to temper depreciation pressures this year are foreign exchange inflows from OFW remittances, BPO revenues, tourism receipts, and foreign direct investments. In 2015, Filipinos working abroad remitted a total of USD28.5 billion, up 4.4% than the previous year s level and exceeding the central bank s projection of 4% growth for 2015. For this year the central bank is also expecting OFW remittances to grow by 4% on the back of steady deployment of Filipino workers, greater diversification of country destinations, and shift to higherskilled types of work. OFW remittances are expected to weather the adverse effects of the oil price slowdown. OFW Remittances* 30 25 20 15 2.47% in December. By end-2015, real estate loans for commercial use represented two-thirds of the total or PHP860.49 billion while residential loans covered the remaining 33% or PHP446.12 billion. Land values to grow between 5% and 7% in the next twelve months Land Values 600,000 500,000 400,000 300,000 200,000 100,000 0 Makati CBD Fort Bonifacio Ortigas Land values in major business districts continue to increase. Land values in Makati CBD averaged PHP523,000 per sq m during the first quarter of 2016, up by 4.6% QoQ. This is slower than the 7.9% growth recorded in the fourth quarter of 2015. Land values also accelerated in Alabang, Fort Bonifacio, and Ortigas. The value of land in Fort Bonifacio averaged PHP445,000 per sq m, up by 6.7% QoQ. The value of Alabang lots recorded the fastest growth at 4.6% to PHP123,000 per sq m from PHP117,946 in the previous quarter. Prices in Ortigas Center averaged PHP189,000, up by 5.3% QoQ, up from 4% growth posted in the previous quarter. Land values in the major CBDs are projected to grow between 5% and 7% over the next 12 months. 10 5-1Q 2Q 3Q 4Q Source: Bangko Sentral ng Pilipinas *as of February 2016 Strong macroeconomic fundamentals continue to support the increased appetite for real estate loans, which grew by 26% from PHP1.04 trillion in December to PHP1.31 trillion at the end of December 2015. The proportion of non-performing real estate loans declined to 2.08% as of the fourth quarter of 2015 from 3 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
1995 1996 1997 1998 1999 2000 2015 2016 number of units Comparative Land Values (PHP / sq m) LOCATION 4Q 2015 1Q 2016 % CHANGE (QoQ) 1Q 2017F %CHANGE (YoY) Makati CBD 363,000-637,000 378,000-668,000 4.59 404,000-715,000 6.93 Fort Bonifacio 292,000-542,000 315,000-575,000 6.70 336,000-612,000 6.49 Ortigas Center 135,200-223,700 141,000-237,000 5.25 150,000-252,000 6.36 Compliance with balanced housing requirement drives property license applications The total number of licenses to sell issued by the Housing and Land Use Regulatory Board (HLURB) for the first quarter of 2016 grew by 77% to 85,470 from 48,411 during the same period last year. Growth was recorded across all segments, except for Farmlot and Industrial Subdivision categories as no applications were recorded during the period under review. The number of units applied for by developers to comply with the balanced housing unit requirement was a major contributor to the growth, rising by 414% YoY to 9,104 from a mere 1,772 in the same period last year. This indicates that developers of main subdivision projects are now more aggressive in complying with the government s requirement of developing an area for socialized housing equivalent to at least 2 of the total subdivision area. Other segments that registered robust growth include Open Market Housing (+232%), Low-Cost Condominium (+181%), and Commercial Subdivision (+124%). Socialized Housing recorded an 81% growth YoY, with the number of new applications for the first three months doubled to 1,566 units from 795 while those in the Economic housing grew by a modest 44% to 13,845 units. Applications under the Commercial Condominium segment barely changed from 972 