Colliers Quarterly -...

Copyright © 2015 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 more information:

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Offshore gaming

redefines the

office market Dinbo Macaranas Senior Research Manager

Demand for office space in Metro Manila remained

strong in Q4 2016, reaching 154,000 sq m (1.66

million sq ft), pushing 2016 take-up to a total of

676,000 sq m (7.28 million sq ft), 7% above 2015.

Demand was still driven by Information Technology

and Business Process Management (IT-BPM)

companies but was augmented by offshore gaming

firms, particularly in Q4 2016. Colliers believes that

both tenants and developers must brace themselves

for an increase in rents across submarkets as the

surge of offshore gaming firms redefines the market.

We suggest that tenants should be quick to close

transactions to ensure that they acquire their chosen

workspace. Developers on the other hand, must be

timely in delivering buildings to address the tenants'

immediate office needs.

Makati CBD vs. Metro Manila Office Stock

Source: Colliers International Philippines Research

Forecast at a glance

Demand We expect demand to grow by 8% in the next twelve months, reflecting higher level IT-BPM services growth and the surge of offshore gaming firms.

Supply

Barring further significant construction delays, we expect additional supply in the next twelve months to reach over 880,000 sq m (9.47 million sq ft).

Vacancy rate

Vacancies are likely to remain low despite new office completions with strong pre-leasing seen across submarkets. We expect overall Metro Manila vacancy to hover between 4.0% and 4.5% in the next twelve months.

Rent

Alternative locations likely to see faster rents as offshore gaming deals are closed with minimal negotiations. We predict CBD rents will grow by 5 to 6%, while alternative locations grow on average by 8 to 10% over the next twelve months.

Forecast New Supply, Major CBDs (GLA, in sq m)

Year Makati CBD Fort Bonifacio Ortigas Center

As of 2015 3,205,128 1,561,949 1,273,918

2016 8,062 16,114 270,839

2017F 28,405 66,414 401,910

2018F 77,623 43,344 210,813

2019F 51,534 13,675 245,223

2020F 193,841 341,815 32,927

Total 3,564,593 2,043,312 2,435,629


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Colliers Quarterly

PHILIPPINES | OFFICE Q4 2016 9 February 2017

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2 Colliers Quarterly | 9 February 2017 | PHILIPPINES | OFFICE | Colliers International

Forecast New Office Supply (GLA, in sq m)

LOCATION AS OF 2016 2017 2018 2019 2020 TOTAL

Alabang 483,148 55,315 59,189 64,753 38,900 701,305

Fort Bonifacio 1,544,757 401,910 210,813 245,223 32,927 2,435,629

C-5 Corridor 57,779 34,713 97,399 94,392 284,283

Makati CBD 3,213,190 28,405 77,623 51,534 193,841 3,564,593

Makati Fringe 221,332 25,328 61,029 - 120,754 428,443

Mandaluyong 305,970 60,440 87,577 - - 453,987

Ortigas Center 1,578,063 66,414 43,344 13,675 341,815 2,043,312

Pasay Bay Area 330,608 99,883 162,337 136,373 116,400 845,601

Quezon City* 795,886 65,553 93,557 172,842 43,364 1,171,203

Others** 353,917 50,549 75,076 92,409 64,859 636,809

Total 8,884,650 888,509 967,945 871,200 952,860 12,565,165

*Includes Araneta Center, Eastwood City, and North EDSA Triangle **Manila and other fringe locations Source: Colliers International Philippines Research

Offshore gaming take-up redefines the Metro Manila market in Q4 2016

Demand for office space remained robust in Q4,2016

reaching 154,000 sq m (1.66 million sq ft), pushing 2016

take-up to a total of 676,000 sq m (7.28 million sq ft), 7%

higher than 2015. Supply, on the other hand, saw

numerous delays as completions totalled a mere

543,000 sq m (5.84 million sq ft) – significantly lower

than the forecast earlier in the year of 880,000 sq m

(9.47 million sq ft), primarily due to the lack of skilled

laborers. Excluding the effects of construction delays in

Q4 2016, full year demand would have grown by 15%

versus 2015.

Makati CBD Office Supply and Demand


The market was still primarily driven by IT-BPM

companies. Close to 60% of take-up across Metro

Manila came from IT-BPM companies. Non-BPO

companies comprised 32%, while the balance came

from off-shore gaming companies. A total of 85,000 sq m

(915,000 sq ft) of office space was taken up by offshore

gaming companies in 2016, most of which came in the

last quarter. This was a significant jump from a handful

of deals recorded noted in the previous two years. In Q4

2016 alone, over 70,000 sq m (753,000 sq ft) was taken

by offshore gaming companies, inclusive of pre-

commitments. Interestingly, the minimum volume take-

up of these companies stands at 10,000 sq m.

