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Decongesting Metro Manila, building necessary infrastructure critical to sustaining growth The Philippines' continuing economic growth has enabled it to become one of the more popular investment destinations in Southeast Asia. While other countries are still recovering from the effects of the 2008 financial crisis, the Philippines has grown steadily, posting 6.2% growth for the 2nd quarter of 2014 and getting credit rating updates from key international debt-watchers Standard & Poor’s, Fitch, and Moody’s. In its 3rd Quarter Report, real estate services agency KMC MAG Group noted that the Philippines will need to focus on two key issues—decongesting Metro Manila and building the necessary infrastructure—in order to stay ahead and to sustain the momentum it currently enjoys. “The long-term economic growth of the Philippines is dependent on whether or not it can address the issue of decongestion and make smart, sustainable decisions to improve its infrastructure,” said Michael McCullough, Managing Director of KMC MAG Group. “If the Philippines can bring the growth in Manila to other areas within the country and support that with infrastructure, then we see no reason why it wouldn’t fulfill its promise of being the next Asian miracle.” The real estate services agency highlighted that efforts to decongest have become more visible, with business parks and special economic zones being built in provinces outside Metro Manila, such as Cavite, Laguna, and Batangas, and in areas outside of Luzon, such as Cebu, Davao, Cagayan de Oro, and Zamboanga. Meanwhile, within Metro Manila, developers are exploring Quezon City and Bay City as potential central business districts, which could potentially spread out job opportunities, foot traffic, and even investments more evenly within Metro Manila. McCullough noted that Quezon City has shown a lot of potential, given its size, the presence of government institutions, educational institutions, and major broadcasting networks, and its extensive road and railway network. Another area that could potentially develop into a business district is Bay City, the reclaimed area located near Roxas Boulevard on Manila Bay, which currently houses the Mall of Asia and Entertainment City. Bay City is also the site of various business parks, such as Aseana Holdings Inc.-backed Aseana City, the SM-backed Future City, and the Metrobank Group-backed Metropolitan Park. “Previous investments by the government and the private sector have shown that these areas can grow into central business districts,” shared McCullough. “For both Quezon City and Bay City, it will be critical to provide more public transport options and ensure that social services are in place for these two areas to fully develop.” More here:
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Q3 Market UpdateMedia Round Table | November 26, 2014
real estate market overview
Very positive sentiment
Demand remains high in residential
sector but moving towards lower
segment
Local players have massive CAPEX
plans to cover current constructions and
new launches
Main drivers:
OFW remittances
IT-BPO industry
Domestic demand
Tourism
66%9%
21%
4%
Office
Other
Dev site
Hotel
Transaction volume by type of use, last 12 months
Developer CAPEX 2014
Ayala Land Php 70B
SM Prime Php 70B
Megaworld Php 46B
Vista Land Php 20B
Filinvest Php 20B
Robinsons Land Php 16B
Source: KMC MAG Group Research
real estate market overview
Mid end residential Luxury residential OfficeIndustrial
Retail
Late upswing Early downswing Late downswing Early upswing
Sustained growth in demand, increasing construction
Positive but falling demand, increasing vacancy
Increasing demand, decreasing vacancy
Falling demand, decreasing vacancy
Source: KMC MAG Group Research
office market update
Attractive landlord’s
market
Strong market
performance
Driven by shortage of
supply
New supply will put
pressure on rental
growth and vacancy rate
Rental growth will
continue but will be
more conservative
0.0
200.0
400.0
600.0
800.0
1,000.0
Rental Rate Php/sqm/month Makati CBD Bonifacio Global City Ortigas
Grade A Office Market Makati CBDBonifacio
Global CityOrtigas CBD
Rental rate(PHP/sqm)
940.5 827.3 584.8Source: KMC MAG Group Research
residential market update
Average net rental levels Q2 2014
Average net rental levels Q3 2014
Makati CBD 764.1 768.5
BonifacioGlobal City
868.5 874.3
Ortigas CBD 689.5 695.0
Slight increase in average rental rates from Q2
2014
Positive demand for residential market
Focus of developers is shifting to the lower
segments from the luxury segment
Middle income market keeps demand buoyant
Source: KMC MAG Group Research
property bubble|the central bank’s measures
The high activity has raised
issues of an overheated
property market
The Central Bank introduced
stress tests
Macro prudential measure
To ensure the banking
industry’s healthy exposure
to real estate lending
Good initiative to stabilise
liquidity and restrain
speculation
This will gear up the economy
for the possible normalisation
of global interest rates0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0In Billions PHP
Commercial REL Residential REL Bank Average Lending Rate Reverse Repo Rate
Real estate loans and interest rates, 1999-1H/2014
Source: KMC MAG Group Research
upcoming cbd|quezon city
What makes Quezon City the next CBD?
