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1H2019 in Numbers: What story do the figures tell us?

) Allan Tripon |

In a recent event entitled “Know the Point — Predictions, Opportunities, Insights, News, and Trends,” JLL Philippines — the top real estate consultancy firm in the country — released a report containing key figures regarding the property markets in Metro Manila. An analysis of these numbers provide an interesting insight as to where the property markets are headed.

The 1H2019 Numbers for Metro Manila
The following data regarding Metro Manila’s office property, residential condominium, and retail property markets were found in JLL’s property market report for 2Q2019 (SEE: JLL Reveals Philippines property market will remain vigorous for the second half of 2019, The Philippine Daily Inquirer).

The Metro Manila Office Property Market
The demand for office spaces in Metro Manila continues to be robust, as evidenced by the region’s impressive 94% occupancy rate. As of today, the Information Technology Business Process Outsourcing (IT BPO) industry remains to be the strongest driver of office space demand — occupying a total of 181,000 square meters in the National Capital Region. Hot on its heels, however, is the rapidly growing online gambling industry, which — despite being a relatively new player — is already the second largest occupier of office space, with a total occupied area of 160,000 square meters. Other notable sources of demand are pharmaceutical companies and flexible coworking stations, which occupy 45,100 and 14,400 square meters respectively.

Real estate developers have been working hard to increase the region’s supply in response to the ever growing demand. In fact — in the first half of 2019 alone, the total stock in NCR grew by 336,700 square meters (180,600 sqm in 1Q2019 and 156,100 sqm in 2Q2019) as new office buildings were completed. Several key completions include the PITX Tower 4 in Parañaque (19,200 square meters), Double Dragon Center West in Pasay (17,600 square meters), Filinvest Makati (14,300 square meters), and SM City Fairview Tower 1 (12,600 square meters).

The combination of the robust demand for office space within the Metro and the scarcity of available land and leasable space have led to an increase in rental rates — especially in the capital’s major business hubs such as the Makati Central Business District (CBD) and Taguig’s Bonifacio Global City (BGC). On top of this interplay between supply and demand, the recent trend towards more luxurious and energy efficient offices (LEED and BERDE accredited) has also contributed to the premium prices.

The Metro Manila Residential Condominium Property Market
Demand for condominiums in Metro Manila remains healthy, with an average occupancy rate of 98%. Among the cities in NCR, Pasay City ranked near the top in terms of occupancy due to the high demand from POGO employees. Makati, Pasig, and Taguig also posted impressive occupancy rates — driven by the demand from professionals working in Metro Manila’s three major business districts. In terms of demand driver per price point, high net worth investors — looking to profit from capital appreciation — continue to drive the demand for luxurious condominium units. On the other hand, new middle class families and professionals drive the demand for the more affordable condos in the Metro.

Looking to capitalize on the growing demand, property developers have delivered 2,000 new condominium units in the 2nd quarter of 2019 — with 35,500 more units in the pipeline for the rest of the year. It is interesting to note that the bulk of the new condominium buildings being built are located in Parañaque, near the Bay Area.

The average asset and rental price in the Metro have increased in the past year due to a variety of factors. In some locations, the major price driver is the scarcity of available land. A good example of this phenomenon is Makati City, which has almost completely exhausted its developable area in its CBD. On the other hand, some locations have seen rentals driven up by strong demand from outside sources, such as the rise of online gambling, which has led to an increased demand for condominium units within and around the Bay Area.

The Metro Manila Retail Property Market
Retail continues to be strong in the 70% consumption driven economy of the Philippines, as evidenced by the 97% average occupancy rate of retail spaces in the Metro. The Bonifacio Global City in Taguig posted the highest rate of 98%. On the other side of the spectrum, Pasig had the lowest occupancy of 91% partly due to the newly opened The Podium mall. The demand for retail space have mainly been driven by two segments: (1) Food and Beverage and (2) Fast Fashion. International brands from these two segments have started entering the Philippine market due to the country’s rapidly rising levels of disposable income.

As for the supply side, there are currently 6.5 million square meters of leasable area in the Metro. Majority of this available area is concentrated in Quezon City (27%), Manila (13%), and Pasay (11%). Industry experts estimate that an additional 673,500 square meters will be added to the stock within the next three to four years.

According to the report by JLL, the rent of retail space can range from 1,100 to 2,700 per square meter per month, depending on the location.

The Story
The real estate market data for the first half of 2019 paints a clear picture of the major variables which are affecting and will continue to affect the property markets for the coming years.

IT BPO and POGO as major industry drivers
The biggest driver of the real estate market today and perhaps for the foreseeable future are the strong IT BPO (SEE: Strong BPO industry continues to drive PH office building market, PropertyAccess) and rapidly growing online gaming industries (SEE: POGO: A Major Driver of PH Real Estate Market, PropertyAccess). Together, these industries occupy over 350,000 square meters of office space in Metro Manila alone. This figure is expected to rise even further as PAGCOR approves more POGOs in the coming years.

The effects of these industries are not limited to the office space market either. In fact, the presence of BPOs and POGOs spillover to both the residential and retail segments of the property markets as well. As for the impact on the residential market, data shows that the presence of BPOs and POGOs have a positive effect on the occupancy rates, asset prices, and rental prices of the nearby condominiums. As for the impact on the retail market, the entry of BPOs has significantly increased the disposable income of Filipino workers — leading to greater consumption.