Take-up from non-BPO companies also continued in the

market, primarily in the central business districts of

Makati and Fort Bonifacio. Finance firms Metrobank,

Home Credit, and Citibank, among others, also

contributed significantly to the 2016 transactions. These

are among the firms that moved to newer, more modern

office spaces. Recently, more companies have

consolidated in newer buildings and looked for flight-to-

quality opportunities as their leases in older buildings

expire.

Offshore gaming, IT-BPM and tenants’ flight-to-quality to drive market in the medium term

The three major drivers: (1) influx of offshore gaming

companies, (2) continuous expansion of IT-BPM; and (3)

tenants looking for flight-to-quality opportunities, drove

the market in 2016. For 2017, Colliers foresees the same

drivers dictating the pace in the market, with overall

Metro Manila demand projected to grow by 8%.

As noted earlier, offshore gaming companies drove Q4

2016 market demand. While many are looking at the

Pasay-Bay Area as the preferred location given its

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Makati CBD Comparative Office Capital Values (PHP / sq m)

GRADE Q3 2016 Q4 2016 % CHANGE (QoQ) Q4 2017F %CHANGE (YoY)

Premium 169,700 - 197,700 171,100 - 199,300 0.83% 182,700 - 212,900 6.81%

Grade A 101,000 - 144,200 102,000 - 145,600 1.00% 107,600 - 153,600 5.46%

Grade B 73,000 - 106,400 73,700 - 107,400 0.93% 76,900 - 112,000 4.34%


Makati CBD Comparative Office Rental Rates (PHP / sq m / month)

GRADE Q3 2016 Q4 2016 % CHANGE (QoQ) Q4 2017F %CHANGE (YoY)

Premium 1,100 - 1,500 1,200 - 1,500 1.06% 1,200 - 1,600 7.44%

Grade A 740 - 1,100 750 - 1,100 0.76% 780 - 1,200 4.63%

Grade B 610 - 860 613 - 864 0.48% 650 - 920 6.69%


proximity to the airport and the planned PAGCOR

entertainment city, similar tenants have looked to other

locations in the absence of available office space.

PAGCOR reportedly has already issued 35 Philippine

Offshore Gaming Operator (POGO) licenses with 25

more planned in the next few months. This translates to

at least 350,000 sq m (376,700 sq ft) of office space in

the near term. The significant size requirement and

these companies’ willingness to pay higher rents will

potentially push rents even higher, keeping vacancies

down and forcing other traditional office and contact

center-tenants to look to other locations such as Quezon

City, Alabang, and possibly provincial sites. Thus,

Colliers expects this emerging industry to dictate the

market in 2017.

IT-BPM companies have continued to expand in Metro

Manila. More recently, they have also considered

provincial locations as players already have sites in the

country’s capital. Nonetheless, the concentration of

labor has kept Metro Manila as the preferred site. The

sizeable take-up in 2016 from Google, Towers Watson,

Cardinal Health, among others, shows that the industry

will likely continue growing. The biggest recorded

transaction for the year came from Google which closed

over 50,000 sq m (538,000 sq ft) across three sites. The

presence of these companies affirms the trend

forecasted by the IT and Business Process Association

of the Philippines (IBPAP) of a shift to mid-to-high level

value of services from primarily voice-driven services

previously.

2016 also saw tenants show a growing preference for

more modern and quality office space. The growth of

tech companies mirrors this with the expansion of

Google and Uber. Furthermore, the entry of home and

office furniture and accessories provider IKEA through

the growing flexible workspace market will potentially

dictate the workplace design preferences of Metro

Manila’s millennial-majority workforce in the coming

years.

Faster rental growth in alternative locations likely amid low vacancy and strong demand

Demand is likely to remain strong. Colliers projects an

8% growth in 2017. This should keep overall vacancy,

which stands at just over 3% today, low over the next

twelve months. We predict that the current stock will

increase by 889,000 sq m (9.57 million sq ft), 64% higher

than last year’s new adds. Despite this expected

upcoming supply, we project vacancies to remain below

5% due to the strong pre-leasing across submarkets.

Buildings due to be completed within the year are

already 32% pre-leased as of the start of 2017.

Given current market dynamics, we expect rents to

increase across the various submarkets. Alternative

locations, particularly Pasay-Bay Area, Quezon City and

Alabang, will more likely grow at a faster pace because

they are coming from a lower base. These locations are

primarily preferred by third party outsourcers not only

due to price, but also to the availability of bigger floor

plates and office spaces. Colliers recommends these

tenants to be quick to lock in deals as offshore gaming

companies are scrambling for sizeable office space and

securing them immediately with minimal negotiations.





