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Philippine Q3 Market Update: Create New CBDs to Decongest Metro Manila


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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.”

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Philippine Q3 Market Update: Create New CBDs to Decongest Metro Manila

  1. 1. Q3 Market Update Media Round Table | November 26, 2014
  2. 2. 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
  3. 3. real estate market overview Mid end residential Luxury residential Office Industrial 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
  4. 4. 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 CBD Bonifacio Global City Ortigas CBD Rental rate (PHP/sqm) 940.5 827.3 584.8 Source: KMC MAG Group Research
  5. 5. residential market update Average net rental levels Q2 2014 Average net rental levels Q3 2014 Makati CBD 764.1 768.5 Bonifacio Global 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
  6. 6. 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 rates 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 0.0 100.0 200.0 300.0 400.0 500.0 600.0 700.0 In 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
  7. 7. 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
  8. 8. 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
  9. 9. 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
  10. 10. 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
  11. 11. 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
  12. 12. Q3 Market Update Media Round Table | November 26, 2014