units to 991. This is far from the growth recorded under the same segment in the 1st quarter of 2015 where applications rose by almost two-fold to 972 units from 336. The number of new applications under memorial parks category soared by 93% to 21,459 units from 11,097. HLURB Licenses to Sell 500,000 450,000 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000-1Q 2Q 3Q 4Q YoY Change (RHS) Source: Housing and Land Use Regulatory Board 8 6 4 2-2 -4-6 HLURB Licenses to Sell SEGMENT JAN MAR '15 JAN - MAR '16 % CHANGE (YoY) Balanced Housing Compliance Units 01,772 09,104 414 Socialized Housing 03,763 06,816 081 Economic Housing 09,637 13,845 044 Mid-Income Housing 00,795 01,566 097 Open Market Housing 03,589 11,904 232 Low-Cost Condominium 00,486 01,365 181 Mid- and High-End Condominium 10,820 12,805 018 Commercial Condominium 00,972 00,991 002 Farmlot 00,040 - -100 Memorial Park 11,097 21,459 093 Industrial Subdivision 00,019 - -100 Commercial Subdivision 00,063 00,141 124 TOTAL (Philippines) 48,411 85,470 077 Source: Housing and Land Use Regulatory Board 4 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
2000 2015 2016F 2017F 2018F 2019F NUA (sq m) Office Fort Bonifacio accounts for bulk of new office supply Seven buildings were completed during the first quarter of 2016, adding some 156,000 sq m of office space in Metro Manila. Three buildings were completed in Fort Bonifacio that delivered an additional 81,700 sq m of office space, accounting for more than half of the total amount of net usable area completed during the period. These buildings are BGC Corporate Center (22,600 sq m), Bonifacio Stopover (31,400 sq m), and Uptown Place Tower Two (27,700 sq m). Two buildings were completed in the North EDSA Triangle area that delivered a combined 57,700 sq m of additional office space, raising North EDSA Triangle s office stock by 17% QoQ. Other buildings that went online during the period include AO United Life Building (5,100 sq m) in Makati and Southkey Building (11,700 sq m) in Alabang. Substantial office supply tempered by strong demand Overall vacancy in the Makati CBD decreased to 1.7% in the first quarter of the year from 2% in 4Q 2015. Premium office space vacancy was stable at 0.31% as vacancy rise in the Philamlife Tower was offset by the additional take-up in Enterprise Centre. Grade A vacancy improved to 4.6% from 6.1% due to strong leasing in Ayala Life-FGU Insurance Center and Petron Megaplaza. Vacancy rate in Grade B buildings was practically unchanged at 1.05%. Other major business districts also recorded strong occupancy during the first quarter of the year. Fort Bonifacio s vacancy level improved significantly to 2.6% from 6.1% in the previous quarter due to strong leasing in Grade A buildings such as One World Place and Net Park. Vacancy in Grade B buildings dropped to 1.4% from 3.8% in the previous quarter. Ortigas Center also registered a lower vacancy rate of 1.1% from 1.5% in the last three months of 2015.The improvement is attributed to robust take up in both Grade A and Grade B buildings. Makati CBD vs. Metro Manila Office Stock 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - Makati CBD Stock (LHS) Total Stock YoY Change (RHS) Makati CBD Comparative Office Vacancy Rates (%) GRADE 4Q 2015 1Q 2016 1Q 2017F Premium 0.30 0.31 1.06 Grade A 6.07 4.58 5.50 Grade B & Below 1.06 1.05 1.50 All Grades 1.99 1.68 2.00 Metro Manila Stock (LHS) 12% 1 8% 6% 4% 2% Forecast New Residential Supply (in sq m Net Usable Area) LOCATION AS OF * 2015 2016F 2017F 2018F 2019F TOTAL Makati CBD 2,862,118 0(9,084) 005,143 019,900 040,300 012,240 02,930,618 Ortigas Center 1,298,773 081,509 059,353 015,767 047,068 174,500 01,676,969 Fort Bonifacio 0,984,802 185,701 318,967 404,097 200,797 038,066 02,132,431 Eastwood 0,300,264 - - - 028,220-00,328,484 Alabang 0,378,271 018,270 035,562 086,156 058,271-00,576,530 Mandaluyong 0,284,550 - - 114,576-072,900 00,472,026 North EDSA-Triangle 0,336,546 005,681 101,414 134,587 091,230 080,240 00,749,699 Pasay City Reclamation 0,186,203 071,219 081,898 025,385 064,590 072,900 00,502,195 Other locations** 0,399,886 126,867 038,030 117,720 228,907 039,245 00,950,656 TOTAL 7,031,413 480,164 640,367 918,189 759,383 490,092 10,319,608 *Revised figures **Manila, Pasay, Quezon City, and other fringe locations 5 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