Largest city in Metro Manila
Location of numerous government offices
and headquarters of PNP & AFP
Home of major broadcasting networks
Major educational institutions
Extensive railroad and road network
What areas does QC need to become a full-
fledged CBD?
Infrastructure interconnecting the sub-
districts
Public transport options
Source: KMC MAG Group Research
Average Rental Rate PHP 635.4/sq.m
Vacancy Rate 3.5%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
n Grade A Office
upcoming cbd|bay city
What makes Bay City the next CBD?
Entertainment City
Future tourism hotspot
Multiple business parks being built:
Aseana City
Metropolitan Park (Metrobank Group)
Future City (SM)
What areas does Bay City need to become
a full-fledged CBD?
Proper support infrastructure
(roads, public transport, healthcare, etc.)
Source: KMC MAG Group Research
Average Rental Rate PHP 589.2/sq.m
Vacancy Rate 2.04%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
n Grade A Office
decongesting metro manila
Key to decongesting Metro Manila is
fixing the traffic and transport system
Poor infrastructure costs the PH P2.4B/day
All things needed to improve the situation
is ready and waiting for the go signal
The plans are there: JICA Study
The money is there: the Philippines has
the best credit ratings it has ever had
(cheaper debt)
Why is there no go signal?
Main issue is lack of political will
Source: KMC MAG Group Research, JICA, NEDA
decongesting metro manila|JICA study
Regional development plan
Set up urban areas outside the proximity of
Metro Manila (Cavite, Laguna, Bulacan, etc.)
Spatial development concept
Transport Network:
NLEX – SLEX connection
High quality and capacity public transport
(commuter rail & subway)
Gateway port development
Gateway airport development (Sangley Point)
Integration of all transport and road networks
Source: KMC MAG Group Research, JICA
hotel & leisure industry
Tourism industry continues to welcome
more arrivals each year
Biggest hindrance to growth is the vital
infrastructure that provides accessibility to
the country
NAIA renovation is purely cosmetic, the
infrastructure still lacks support for more
planes to land
There is a need for more runways or
airports in order to absorb more transit
arrivals
The Hotel & Leisure industry is all about
access
0 1,000,000 2,000,000 3,000,000 4,000,000
2010
2011
2012
2013
2014
Visitor Arrivals to the Philippines, January to August
2,355,628
2,626,134
2,832,207
3,180,903
3,268,542
Source: KMC MAG Group Research, DOT
hotel & leisure industry
Outside of Metro Manila, developers are focusing on Cebu, Boracay, and Palawan particularly in El
Nido and San Vicente
Source: KMC MAG Group Research
Lio
Developed by Ayala Land
Located in El Nido, Palawan
Mactan Newtown
Developed by Megaworld
Located in Mactan, Cebu
Boracay Newcoast
Developed by Megaworld
Located in Boracay
Sta. Barbara
Developed by Megaworld
Located in Iloilo
Q3 Market UpdateMedia Round Table | November 26, 2014