Makati CBD Comparative Office Vacancy Rates

GRADE Q2 2016 Q3 2016 Q3 2017F

Premium 0.84% 0.84% 0.31%

Grade A 1.57% 1.57% 0.31%

Grade B & Below 0.62% 0.62% 0.81%

All Grades 0.92% 0.85% 0.64%


Developers, on the other hand, must ensure the

completion of their planned buildings and avoid delays

similar to those seen over the last two years. Doing so

will provide tenants with more options and allow

developers to take advantage of strong pre-leasing

demand.

Colliers believes that both tenants and developers must

brace themselves for a probable increase in rents across

the various submarkets. The recent influx of offshore

gaming companies looking for office space will dictate

the market in 2017. In response, other tenants must be

quick in selecting their office space and closing

transactions. Developers must be timely in delivering

their buildings to take advantage of the current offshore

gaming demand, which may face a growth cap as the

government establishes more clearly defined regulating

rules.

Makati CBD Office Capital Values


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For more information: Contributors:

Randwil Dinbo Macaranas Senior Research Manager +632 858 9047 [email protected]

Joey Roi Bondoc Research Manager +632 858 9057 [email protected]

David A. Young Managing Director Randolf Ilawan

Research Assistant

Richard Raymundo Deputy Managing Director


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.











Market Contact Name

Title | Market

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Market Contact Name

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+1 00 000 0000

[email protected]

Contributors:

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Market Contact Name

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Market Contact Name

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Market Contact Name

Title | Market

Pre-selling take-

up rebounds; rise

of fringes pushes

rents downward Dinbo Macaranas Senior Research Manager

Pre-selling take-up rebounded in 2016 after four

consecutive years of decline. Take-up has been

strong across unit sizes as previous years' launches

are also sold. Colliers attributed this to the favorable

interest rate environment which still encourages

buyers to acquire condominium units. However,

take-up in Metro Manila's secondary residential

market remains soft amid the influx of new

completions across submarkets. Developments in

fringe locations have become a viable alternative to

the expensive projects in established business

districts, leading to rising vacancies in Makati CBD,

Fort Bonifacio, and Ortigas Center. Given the falling

occupancy rates, Colliers recommends that

developers establish their own leasing arms to

assist owners in leasing out their units to a targeted

clientele and attain the promised yields. This

initiative should complement the developers' well-

established pre-selling teams.

Makati CBD Residential Stock



Demand Colliers sees both pre-selling and leasing take up in the CBDs slowing down in the next twelve months due to the completion of more projects in the fringes.

Supply

Barring further delays, Colliers sees an additional 22,800 units being completed in the next twelve months.

Vacancy rate

Colliers expects vacancies across submarkets rising due to the substantial amount of projected new supply. Vacancies in major business districts are projected to increase between 12% and 16% over the next twelve months.

Rent

Colliers projects rents in major CBDs declining between 2% and 6% over the next twelve months due to slow absorption and delivery of new units in the fringes.

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Colliers Quarterly

PHILIPPINES | RESIDENTIAL Q4 2016 9 February 2017




2 Colliers Quarterly | 9 February 2017 | PHILIPPINES | RESIDENTIAL | Colliers International

Forecast Residential New Supply

LOCATION AS OF 2016 2017F 2018F 2019F 2020F TOTAL

Alabang* 3,785 905 824 - - 5,514

Araneta Center* 4,240 305 - - - 4,545

Eastwood City 7,548 988 - 632 - 9,168

Fort Bonifacio 24,275 8,566 3,858 3,022 - 39,721

Makati CBD 21,663 4,784 1,072 598 334 28,451

Ortigas Center 16,250 1,489 782 570 614 19,705

Pasay Bay Area* 8,864 5,507 8,531 2,614 2,175 27,691

Rockwell Center 4,159 346 492 269 - 5,266

Total 90,784 22,890 15,559 7,705 3,123 140,061

*Emerging Source: Colliers International Philippines Research

Pre-selling rebounds in 2016 as secondary market absorption remains soft

Pre-selling take-up rebounded in 2016 after four

consecutive years of decline. Total take up for the year

reached 38,800 units. Pre-selling take-up rebounded in

2016 after four consecutive years of decline. Take-up

has been strong across unit sizes as previous years’

launches are also sold. Colliers attributes this to the

favorable interest rate environment which still

encourages buyers to acquire condominiums.