2000 4Q16F 1Q17F PHP / sq m / month 2000 2015 2016F 2017F NUA (sq m) Slower office rental rate growth across major business districts Rental rates in premium buildings in the Makati CBD recorded a slower growth during the first quarter of the year, at 0.79% to PHP1,280 per sq m a month, from a 1.6% increase in the previous quarter. Rental rates in Grade A buildings grew by 0.2% to PHP 915 per sq m while rents in Grade B buildings increased by 0.3% to PHP719 per sq m. In Fort Bonifacio, rental rates for Grade A buildings rose to PHP 894 per sq m, up 1.2% QoQ. Rents in Grade B buildings grew by 1% from PHP761 per sq m to PHP768 per sq m a month. Ortigas Center Grade A buildings commanded a rental rate of PHP663 per sq m from PHP660 in the previous quarter while Grade B buildings rates rose by 0.3% to PHP581 from PHP579. Makati CBD Office Supply and Demand 200,000 150,000 100,000 50,000 - (50,000) (100,000) New Supply During Year (LHS) Vacancy at Year-End (RHS) Take-up During Year (LHS) 2 18% 16% 14% 12% 1 8% 6% 4% 2% Comparative Office Rental Rates (PHP / sq m / month) Makati CBD (based on net useable area) GRADE 4Q 2015 1Q 2016 % CHANGE (QoQ) 1Q 2017F %CHANGE (YoY) Premium 1,120-1,420 1,130-1,430 0.79 1,190-1,520 5.95 Grade A 720-1,100 730-1,110 0.22 760-1,160 4.58 Grade B 595-839 597-840 0.34 630-890 5.75 Office capital value growth outpaces rental rate increase For the first quarter of the year, average capital values for Premium Makati buildings reached PHP174,779, up 4.8% QoQ. Grade A office values rose by 5.6% to PHP135,232 from the average value of PHP128,079 in the fourth quarter of 2015. Makati Grade B buildings posted a growth rate of 5% to end up with an average value of PHP84,667. Grade A capital values in Fort Bonifacio averaged PHP131,352, up 4.6% QoQ. On the other hand, Grade B capital values reached PHP100,393, a 4.4% increase from the previous quarter. Ortigas Center Grade A office space capital values increased by 3.6% to PHP84,032 while Grade B capital values averaged PHP68,229, a 3.7% increase QoQ. Capital values for Premium and Grade B Makati buildings are projected to grow Makati CBD Office Capital Values 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Premium Grade A Grade B/B- between 8% and 1 over the next 12 months while those for Grade A segment are seen to rise by 1%. Office prices in Fort Bonifacio for both Grades A and B are seen to grow by 8.5%. Meanwhile, Ortigas Center capital values are expected to increase by a tenth over the next 12 months. Comparative Office Capital Values (PHP / sq m / month) Makati CBD (based on net useable area) GRADE 4Q 2015 1Q 2016 % CHANGE (QoQ) 1Q 2017F %CHANGE (YoY) Premium 154,300-179,100 161,400-188,100 4.81 175,700-204,700 8.83 Grade A 89,700-128,100 94,800-135,200 5.58 104,100-148,600 1.01 Grade B 65,600-95,700 68,900-100,400 4.98 75,800-110,300 9.89 6 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
