“The Philippines’s real-estate market remains healthy,” said emerging Trends in Real Estate Asia Pacific 2018. “Manila growth may be held back by lack of good partners and political controversies.”
My good friend and entrepreneurial visionary John Aguilar, president and founder of StreetPark Productions Inc., recently called me the real-estate evangelist and I have to say it’s not without help. Annually, the Urban Land Institute (ULI) opens the year with the emerging trends in real estate and this year was no exception. Rankings may have gone down, but fundamentals remain strong.
The Philippines market remains healthy, with both rents and capital values continuing to trend upward, amid an infrastructure boom and strong economic growth, according to this year’s Emerging Trends in Real Estate Asia Pacific 2018 report, a real estate forecast jointly published by the ULI and PwC.
Emerging Trends provides an outlook on Asia Pacific real-estate investment and development trends, real-estate finance and capital markets, and trends by property sector and metropolitan area. It is based on the opinions of more than 600 real-estate professionals, including investors, developers, property company representatives, lenders, brokers and consultants. The 12th edition of the publication was formally launched in Manila on January 18, with the support of Santos Knight Frank, Sun Life Financial Philippines and PwC Philippines. The report was presented by ULI Senior Content Adviser and Orca Capital founder Ariel Shtarkman.
However, concerns over US base rate increases, together with domestic political issues, have been a drag on sentiment among foreign investors, as have long-standing difficulties in finding good local partners with whom to work.
Manila was ranked 18th in investment, 19th in development in the report, lower than in recent years. In recent years, office demand in the Philippines has been driven by the phenomenally successful business-process outsourcing sector. Although growth in this area has slowed, office fundamentals continue to be very strong. Vacancies are low, while rent and capital values in the first half of 2017 are up a healthy 5.3 percent and 8.6 percent, respectively, year-on-year, according to JLL. Land prices, meanwhile, rose between 25 percent and 33 percent in the most popular areas of the city.
“While the Manila market remains healthy and strong, it presents a lot of challenges for real-estate investors and developers. Land and construction costs continue to appreciate, while the volume of supply tempers rental rates and sales pricing, resulting in narrowing margins,” said Raymond Rufino, chairman of ULI Philippines and copresident of The Net Group.
Alex Cabrera, chairman and senior partner of PwC Philippines, is likewise optimistic on Manila. “The Philippines’s 2017 economic growth of 6.7 percent and thriving infrastructure projects have influenced the rise in rents and capital values. Although overseas investors’ outlook have been dented by political controversies, PwC’s 2017 Apec CEO Survey shows that Philippine CEOs are more likely to raise domestic investment.”
Looking at the Asia-Pacific region as a whole, of all the influences shaping investment flows in Asian real-estate, it is excess liquidity that is seen as having the biggest effect. Local sovereign and institutional funds bearing stockpiles of accumulated cash are buying property, both regionally and globally, creating competition for assets that is changing investment patterns in fundamental and often unexpected ways.
Changes include the realignment of traditional risk/return classifications, changing expectations over returns, the convergence of core and opportunistic investors on the value-add space, and investor migration into alternative asset classes and new markets that in the past were of little interest, including data centers, affordable housing projects, build-to-rent (or coliving) facilities and student and senior housing.
Other areas of focus include a boom in coworking facilities, concerns about how the Asian retail sector will weather e-commerce challenges, an ongoing exodus of money from Asian institutions into international markets.
This year’s investment prospect rankings reflect the growing divergence between investment strategies as buyers pursue either growth- or yield-driven approaches. Cities that are the biggest gainers in this year’s survey are those where investors seek to maximize returns via rental growth (Sydney and Melbourne), those that look for returns that are safe and low, but still higher than yields on sovereign bonds (Tokyo), or those that tap long-term secular growth in emerging markets (Vietnam). In addition, there was resurgence in investor sentiment toward Singapore, which appears to have found a bottom in both the office and residential sectors. In terms of prospects for individual property types, logistics assets take pole position this year, with investors showing renewed confidence in a story of long-term structural undersupply.
The top 5 markets for investment and development in 2018:
- Sydney (first in investment, first in development)—Sydney’s appeal lies in the fact that it is a major city in a mature economy that combines a reasonably deep and liquid market of core assets, with a better-than-average yield.
- Melbourne (second in investment, third in development)—Melbourne’s appeal as an investment destination is very similar to Sydney’s: a mature market, high-quality core assets and relatively good yields by Asian standards.
- Singapore (third in investment, sixth in development)—After two years of declining rents caused by a sluggish economy and a glut of supply, the promise of a bottom in Singapore’s office market has caused its ranking to soar from next-to-bottom last year to third in this year’s table.
- Shanghai (fourth in investment, fourth in development)—Shanghai is seeing an increase in transactions driven partly by surging demand from domestic buyers who have been barred from exporting capital as a result of a government regulatory crackdown, and partly by foreign core funds flush with new capital they need to deploy.
- Ho Chi Minh City (fifth in investment, second in development)—With an economic trajectory thought to be similar to an early-day China, Vietnam is seeing large regional developers and an increasing number of private equity funds betting it will offer up a repeat of the Mainland China experience in terms of property price inflation.