However, take-up in Metro Manila’s residential

secondary market remains soft amid the influx of new

supply across submarkets. Total take-up in 2016

reached merely 2,000 units, 70% lower than the prior

year and 66% lower than 2012 when take-up reached an

all-time high. Developments in fringe locations have

become a viable alternative to the expensive projects in

the CBDs. Fringe area completions in 2016 reached

4,800 units, higher than CBD’s 3,900 units. Occupants

are drawn to condominium units in emerging locations

given the 10% discount in rents versus their CBD

counterparts.

Key completions in 2016 include Eton Tower (786 units)

in the Makati CBD and Park West (713 units) in Fort

Bonifacio. Among the projects completed in the fringes

of Makati, Taguig, and Mandaluyong include the

Verawood Residences Aqua and Canary, The Milano

Residences, and First Homes Tower 2.

Overall vacancy continues to rise

As of the end of 2016, overall vacancy in Metro Manila

stood at 10%. This shows a 2.2-percentage point

increase from the vacancy recorded in the first half of

2016.

Colliers sees overall vacancy hovering between 12%

and 16% in the next twelve months with the delivery of

an additional 22,800 units this year.

Makati CBD Comparative Residential Vacancy Rates

GRADE Q3 2016 Q4 2016 Q4 2017F

Luxury 12.96% 13.98% 16.04%

Others 11.25% 13.23% 16.66%

All Grades 11.48% 13.33% 16.59%


Colliers sees vacancies in Makati CBD rising to around

16% over the next twelve months due to the completion

of additional units within the business district and the

delivery of new units in its fringes and other major CBDs

such as Fort Bonifacio.

We see vacancies in Fort Bonifacio increasing to around

14% in the next twelve months with the delivery of an

estimated 7,500 units. Fort Bonifacio will cover about

half of the projected new supply in 2017.

Ortigas Center will account for only 9% of the total

number of units expected to be delivered in the next

twelve months. Hence, we do not see a significant rise in

vacancies. Colliers sees Ortigas Center vacancies

hovering between 7% and 9% in the next twelve months.





Metro Manila Residential Condominium

Comparative Luxury 3BR Rental Rates (PHP / sq m / month)

LOCATION Q3 2016 Q4 2016 % CHANGE (QoQ) Q4 2017F %CHANGE (YoY)

Fort Bonifacio 650 - 1,040 640 - 1,026 -1.50% 600 - 960 -6.37%

Makati CBD 570 - 1,120 560 - 1,100 -1.35% 530 - 1,040 -5.67%

Rockwell 790 - 1,080 780 - 1,070 -1.30% 740 - 1,010 -5.19%


Makati CBD Residential Vacancy


Rents in CBDs continue to decline as demand in fringes increase

Premium 3BR-Unit Residential Rents


Rental rates for premium three-bedroom units in Makati

CBD declined by 1.4% to PHP837 (USD17.1) per sq m a

month from PHP847 (USD17.3) per sq m in the previous

quarter. The rental rate drop was faster than the 1.3%

decline recorded in Q3 2016. With the completion of new

units, we expect rental rates in the Makati CBD to drop

by around 5% to 7% over the next 12 months.

Rental rates in Fort Bonifacio slid by 1.5% to PHP833

(USD17) per sq m a month from PHP848 (USD17.3) per

sq m. Colliers sees rents in the business district

declining by 5% to 7% over the next twelve months.

Rockwell rents declined by 1.3% to PHP930 (USD19)

per sq m a month. We project that rental rates will slide

by 3% to 5% over the next twelve months.

Renters are drawn to developments in the fringe areas

as these offer a 10% to 15% discount. The units in the

fringes serve as halfway houses for millennials and other

professionals who opt to live near their place of work

during weekdays but go home to their families during

weekends. These weekday halfway houses are also

more practical for employees working in CBDs as the

worsening traffic in Metro Manila only makes their

commute to and from work more unbearable.

Examples of alternative condominiums in the fringes

include Cityland Makati Executive Towers, Jazz

Residences, The Beacon Makati, and The Linear Makati

in Makati Fringe; Acacia Estates in Taguig City; and Flair

Towers and Gateway Regency in Ortigas Fringe.

Capital values rise in Q4 2016; trend likely to continue

Capital values for Makati CBD residential properties rose

by 2.3% to PHP180,300 (USD3,700) per sq m from

PHP176,200 (USD3,600) per sq m in Q3 2016. Fort

Bonifacio prices increased by 2.2% to PHP163,200

(USD3,300) per sq m per month. Prices in Rockwell also

increased to PHP197,400 (USD4,000) per sq m per

month by 1.1% compared to average prices in the

previous quarter.

Given the high sales volume in the pre-selling market,

Colliers sees condominium prices rising further over the

next twelve months. This results in lower residential

yields for projects across major CBDs. We see Makati

CBD prices increasing by about 14% in the next twelve

months while Fort Bonifacio and Rockwell prices will

grow by about 8% to 10%.