2000 4Q16F 1Q17F 2000 4Q16F 1Q17F number of units Residential Record condo completions anticipated in 2016 In the five major districts in Metro Manila, only three residential projects were completed during the first three months of the year, with three projects (two in Makati and one in Fort Bonifacio) sliding on their completion dates. The completed projects are all located in Fort Bonifacio The Venice Luxury Residences-Dominico Tower (330 units), The Venice Luxury Residence-Carusso Tower (330 units), and Viceroy McKinley Hill (320 units). The Dominico and Carusso Towers are additional towers to the Megaworld s Venice Luxury Residences project that was launched in the last quarter of. For the rest of the year, Colliers expects that an additional 11,700 units will be delivered in the major CBDs based on developer completion announcements. Almost half of the new units will be located in Fort Bonifacio, while about 3 will be in Makati CBD. Makati CBD Residential Stock 30,000 25,000 20,000 15,000 10,000 5,000 - Residential Stock (LHS) YoY Change (RHS) Among the projects expected to be completed for the remainder of the year include One Eastwood Avenue Tower 1 in Eastwood City; Arya Residences Tower 2, Avida Towers BGC 34th Street Tower 1, and Viceroy Mckinley Hill Tower 2 in Fort Bonifacio; The Lerato Tower 2, Alphaland Makati Place, and Eton Tower in Makati; and The Sonata Premier Residences and Avant Garde Residences in Ortigas. 25% 2 15% 1 5% Forecast Residential New Supply LOCATION AS OF 2015 2016F 2017F 2018F 2019F TOTAL Makati CBD 18,337 1,000 03,660 3,450 1,072 0,598 028,117 Rockwell 04,159 - - 0,346 0,492 0,269 005,266 Fort Bonifacio 19,427 2,779 06,730 4,125 3,129 2,482 038,672 Ortigas 13,820 2,430 01,355 0,899 0,422 0,570 019,496 Eastwood 07,548-00,988-0,632-009,168 TOTAL 63,291 6,209 12,733 8,820 5,747 3,919 100,719 Makati CBD Comparative Residential Vacancy Rates (%) GRADE 4Q 2015 1Q 2016 1Q 2017F Luxury 5.95% 8.33% 8.98% Others 9.36% 9.76% 10.51% All Grades 8.93% 9.58% 10.84% Makati CBD Residential Vacancy 18% 16% 14% 12% 1 8% 6% 4% 2% Makati CBD Residential Vacancy 7 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
4Q16F 1Q17F PHP / sq m / month Makati CBD condo vacancy up due to substantial additional supply in neighboring areas Residential condominium vacancies in Makati CBD rose to 9.6% as take up slowed amid no additions in the residential stock in the previous quarter. While no new condominiums were completed in Makati CBD, the newer inventory being introduced in other areas such as Fort Bonifacio and Makati Fringe has been leading to an increase in vacancies. Premium buildings posted the highest increase in vacancy to 8.3% from 6%. Vacancy in Grade A buildings increased to 7.4% from 6.7% while vacancy in Grade B segment was unchanged at 13.6%. Makati CBD s vacancy is projected to rise to 10.8% over the next 12 months. Fort Bonifacio s overall vacancy was practically stable at 8.6% as demand kept pace with the increase in supply. Tenants also preferred the condominium units offered in the area as they are relatively larger compared to the units being delivered in other business districts. However, Fort Bonifacio s vacancy is expected to increase to 9.6% by end-2016 due to the completion of significant amount of new condominium units. Meanwhile, vacancies in Ortigas Center improved to 8.5% from 10.4% in the previous quarter. Vacancies in Ortigas Center are projected to hover between 8.6% and 9.1% in the next 12 months. An increase in vacant units in both Premium and Grade A segments pushed Rockwell s vacancy rate to 3.9% in the first quarter of the year from 3.4%. Residential rental rates soften across CBDs, except Ortigas Stable residential supply coupled with slow absorption resulted in a slight softening in rental rates in Rockwell. The business district s rental rate for the first 3 months of 2016 dropped by 0.5% to PHP958 per sq m from PHP963 per sq m. Slower take up in Makati CBD amid the additional supply also resulted in rental rate decline. As such, rates in the business district dropped by 1.6% to 869 per sq m. A similar trend was recorded in Fort Bonifacio as monthly rental rate dropped by 2% to PHP873 per sq m from PHP891 per sq m. Rents in Fort Bonifacio posted the biggest decline during the period under review. Meanwhile, strong take up in Ortigas Center put upward