THE COUNTRY’S biggest property developers are embarking on massive capital expenditure (capex) programs this year, with the strong economy seen sustaining the strong demand for office space, according to the Philippine associate of global property advisor Savills.
In a briefing yesterday, Antton Nordberg, research and consultancy manager at KMC MAG Group, said real estate firms — mostly listed in the Philippine Stock Exchange — could spend an all-time high of P369 billion this year, surpassing the record investment of P360 billion last year by 2.5%.
“Developers are encouraged to spend more because there is high demand. The demand especially in office and commercial is just tremendous. End-user demand is so high and investors are tapping that by building more real estate,” Mr. Nordberg said.
The biggest spenders, according to Mr. Nordberg, are Ayala Land, Inc.; SM Prime Holdings, Inc.; Megaworld Corp.; Vista Land & Lifescapes, Inc.; Filinvest Land, Inc.; DMCI Property Developers, Inc.; Robinsons Land Corp.; and Federal Land, Inc.
The 2016 capex budget will mostly fund the development of large-scale mixed-use communities, mostly commercial components such as office and retail, Mr. Nordberg said.
“When the real estate boom started, residential sales were the sweet spot. It seems that the residential market is becoming more saturated that’s why developers are shifting to the commercial side,” Mr. Nordberg said.
With the strength of the Philippine economy — one of the fastest growing in Asia — more global companies are transferring operations as well as production and manufacturing to the country, creating more demand for office space.
In 2015, net take-up for premium and Grade A office spaces reached an all-time high of 459,000 square meters (sqm.) driven by the BPO sector, said Rosario P. Carbonell, director for commercial leasing & sales at KMC MAG Group, with take-up likely to hit similar levels this year.
Should the Philippines maintain its current growth trajectory, companies from other sectors such as financial services and insurance can create additional demand ranging from 20,000 sqm. to as much as 100,000 sqm. for traditional office space, Ms. Carbonell said.
Makati kept its position as the “most premium CBD” in Metro Manila with an average monthly rental rate of P980.80 per sqm.
Vacancies in Metro Manila are likely to increase in the next three years even with strong pre-leasing activity due to the entry of some 1.8 million square meters of office spaces, most of which are located in Makati, Bonifacio Global City, Alabang, Quezon City and the Manila Bay area. The entry of new supply is expected to ease growth in rental rates in most sub-markets in the coming years.
From a global perspective, the Philippine capital is one of the most attractive office markets in Asia, according to Savills’ World Office Yield Spectrum.
Manila has the fourth highest Grade A market yield at 8% in December 2015, with Hanoi being the highest followed by Ho Chi Minh and Adelaide. Market yield is derived by capitalizing current market rents, which includes the rent payable by the tenant and the value of any incentive paid to the tenant, against current capital value for office buildings.
In terms of Grade A Effective Yields, Manila placed third globally with an effective yield of 7.5%, with Hanoi being the highest followed by Ho Chi Minh. Effective yields are derived by capitalizing current market rents, which includes the rent payable by the tenant and excludes the value of any incentive paid to the tenant, against current capital values for office buildings.
“Globally, much of what happens in 2016 will be dependent on the course the US Federal Reserve takes with regards to interest rates. The movement of US interest rates will determine how currencies behave, how trade flows, and how capital moves around the world,”KMC Mag Group Cofounder and Managing Director Michael McCullough said.
“Risk premiums of between 2% and 3% in most office investment markets around the world continue to look like fair value, so we anticipate ongoing strong international demand in office property in 2016,” Mr. McCollough said.