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Metro Manila Residential Condominium

Comparative Luxury 3BR Capital Values (PHP / sq m)

LOCATION Q3 2016 Q4 2016 % CHANGE (QoQ) Q4 2017F %CHANGE (YoY)

Fort Bonifacio 97,200 - 222,200 110,500 - 226,400 2.22% 111,100 - 309,000 10.00%

Makati CBD 84,000 - 268,300 109,000 - 274,600 2.33% 116,600 - 302,000 14.73%

Rockwell 170,800 - 206,300 188,400 - 207,700 1.09% 198,300 - 230,000 8.47%


Premium 3BR-Unit Residential Capital Value


Project differentiation amid falling occupancy

Given the declining occupancies in the secondary

residential market, Colliers encourages developers to

differentiate their projects and cater to a particular

clientele.

Colliers believes that there is opportunity for developers

to target subgroups by implementing one or more of the

following strategies:

Tapping into the worker-accommodation

segment as Metro Manila’s young workforce

looks for affordable studio or one bedroom units;

Targeting expatriates who prefer the two and

three-bedroom units within CBDs; and

Establishing their own leasing teams to market

to particular clients.

Given the falling occupancy rates in CBDs, it would

practical for developers with projects under construction

within and outside the established business districts to

organize their own leasing arms in order to assist their

buyers to lease out their units and attain the promised

yields.

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Research Assistant



















Market Contact Name

Title | Market

+1 00 000 0000

[email protected]

Market Contact Name

Title | Market

+1 00 000 0000

[email protected]

Contributors:

Market Contact Name

Title | Market

Market Contact Name

Title | Market

Market Contact Name

Title | Market

Market Contact Name

Title | Market

Record arrivals

boost occupancy

amid new

completions Joey Roi Bondoc Research Manager

Hotel occupancy in the second half of the year rose

due to record-high tourist arrivals and sustained

growth in tourist expenditures. This partly offsets

the impact of the completion of additional rooms in

the Entertainment/Pasay Bay Area and established

business districts. Colliers expects more than 4,000

rooms being added to Metro Manila's hotel room

stock for 2017. With sustained arrivals from

traditional visitor-generating markets such as South

Korea and China, Colliers recommends the

development of more three- and four-star hotels,

particularly in the fringes of Metro Manila. With the

Philippines emerging as a viable location for major

international events, Colliers encourages developers

to apportion larger space for meetings, incentives,

conferences, and exhibits (MICE) facilities.

Metro Manila Hotel Room Stock



Demand The demand for accommodation in Metro Manila should continue to be driven by the Philippines’ traditional visitor-generating markets such as South Korea, United States, and Japan. Colliers sees total arrivals in 2017 rising by 10% to 6.6 million. Demand among three- and four-star hotels will continue to drive the market.

Supply

Colliers projects about 4,000 new hotel rooms being completed in Metro Manila this year. Bulk of the new rooms will be in the Entertainment/Pasay Bay Area.

Vacancy rate

Given the encouraging tourist arrival figures, Colliers expects hotel occupancy in Metro Manila to hover between 65% and 70% over the next twelve months.

Room rate

Colliers sees hotel rates increasing by a marginal 2%-5% over the next twelve months.

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20

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15

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F

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F

Number of Hotel Rooms (LHS) YoY Change (RHS)

Colliers Quarterly

PHILIPPINES | HOTEL Q4 2016 9 February 2017




2 Colliers Quarterly | 9 February 2017 | PHILIPPINES | HOTEL | Colliers International

Record high arrivals push hotel occupancy up

The Philippines welcomed a total of 5.39 million foreign

visitors from January to November 2016, 12% higher

than the 4.8 million international arrivals recorded for the

same period in 2015. The January to November figure

also exceeds the total arrivals in 2015 of 5.36 million.

Given this encouraging trend, Colliers sees total

international visitors to the Philippines breaking the 6.0

million mark for 2016. The Department of Tourism’s goal

is to attract 7.0 million tourists this year but Colliers

believes that a 10% YoY growth or 6.6 million in total

arrivals is more realistic.

Visitor Arrivals

*As of November 2016


South Korea remained the country’s largest visitor-

generating market with arrivals reaching 1.33 million,

accounting for nearly a quarter of the total. Among the

country’s largest markets, China and Taiwan posted the

fastest growth at 39% and 30%, respectively. The

Philippine Embassy in China noted that the number of

Chinese nationals applying for tourist visas to the

Philippines rose to 1,400 daily from an average of 400

per day in the previous quarter. The surge in Chinese

arrivals is attributed to the Philippine government’s

improving relations with China. Colliers sees the country

attracting more Chinese visitors as a result of President

Duterte’s visit to China in October last year. The

Philippine and Chinese governments signed an

agreement on tourism cooperation that includes

exploring a possible increase in capacity entitlements in

air services and encouraging airlines to open new flights

between Philippine cities in the Visayas and Mindanao

regions and Chinese cities.