pressure on rental rates. From January to March of this year, condominium units in the business district commanded PHP516 per sq m, up 2% from PHP506 in the previous quarter. With the delivery of additional condominium units over the next 12 months, rental rates in Fort Bonifacio are projected to decline by 2%. Rental rates in Makati CBD, which will corner about 3 of the additional units this year, will decline by 3.2%. Meanwhile, Ortigas Center rents are projected to drop by 2.7% over the next 12 months. Makati CBD Comparative Residential Lease Rates for Exclusive Villages (PHP / mo) 3BR - 4BR, Unfurnished to Semi-Furnished VILLAGE LOW HIGH Forbes Park 250,000 650,000 Dasmarinas Village 230,000 600,000 Urdaneta Village 250,000 360,000 Bel-Air Village 230,000 350,000 San Lorenzo Village 140,000 250,000 Magallanes Village 150,000 250,000 Ayala Alabang Village 130,000 280,000 Prime 3BR Units Residential Rents 1200 1000 800 600 400 200 0 Makati CBD Rockwell Fort Bonifacio 8 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
4Q16F 1Q17F PHP / sq m / month Metro Manila Residential Condominium Comparative Luxury 3BR Rental Rates (PHP / sq m / month) LOCATION 4Q 2015 1Q 2016 % CHANGE (QoQ) 1Q 2017F % CHANGE (YoY) Makati CBD 600-1,200 590-1,100-1.63 570-1,110-3.22 Rockwell 814-1,112 810-1,106-0.51 800-1,097-0.84 Fort Bonifacio 690-1,094 670-1,073-1.97 661-1,051-1.99 Residential capital value growth declines Capital values for Makati CBD residential property grew by 0.2% to PHP151,622 per sq m from an average of PHP151,323 in the last quarter of 2015. Rockwell values also rose by 0.2% to a range of between PHP122,000 and PHP203,000 per sq m. Premium units in the business district still command the highest average prices and values are expected to grow by 2% over the next 12 months. Fort Bonifacio values posted the highest growth during the period under review, rising by 2.6% to end up with an average price of PHP150,000 per sq m. Colliers expects values in Makati CBD and Ortigas to grow between 2.4% and 3% over the next 12 months. Prime 3BR Units Residential Capital Values 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Makati CBD Rockwell Fort Bonifacio Comparative Residential Lease Rates (High-Rise) 3BR, Semi-Furnished to Fully Furnished LOCATION MINIMUM AVERAGE MAXIMUM Apartment Ridge/Roxas Triangle Rental Range (PHP / mo) 150,000 200,000 300,000 Average Size (sq m) 286 303 330 Salcedo Village Rental Range (PHP / mo) 100,000 175,000 260,000 Average Size (sq m) 165 234 332 Legaspi Village Rental Range (PHP / mo) 130,000 200,000 250,000 Average Size (sq m) 142 206 296 Rockwell Rental Range (PHP / mo) 140,000 180,000 250,000 Average Size (sq m) 127 189 285 Fort Bonifacio Rental Range (PHP / mo) 120,000 200,000 260,000 Average Size (sq m) 138 223 310 Metro Manila Residential Condominium Comparative Luxury 3BR Capital Values (PHP / sq m / month) LOCATION 4Q 2015 1Q 2016 % CHANGE (QoQ) 1Q 2017F % CHANGE (YoY) Makati CBD 106,400-196,200 106,600-196,600 0.20 109,100-201,100 2.35 Rockwell 121,700-202,100 121,700-202,100 0.19 124,300-206,500 1.97 Fort Bonifacio 114,700-185,400 114,700-185,400 0.00 117,900-190,700 2.83 9 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
Retail New compact malls raise stock, convenience of retail shopping Metro Manila total retail stock reached 6.12 million as of the first quarter of 2016, increasing by about 107,000 sq m over the past six months. Retail projects completed during the past six months include Circuit Lane Makati, SM Center Sagandaan, Uptown Parade Mall, Uptown Mall, and the retail podium of Shangri-La at the Fort. The recentlycompleted projects are all classified as neighborhood and district centers. The opening of neighborhood and district retails projects has been the trend since, with only one new regional (Fairview Terraces) and one super-regional (Fisher Mall) mall completed the