Metro in midst of property boom
METRO Manila is in the throes of a property boom described as the best in two decades, reflecting the increasing investor confidence in an economy that only recently began shedding its image as one of the region’s basket cases.
Nowhere is it more obvious than at Bonifacio Global City, a commercial and residential property development on a portion of land carved out from the biggest Army base in the metropolis.
Originally sold by a cash- strapped government in the mid-1990s, building got underway in earnest only during the last six years after Ayala Land Inc. took ownership. Under the Spanish-Filipino business clan that runs Ayala, construction is
now going at full tilt.
“Work here is 24 hours,” said Renel Reyes, an engineer and property manager overseeing a 30-story tower due to be completed by the year-end.
Soon to be home for Nickel Asia Corp. and local conglomerate Aboitiz Equity Ventures Inc., NAC Tower is just one of several tower blocks under construction. As his own workers carried in sleek aluminum rails, Reyes said the state of the market was obvious to anyone who looked up.
Tower cranes
“There are so many tower cranes, a good indicator of the construction boom right now,” Reyes said.
Located near Makati, the main business district that grew up in the 1970s, Bonifacio is a project in progress, but rents at P800 per square meter are already catching up with its older, established, but saturated rival.
Though rents paid in Makati have recovered almost 30 percent in the last three years, they are still way below the peak of P1,200/sq m paid before the global financial crisis hit in 2008, according to data from property manager and consultancy Jones Lang La Salle Leechiu (JLL).
That makes renting in Manila’s business districts far cheaper than Hong Kong, Shanghai or Singapore. But then infrastructure remains a drawback, as anyone arriving at Manila’s tired, old airport quickly realizes.
Lamborghini showroom
As Bonifacio lures companies tired of Makati’s cramped spaces with its sprawling parks, luxury hotel chains and Italian supercar makers have followed the money.
Lamborghini opened its first Philippine showroom, side by side with Ferrari, in Bonifacio, while Hyatt and Shangri-La hotels are opening there soon.
Office space in most new buildings are snapped long before completion. At the NAC Tower, for example, only six floors remain unlet, but Reyes said they had potential takers.
Take up of new office space this year is set to hit a record 400,000 to 450,000 sq m, up as much as 25 percent from last year, according to Jones Lang and CBRE Philippines, another of the country’s biggest property manager and advisers.
“Preleasing is back,” CBRE chair Rick Santos said. “We are now experiencing the best real estate market in the Philippines in the last 20 years.”
BPO firms
The primary driver of demand for office space comes from business process outsourcing (BPO) firms catering to European and American multinationals that want to cut costs.
With one of the region’s fastest growth rates, the Philippines has shown resilience in the face of falling demand in the West and China, that other more export driven economies must envy. GDP grew 6.1 percent in the first half.
Analysts say the Philippines could achieve its first investment grade sovereign-debt credit rating in the next 12 months, about seven years after ending its debtor-nation status with the International Monetary Fund.
Strong private and public consumption has underpinned growth, while inflows of foreign capital have driven the stock market to new peaks and the peso to near five-year highs.
An anticorruption drive launched soon after President Aquino came to power in 2010 has help the Philippines’ image in the eyes of foreign investors.
Low inflation, low interest rates and a ready supply of reliable, English-proficient labor are strong draws for foreign businesses seeking to reduce costs by expanding in Southeast Asia.
Manila calling
The vibrancy is evident in Bonifacio, where shops are open until midnight and fastfood chains and coffee shops cater round the clock, mainly for call center employees.
The BPO sector accounts for 80 to 90 percent of office space take up in the country and is a major source of employment for the country’s nearly half a million new college graduates annually.
The industry is forecast to double its current employee base of more than 600,000 by 2016 as western companies send more accounting, legal, data processing and other backoffice jobs to the Philippines, fueling sustained growth in demand for office space.
Office banking hub
But steady growth in demand from the traditional front office market such as banks, insurance firms and representative offices is also fueling the property boom.
CBRE’s Santos sees the Philippines, known as the world’s call center capital, fast becoming Asia’s back office banking hub.
JP Morgan Chase, HSBC, Bank of America, Citibank, ANZ and Deutsche Bank have all transferred critical back office processes to Manila in the last five years, while Wells Fargo is among the more recent newcomers.
Rents are expected to stabilize in coming years as new office space, totaling at least 1.3 million sq m, becomes available in 2013 to 2015, according to Jones Lang, with little danger of property bubbles as supply is just keeping up with demand.
Industrial parks
Outside Metro Manila, a similar transformation is unfolding, with industrial parks, especially those close to the capital and devoted to manufacturing, drawing more foreign firms than ever before, despite cribs about the high price paid for power.
At least the increase in suppliers has meant the power outages that the Philippines was notorious for in the 1990s are now no more than a bad memory.
“What we are seeing now is the reemergence of manufacturing, which is really good for the economy because manufacturing employs people that the BPO industry won’t employ,” said Lindsay Orr, Jones Lang chief operating officer.
Two hours to the south, at First Philippine Industrial Park (FPIP), in Batangas province, land prices have jumped 60 percent from two years ago, while lease and rent rates have climbed a modest 10-15 percent.
B/E Aerospace Inc, the world’s top supplier of aircraft cabin interiors, opened its first Asian manufacturing plant there last month.
Japanese firms, led by Canon’s Philippine unit, also moved in this year, and FPIP president Hector Dimacali expects revenue to double this year.
“We are seeing big growth that we have never seen in the past,” Dimacali said.