Furthermore, the country‘s successful recent hosting of

the ASEAN Tourism Forum, Routes Asia, APEC Summit

and Miss Universe pageant has helped increase arrivals

and raise the Philippines’ attractiveness as a meetings,

incentives, conferences and exhibitions (MICE)

destination in the region. Among the major international

events that the Philippines will host this year are Madrid

Fusion, the ASEAN Summit, and Hotel Show

Philippines.

As a result, Q4 2016 hotel occupancy in Metro Manila

increased by two-percentage points from 69% two

quarters ago to 71%. The growth was partly offset by the

completion of more than 1,700 new hotel rooms in 2016.

Of the rooms that went online in 2016, about 40% were

completed in H2 2016, in time for the arrival of Overseas

Filipino Workers (OFWs) for the holiday season. Notable

completions during the period include the Mercure Hotel

(150 rooms) in Ortigas; soft opening of I’M Hotel in

Makati Fringe (150 rooms); and the remaining rooms of

the Conrad (140 rooms) in the Pasay Bay Area and

Shangri-La at the Fort (370 rooms).

Casino-hotels still a major supply driver but face lower occupancies

The opening of Okada Manila’s 993 rooms has been

pushed back to February 2017. The rooms were

originally due to be completed in Q4 2016. Once

completed, Okada Manila will become the biggest

integrated casino resort in the country. It will offer 500

table games and 3,000 electronic gaming machines.

Aside from Okada, other five-star hotels expected to go

online this year are Grand Hyatt Manila in Fort Bonifacio

and the expansion of Solaire Manila and Maxims Tower

in the Pasay Bay Area.

New Hotel Room Supply


Ayala will open hotels under the Seda brand this year.

These include the 250-room Seda hotel in Circuit Makati

and the 440-room Seda Hotel in Vertis North, Quezon

City. The latter will be complemented by a casino that

Bloomberry Resorts is planning to build within the Vertis

North property. The planned casino will capture Northern

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

199

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6*

Visitor Arrivals Average Occupancy (RHS)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2016 2017F 2018F 2019F

Number of Hotel Rooms




3 Colliers Quarterly | 9 February 2017 | PHILIPPINES | HOTEL | Colliers International

Quezon City and Central Luzon residents. It will also

benefit from increased international flight frequencies in

Clark airport as well as improved access once the Metro

Rail Transit (MRT) 7 is completed. Earlier, Bloomberry

disclosed to the Philippine Stock Exchange (PSE) that it

plans to start constructing the casino in mid-2017,

although the plans are still subject to regulatory and

government approvals.

Should all projects be completed as scheduled, Colliers

expects the addition of more than 4,000 rooms to the

metropolitan’s hotel room stock for 2017. More than half

of the hotel rooms expected to be completed this year

will come from casino hotel projects which could depress

occupancy rates in the Pasay City/Entertainment area.

Average published rates for five-star rooms grew 3%

HoH in H2 2016 to USD370 a night. Rates for three-star

accommodation rose 9% HoH to USD186 while rates for

four-star rooms grew by 5% HoH to USD247. Rates

among three and four star hotel rooms recorded the

fastest growth due to higher demand from Chinese and

Korean tourists and OFWs who spent Christmas

holidays in Metro Manila.

Three- and four-star hotels to corner bulk of Asian tourists; overall occupancy to reach 65%-70%

While casino hotels are struggling to achieve higher

occupancies, three-star and four-star hotels are gaining

popularity especially among Japanese, Taiwanese, and

Chinese tourists. In order to cash in on the expected

surge of Chinese tourists, Double Dragon said it will

build five more Jinjiang hotels this year. This is in line

with the company’s goal of raising its room count target

to 2,000 from the current 866. New hotel lines from other

developers have emerged to compete for the share of

the growing number of tourists, travelling entrepreneurs,

as well as local vacationers. Other brands successfully

competing in this segment are Seda and Crowne Plaza,

among others.

Colliers believes there is a massive room for growth in

this sub-segment especially because this is driven by

both the local and foreign tourists, particularly those from

Asian countries. Thus, Colliers encourages developers

to build more three and four star hotels both in Metro

Manila fringes and key provinces.

Colliers sees occupancy rates in the entire metropolitan

hovering between 65% and 70% over the next twelve

months. The sustained growth in arrivals supported by

major international events that the country will host this

year, should keep occupancy rates stable despite the

projected new completions.





