ALTHOUGH the Philippines remain an attractive option to potential investors, the government has to sharpen its focus in solving the inefficient infrastructure system and the sloppy Internet connection.
“Low rental costs can bring investors into the Philippines, but the quality of the infrastructure and the limitations in connectivity can keep the Philippines from sustaining and even improving on its growth,” KMC MAG Group Managing Director Michael McCullough said.
“The government cannot afford to have these issues further impact the ease of doing business and the quality of life. Otherwise, other markets will find a way to take up the slack, and the rest of its advantages will become irrelevant,” McCullough added.
McCullough said the country’s real-estate industry will continue to grow brought by the strong performance of the economy compared to most Southeast Asian counterparts. KMC said the property industry recently posted a record-high quarter for transaction volumes, with an estimated volume of $505 million.
“For the Philippines to be able to compete with the rest of Southeast Asia and the rest of the region, it will have to make transportation and communication easier across the islands, and ensure that this experience is consistent throughout the country,” McCullough said.
Some of the major transactions include SM Prime’s Edsa Guadalupe property (worth P1.6 billion); the Hyundai Balintawak property (worth P1.2 billion); and 8990 Holdings’s Edsa Cubao property (worth P366 million).
“These major transactions have confirmed that strong economic policies and a stable political environment will sustain the real-estate industry,” McCullough pointed out. “While investment banks are scaling down their growth forecasts, we believe that the long-term economic outlook remains positive, which will provide a favorable foundation for the property market.”
Another attraction for foreign investors is the low rental rates. Although there is a strong rental growth, he said Manila offers low prime office rental costs, averaging at P1,510 ($32.30) per square meter, inclusive of taxes and management fees. Manila’s prime office rental costs continue to be lower than some of Asia’s major cities, such as Tokyo, Beijing, Seoul, Ho Chi Minh City, Jakarta, and Hanoi, and is second only to Kuala Lumpur, which has the lowest prime office rental rate in Asia, at P1,289 ($28.20) per sq m.
“Manila’s prime office rental costs, sound macroeconomic conditions and relatively cheap labor costs make a strong argument for the city,” McCullough highlighted. “Multinational companies looking to expand to Southeast Asia or set up another office in Asia should seriously consider Manila as a destination,” he said.
He said another incentive for moving to Manila is the ongoing in ease in rentals brought about by the influx in new supply in Bonifacio Global City and higher vacancy rates in Alabang. “We expect over 430,000 sq m of new office stock by the end of 2015 and a sharp rise in vacancy rates by the second half of 2016. This is good news for tenants looking to move to new spaces. Given the amount of new office supply, landlords may be more open to long-term leases at lower rates,” McCullough said.
“We would advise businesses to look into pre-leasing addresses in the central business districts, while they can still leverage on their increased bargaining power.”
On the retail front, McCullough said international retailers are also eyeing to go to Manila because of the rising purchasing power of the middle class. The Philippine offers the lowest rental costs for prime retail malls, averaging at P2, 300 ($49.20) per sq m, inclusive of taxes and management fees.
McCullough said the country’s high gross domestic product (GDP) is another come-on for local and international retailers. “High GDP growth and an oil price crash have helped fuel private consumption in the Philippines.
In addition, the country continues to benefit from increased remittances from overseas Filipino workers and rising incomes due to a competitive business-processing industry,” McCullough said.
“These factors have helped create a growing middle class that has the spending power to support various retail concepts.”
In response to the increase in personal consumption of the middle class, McCullough said local developers are launching projects within Metro Manila and in the provinces. In Metro Manila, local developers have put 600,000 sq m in the pipeline, with 75.2 percent to be delivered by Ayala Land, SM Prime and Robinsons Land.
McCullough said Cebu is another bright spot in the economy as manifested by the bullishness of developers in shaping the city’s future roadmap. The Ayala Land and SM Prime consortium won the bid for a 26.3-hectare parcel, which was sold for P10 billion, making it the largest single-ticket transaction in the country since late 2013. In the same auction, Filinvest also won the bid for a 19.2-hectare property, sold for P6.7 billion.