past 27 months. This can be attributed to the lack of developable land, with much of the available land now being used to build more office and residential buildings. The development of smaller retail establishments has also raised the level of convenience of retail shopping, as neighborhood and district malls primarily cater to a specific and immediate segment of the population. The bias towards the development of smaller retail spaces alongside residential projects also reflects the changing preferences of working Filipinos that is partly influenced by their evolving lifestyles. More than 700,000 sq m of retail space is expected to be added to Metro Manila s stock by the end of the year. Among the major projects are the expansion of SM Mall of Asia, Festival Supermall, and SM Bicutan. Ayala Land is further raising its retail footprint in the Metro with the completion of five malls that will deliver close to 160,000 sq m of additional retail space. Metro Manila Comparative Retail Vacancy Rates (%) CLASSIFICATION 3Q 2015 1Q 2016 Super-regional 0.41 0.41 Regional 1.58 1.31 Regional and super-regional malls at near full occupancy Super-regional malls in Metro Manila are at near full occupancy, registering a vacancy rate of 0.41%, unchanged from the vacancy rate posted during the third quarter of 2015. Regional malls vacancy rate, meanwhile, further decreased to 1.3% from 1.6% in the third quarter of 2015. Regional malls vacancy rates have significantly improved since the first quarter of 2015. Occupancy will remain high over the next 12 months given the urban population s rising disposable incomes, aggressive expansion of current retailers, and continued influx of foreign retail brands. Average rents in Ayala Center reached PHP1,505 per sq m a month, up 1.3% from PHP1,485 per sq m posted in the fourth quarter of 2015. Ortigas Center rental rates averaged PHP1,353, an increase of 1.8% from the fourth quarter of last year. Colliers is projecting retail rents in Ayala Center and Ortigas Center to grow by about 5% by the end of the year. Retail Stock Metro Manila CLASSIFICATION 3Q 2015 1Q 2016 % CHANGE (QoQ) 1Q 2017F % CHANGE (YoY) Super-regional 3,657,635 3,657,635 0.0 3,961,435 8% Regional 1,037,411 1,037,411 0.0 1,172,942 13% District/Neighborhood 1,317,087 1,387,776 5.37% 1,681,376 21% All Levels 6,012,132 6,082,821 1.18% 6,815,752 12% 10 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
PHP / sq m PHP / sq m Makati Monthly Retail Rents 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Ortigas Monthly Retail Rents 1,600 1,400 1,200 1,000 800 600 400 200 0 (Makati) Monthly Rent (LHS) (Ortigas) Monthly Rent (Makati) YoY Increase (RHS) (Ortigas) YoY Increase (RHS) Consumer confidence at a recordhigh Retail trade is expected to grow further over the short-term given the robust consumer spending, which represents more than 7 the country s gross domestic product (GDP). This is one of the largest in the world compared to the global average of about 6. The Economist Intelligence Unit (EIU) is projecting retail spending in the country to grow by about 1 per year from 2016 to 2019. Retail spending will continue to be propelled by two major growth drivers, OFW remittances and BPO revenues. The central bank is projecting remittances from Filipinos working abroad to grow by 4% to USD 29.6 billion in this year. Meanwhile, BPO revenues are projected to reach about USD 24.5 billion this year from a little less than USD 22 billion in 2015. The sector s full-time employees (FTEs) are expected to reach 1.2 million from 1.1 million in 2015. 