Research Assistant



















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[email protected]

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Demand surges

as manufacturers

take advantage of

new trade deals Joey Roi Bondoc Research Manager

The government's continued efforts to attract more

manufacturing investments should lead to greater

demand for industrial lots and facilities in the Cavite-

Laguna-Batangas corridor. Colliers sees the surge in

manufacturing investments from Japan, China, and

Taiwan being sustained over the near to medium

term as foreign manufacturers take advantage of the

Philippines' preferential trade deals with the

Association of Southeast Asian Nations (ASEAN)

and the European Union (EU). While Cavite, Laguna,

and Batangas remain as popular locations for

manufacturers given their proximity to Metro Manila

and the planned implementation of crucial

infrastructure projects, Colliers recommends that

developers start looking at other viable industrial

locations across the country such as Bataan,

Bulacan, Tarlac, and Pangasinan. This is particularly

important for cost-conscious manufacturers that

look for cheaper industrial lease rates. Colliers

encourages developers to take advantage of the

current administration's thrust to develop more

industrial zones throughout the country.

Philippine Industrial Supply Stock by Region of Highest Supply (Manufacturing)

Source: Philippine Economic Zone Authority


Demand The demand for industrial space and standard factory buildings (SFBs) in the Cavite-Laguna-Batangas area should remain firm on the back of continued influx of investments from foreign manufacturing firms. Colliers sees the demand for industrial space spilling over to other provinces in Northern and Central Luzon.

Supply

Colliers expects the Cavite-Laguna-Batangas corridor’s industrial stock to grow between 5% and 10% over the next twelve months as developers respond to manufacturers’ increasing appetite for industrial space.

Vacancy rate

Colliers projects the overall vacancy of Cavite, Laguna, and Batangas industrial stock dropping to between 8% and 9% in 2017 from 9.5% as of end-2016.

Rent

Colliers expects industrial land and building leasehold rates to grow between 4% and 7% over the next twelve months.

R-III 57.7%

R-IV 14.7%

R-VII 7.7%

R-X 5.8%

R-VIII 4.8%

Colliers Quarterly

PHILIPPINES | INDUSTRIAL Q4 2016 9 February 2017




2 Colliers Quarterly | 9 February 2017 | PHILIPPINES | INDUSTRIAL | Colliers International

Manufacturing investments drive GDP, demand for industrial space

Manufacturing investments continue to sustain the

country’s economic growth. The sector accounted for

about 23% of the country’s annual GDP for the past

three years. Manufacturing should sustain the country’s

economic growth over the medium term. Central Bank

data reveal that foreign direct investments (FDIs) for the

first 10 months of 2016 reached USD6.2 billion and the

manufacturing sector was among the primary recipients

of fresh investments. Colliers sees more manufacturing

investments flowing into the country over the medium

term given the investments pledged by foreign

businessmen during President Duterte’s visit to Japan

and China in October last year. Among these include

Toyota’s and Mitsubishi’s commitments to expand their

assembly operations in the Philippines.

Colliers also sees the surge in manufacturing

investments from Japan, China, and Taiwan being

sustained over the near to medium term as foreign

manufacturers take advantage of the country’s

preferential trade deals with ASEAN and the EU. Japan’s

Shimano Inc., one of the world’s largest manufacturers

of bicycles and parts, opened a PHP1.3 billion (USD26.5

million) facility at First Philippine Industrial Park in

Batangas to take advantage of the Philippines’

preferential trade deal with the European Union.

Shimano exports bicycle components to EU.

Meanwhile, total investment pledges registered with the

Philippine Economic Zone Authority (PEZA) for the first

nine months of the year reached PHP93.3 billion

(USD1.9 billion). The Cavite-Laguna-Batangas region

cornered 28% of the total investment commitments from

January to September 2016. According to PEZA,

“majority” of the investments in the region are intended

for manufacturing projects.

This indicates that the Cavite-Laguna-Batangas region

should expect more manufacturing investments in the

medium term.

Among the Korean and Japanese firms that will either

establish or expand existing operations in the Cavite-

Laguna-Batangas area include Canon, Nikkoshi,

Calamba Shinei, Jisoo, and Tech-Sonic. These firms are

involved in the manufacture of laser beam printers and

accessories, medical instruments, packaging supplies,

and ultrasonic welding machines.

