2013-12-04 04:13:37 - New Business market report from Business Monitor International: "Philippines Real Estate Report Q1 2014"
Our outlook for the commercial real estate sector in the Philippines is generally positive. We highlight the strength of the office sub-sector as a result of the country's growing role as a business process outsourcing (BPO). Favourable demographics and economic growth are to lead to increased investment within the country as well as increased spending power, boosting the real estate sector as a whole and the retail sub-sector in particular. www.fastmr.com/prod/723492_philippines_real_estate_report_q1_201 ..
In general the residential and leisure/tourism real estate boom currently under way is good news for the commercial real estate sector, as there is a growing tendency for mixed-use developments. Many residential developments have retail aspects, and there is a trend to include office space within malls.
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The Philippines is rapidly becoming a global business process outsourcing (BPO) centre, and we note that many of the local real estate companies specialise in developing office space suited to this sector. While the fact that BPO is reliant on demand from overseas could be seen as a risk, weakness in developed Western countries could lead to cost-cutting measures, and thus be a boon for the local BPO sector.
The retail sub-sector is tied to both the wider real estate boom, as a result of the trend for mixed-use developments, and the country's growing consumer power. There is a steady stream of new mall investment, showing real estate developers' optimism for the sector.
As with the other sub-sectors we cover, the health of the industrial sector depends on economic growth and thus growth in spending power. However, it is also more closely correlated to the trade outlook. We are forecasting that the trade outlook will remain challenging in coming quarters.
While this report focuses on three main cities, we are seeing a wider expansion of the commercial real estate sector outside the main urban areas. As the Philippines becomes an internationally renowned centre for BPO, so the need for good quality, technologically modern office space is spreading outside Metro Manila.
We continue to have a largely positive view on the Philippines economy. We are expecting GDP growth to average around 5% over the next 10 years. Although we believe that this is below the country's real potential, it will boost saving power and consumer spending power, and together with a favourable demographic outlook, this will be a positive for the real estate sector in terms of boosting investment led growth and the retail real estate sector. Remittances from Filipinos overseas continue to play a significant part in the economy, and we believe they will boost both investment and spending.
We believe that it is important that the president, Benigno Aquino III, continues taking steps to reduce corruption in the country, as this will instil greater confidence on the part of investors. Meanwhile, we are also concerned by the extremely underdeveloped nature of the real estate investment trust (REIT) segment. As of June 2013 no REITs were registered in the country, although we are encouraged by news that there might be a change of rules governing REITs in a bid to encourage their development.
* Despite some fears of a property bubble, the Bangko Sentral ng Pilipinas was quoted as seeing 'no definitive evidence' of an asset price bubble. The bank cited economic fundamentals and monetary conditions as supporting demand for real estate.
* In August 2013, SM Prime Holdings said that it planned to build four new malls (one of which would be in China) and redevelop two. This it is part of the company's broader expansion strategy.
* In October the company said it had opened the Jazz Mall, in Makati City. It is reported to have a a gross floor area of more than 14,000 square metres.
* In October, Century Properties Group said it was to spend up to PHP4-5bn developing a mixed-use project in Pampanga, with residential, retail and office space.
Key BMI Forecasts
* We see office rents in increasing by 5% in 2013, on the back of strength in the BPO sector.
* We see retail rents rising by 5% in all three cities in 2013. In the long term, we see the rising consumer spending power as having a positive impact on the retail real estate sector.
* In the industrial sub-sector we expect growth of a maximum of 5% in industrial rents in 2013 in the three cities we cover.
* Over all three sub-sectors we expect yields to plateau over our forecast period to 2017. With a fairly positive outlook for the sector as a whole held back by low foreign direct investment and some weakness in the business environment.
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