Vacancy Rates and Rental Rates in Makati CBD Segments
Residential Luxury Others Office Premium Grade A Grade B Retail: Metro Manila Ayala Center Ortigas
Vacancy Rates
1Q10 6.9% 4.4% 8.9% 7..05% 12% 7.07% 6.2% 9.2% -
4Q09 7.5% 4.8% 9.8% 7.32% 12.11% 8.86% 6.04% 9.2% -
Rental Rates (peso/sq m/ month) 1Q10 349-729 720-850 430-830 375-455 1,120 1,030
4Q09 349-733 720-850 427-813 371-455 1,100 1,030s
Source: Colliers International
Office spaces capitalize on BPO boom
The downtrend in average rents in Makati CBD has been partially reversed in the first three months of the year, due mainly to the expansion of the business process outsourcing (BPOs) sector. Colliers notes a three-fold increase in the inquiries for expansion, particularly in the BPO sector in the first quarter compared to the same period last year. Collier forecasts an overall rental growth of five to 10% in 2010, with Makati CBD at the lower bound of the range. The minimal increase in the office rental rates in Makati CBD reflects the strong focus of developers on other submarkets like Fort Bonifacio. Office stock is much stronger in these sub-markets. And such has been the case since 2006 as office stock in Makati CBD has steadied since 2001. The large stock of office buildings in other sub-markets only mirrors the vibrant demand for office spaces in these areas. In the first quarter of 2010, vacancy levels declined more significantly in these sub-markets than in Makati CBD.
Retail profits from broadened market base Rents for Ayala Center in Makati CBD in the first quarter of 2010 slightly increased, averaging P1,120 per square meter monthly, up from P1,100 in December, while it remains the same for malls in Ortigas Center at P1,030 per sq m per month. Smaller retail spaces are priced higher at around P1,500 per square meter especially in prime mall locations. While only one major mall project, SM Novaliches, is expected to be completed in Metro Manila this year, Collier expects more mall developments in the provinces given the rising demand for mall spaces in growth centers across the country. SM Prime Holdings already unveiled its plans to construct two new shopping centers in Cebu this year. As shown by Colliers data, Metro Manila-wide
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mall vacancy rate eased to 8.9% from January to March this year compared with 9.2% at end 2009. The improvement in demand is set to continue with the growing interest of non-traditional retail space locators – clinics and lifestyle services – and the potential demand from BPO locators in malls.
Positive signals
Weighed down by sluggish economic activity, the real estate sector has been posting negative growth rates. Then came the first quarter of 2010 when the Philippine economy made a staggering turnaround, posting an impressive growth rate of 7.3% with almost all sub-sectors of the economy yielding remarkable performance. This far exceeds the government’s projection of 2.9% to 3.9%. Outstripping the overall economic performance, real estate grew by 10.9% as a result of the strong demand for residential projects and business office spaces. Ayala Land Premier (ALP) and SM Development Corporation (SMDC) reported a substantial increase in their revenues at 56% and 45%, respectively, while revenues of Eton Properties improved by nearly three fold. In the first quarter as well, business process outsourcing (BPO), a key growth driver of real estate, continued its double-digit growth of 11.1%. The BPO industry projects $9.5 billion in revenues by the end of this year. Overseas Filipino Workers’ (OFWs) remittance, another major sector that is propping up real estate, reached $4.3 billion, higher by 6.9% than in the same period last year. The Bangko Sentral ng Pilipinas (BSP) has raised its forecast on the amount of workers’ remittance this year to 8% from 6% due to the apparent increase in the demand for Filipino workers abroad. Meanwhile, tourism, which spawns demand for leisure, retirement and vacation properties, registered a 6.6% growth rate. The astounding first quarter growth rate has
resulted in upward revision of the country’s growth forecast by various institutions. The International Monetary Fund (IMF) now expects the Philippine economy to grow 3.6% this year, higher than its earlier forecast of 3.2%, with much of the projected growth being attributed to higher remittances, exports and foreign investments as a result of improved global economic outlook. The World Bank (WB) has also adjusted its growth projection from 3.1% to 3.5%, while the Asian Development Bank (ADB) revised its forecast to 3.8% from 3.3%. The continued recovery of the global economy and strong private consumption anchored on improved consumer confidence and resilient OFW remittances as well as increased public spending will serve to underpin the growth forecasts of WB and ADB. The BSP already reported that business outlook in the third quarter is nearing pre-crisis level with more firms indicating plans to expand their business. Based on a Nielsen Survey, Filipino consumers are the fourth most optimistic in the world with respect to jobs and finances in the first quarter of 2010.
Not an entirely rosy picture
Although recent economic developments bode well for the real estate sector, it still is not an entirely pretty economic landscape. There are myriad of factors that will continue to limit the growth of the sector. That the country continues to be consumption-driven with very narrow industrial base is already one gigantic constraint on growth. The long-term growth prospects of the real estate are hinged on various industries and thus, only a strong and integrated industrial base could enable it to move to a higher and sustainable growth path. Nevertheless, as the real estate sector consistently outperforms other sectors and the continued to broaden its market base amid the crisis suggests that it is dynamic and innovative enough to tap into new opportunities. -RJA