Industrial Supply Stock (Manufacturing)

Region IV-A H1 2016 H2 2016 Change (HoH)

Cavite 2,451.4 2,451.4 -

Laguna 1,439.9 1,439.9 -

Batangas 3,006.6 3,167.4 5.3%

TOTAL 6,897.9 7,058.7 2.3%


Industrial Vacancy Rates (Manufacturing)

Region IV-A H1 2016 H2 2016

Cavite 7.93% 7.73%

Laguna 3.91% 3.84%

Batangas 18.39% 17.84%

TOTAL 10.09% 9.82%


Fresh manufacturing investments propel demand for ecozones, raise lease rates

Industrial space registered with the Philippine Economic

Zone Authority (PEZA) rose marginally to 58,600 ha from

58,430 ha in H1 2016. Among the industrial parks in

Batangas that recorded expansions include First

Philippine Industrial Park II and Lima Technology Center.

Total industrial stock in the Cavite-Laguna-Batangas

area reached 7,060 ha as of H2 2016, up from 6,898 ha

in the first half of 2016. Colliers sees the demand for

industrial space in the Cavite-Laguna-Batangas corridor

growing over the near term and this should encourage

property firms to develop more industrial parks in the

region.

Industrial Lease Rates (PHP / sq m / month) (Manufacturing)*

Region IV-A H1 2016 H2 2016

Leasehold (Land) 63 67

Lease Rates (SFB**) 222 225

*Average in Cavite, Laguna, and Batangas

**Standard Factory Building





3 Colliers Quarterly | 9 February 2017 | PHILIPPINES | INDUSTRIAL | Colliers International

A slight increase in industrial stock coupled with an

uptick in demand led to a decline in the overall vacancy

of Cavite, Laguna, and Batangas industrial stock to 9.5%

as of H2 2016 from 10.1% in the first six months of 2016.

Vacancy in Cavite was relatively stable at 7.7% from

7.9%. Batangas’ vacancy dropped to 18% from 18.4%

as companies involved in the manufacture of plastic

injection molds for printers and bikes established their

facilities. Laguna is still the preferred location of high-

value manufacturing firms as vacancy remains low at

3.8% from 3.9% in H1 2016. This should decline further

as Laguna continues to attract manufacturers of

electronic products and given the Japanese car

assemblers’ commitment to expand operations. Colliers

sees the overall vacancy of Cavite, Laguna, and

Batangas industrial stock dropping to between 8% and

9% in the next twelve months from 9.5% as of end-2016.

This decline in vacancy is not surprising as major

manufacturing investors continue to gravitate toward the

Cavite-Laguna-Batangas area due to its proximity to the

country’s capital, availability of adequately-skilled labor

force, relatively cheaper wages, and improving

infrastructure. Crucial in funneling more manufacturing

investments to the Cavite-Laguna-Batangas corridor is

the planned revival of a rail cargo between Manila port

and an inland container terminal facility in Laguna.

Average land leasehold rates in Cavite, Laguna, and

Batangas rose by 7% HoH to an estimated PHP67

(USD1.4) from PHP63 (USD1.3) per sq m a month while

leasehold rates for warehouses and logistics facilities

rose to PHP225 (USD4.6) from PHP222 (USD4.5) per

sq m per month. Colliers expects industrial land and

building leasehold rates to grow by about 4% and 7%

over the next twelve months given the projected inflow of

more manufacturing investments from perennial sources

such as Japan and China.

The Duterte administration’s continued efforts to attract

more manufacturing investments should lead to higher

demand for industrial lots and facilities in CALABARZON

and this, coupled with limited supply, should further raise

land values in the region.

Expansion of alternative industrial hubs

Aside from Southern Luzon, interest in other viable

locations for industrial park development such as Central

Luzon has also been increasing. According to Bases

Conversion Development Authority (BCDA) about 20

Japanese firms have expressed interest to put up

facilities in Clark Green City while a mix of local and

foreign manufacturers are exploring the possibility of

establishing operations in the 31-hectare Alviera

Industrial Park in Porac, Pampanga.

The resurgence of the Philippines’ manufacturing sector

coupled with the improved infrastructure connectivity

brought about by railways and expanded highways

should enable the country to attract more investments.

While Southern Luzon, especially Cavite, Laguna, and

Batangas remain as popular locations for manufacturers,

developers should start looking at other feasible

industrial locations across the country such as Bataan,

Bulacan, Tarlac, Pangasinan, and La Union in Luzon;

Cebu in Visayas; and Davao in Mindanao. This is

particularly important for low-value and cost-conscious

manufacturers looking for industrial parks that offer

cheaper lease rates for industrial space and facilities.

Colliers proposes that developers take advantage of the

current administration’s thrust of developing more

industrial zones throughout the country. The

government, on the other hand, will only be able to

entice more firms to develop industrial space if it

releases concrete and consistent policies guiding the

grant of incentives to industrial park developers and their

locators.





Research Assistant












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