15% 1 5% -5% -1-15% -2 12% 1 8% 6% 4% 2% Consumer outlook over the next 12 months remains positive. Consumer confidence is at a record-high, with confidence index recorded in the first quarter of 2016 matching the all-time high posted in 2Q since the poll started in. The central bank said the respondents attribute their higher optimism to the availability of more jobs; stable prices of commodities; and influx of more investors in the country. The confidence is also attributed to oil price rollback; implementation of social protection programs such as Pantawid Pamilyang Pilipino Program (4Ps); good governance; improvements in infrastructure; peace and order; and anticipated election of new government officials. The central bank poll noted that consumers generally anticipate lesser household expenses as well as an increase in household income and savings which could translate to growth in real income and higher purchasing power of the household. Positive medium term outlook for retail Rising household incomes due to expanding Business Process Outsourcing (BPO) and manufacturing sectors; robust OFW remittances; a low inflationary environment; increase in employment opportunities; and stable political conditions all point to a positive medium term outlook for the Philippine retail sector. The two growth drivers will be complemented by low inflation rate and increase in the number of jobs to be created this year. The sustained growth in retail spending has provided the impetus for convenience store operators to expand their reach and capture a larger fraction of the urban population. According to the EIU s latest Retail Industry report the local franchisee of 7- Eleven is planning to operate 2,000 branches by end-2016 from about 1,340 stores as of the first quarter of 2015. Family Mart, which opened its 100th store in March last year, is planning to open between 600 and 700 additional branches in 3 years. Meanwhile, Puregold has partnered with Japan s Lawson to open 75 convenience stores this year and put up an additional 400 branches by 2020. The retail sector remains an important part of the local economy, accounting for an estimated 15% of GDP. The current retail market is characterized by a shift from traditional units such as sari-sari (village) stores to more organized forms like supermarkets and convenience stores. Sari-sari stores are expected to 11 Colliers Quarterly Market Report 1Q 2016 Colliers International Manila
2015 remain buoyant as they target a niche market (i.e. small, local communities), but they will be facing tighter competition from convenience stores as these expand to more towns experiencing rapid urbanization. Consumer Spending Growth Rate (%) 8% 7% 6% 5% 4% 3% 2% 1% Source: Philippine Statistics Authority A number of areas where retailers could find alternative growth include planned communities where consumption-oriented young workers and business process outsourcing (BPO) firms thrive. The local retail sector will become more competitive over the short-run as more foreign brands enter the market as a result of the full implementation of the ASEAN economic integration. This is also an opportunity that local players could take advantage of as they could acquire franchises or partner with foreign brands using their familiarity of the domestic market to their advantage. A stiffer competition among retailers should also develop the productivity, creativity and innovation of players, thus resulting in further developments in brands, concepts and retail trends. Moreover, relaxation of foreign ownership restrictions in key economic sectors such as land ownership and further liberalization of retail trade are expected to sustain the local retail sector s growth over the medium term. For more information: Julius Guevara Director Research & Advisory +632 858 9050 julius.guevara@colliers.com Joey Roi Bondoc Research Manager Research & Advisory +632 858 9057 joey.bondoc@colliers.com Randolf Ilawan Research Assistant Research & Advisory +632 858 9068 randolf.ilawan@colliers.com David Young Managing Director Philippines +632 888 9988 david.a.young@colliers.com 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.