The Philippines: Office space in high demand

Demand for housing and office space in the Philippines is expected to remain high on the back of impressive economic growth. Despite an increase in new space, property developers expect vacancies in premium residential and office space across business districts to remain scarce.

Reports put the occupancy rate in the central business districts (CBDs) of Metro Manila, the country’s commercial bellwether, at 97% in the first quarter of 2013. “The supply of premium residential and office units in prime areas is limited. The demand is so high that even with new projects coming in we expect the vacancy levels of premium real estate in prime districts to remain below 5% for the next two years,” Karlo Pobre, market analyst at Colliers International, told OBG.

According to a report issued by Colliers in May, office vacancy rates in the city of Makati, part of Metro Manila, stood at 3.38% as of March, down from 3.48% at the end of 2012. Regarding the residential segment, Colliers said monthly rental rates in the Makati CDB for premium three-bedroom apartments grew by 2.3% over the same period to reach P737 ($16.94) per sq metre. The consultancy expects rental prices for premium apartments in Makati, Rockwell and Bonifacio Global City to rise by 8-9% over the next 12 months.

The real estate sector has benefitted from the expanding economy, which grew 6.6% last year and at an annual rate of 7.8% in the first quarter of 2013. The Asian Development Bank (ADB) expects the Philippines to record growth of 6% this year and again in 2014.

The decision earlier this year by ratings agencies Fitch and S&P, meanwhile, to grant investment grade status to the Philippines has triggered renewed investor interest in the country. Real estate analyst, Enrique M. Soriano III, told the Philippines Daily Inquirer, “The property sector is well on its way to outperforming last year’s banner performance.”

A boom in business process outsourcing is adding to demand for better housing and office space. Emerging business districts, such as Taguig and Quezon City, have seen the sharpest influx of professionals working in this sector, according to the real estate services provider, CBRE.

Landed residential property is off-limits to foreign nationals under Philippine law, but there is no restriction on foreign ownership of condominiums, better known in South-east Asia as luxury private apartments. Tighter property laws in Singapore and Hong Kong have brought foreign investors to the Philippines in search of high-end real estate.

Pobre believes the ratio of foreign investors, including expatriate Filipinos, to local players targeting prime property could be as high as 70:30. While foreign interest is driving demand for property in Metro Manila’s higher-end business districts, developments elsewhere are proving popular with Filipinos.

Low interest rates and easy access to finance are helping to keep the real estate sector buoyant, although a May announcement from Bangko Sentral ng Pilipinas (BSP) that commercial banks had breached the 20% loan limit on the property sector in 2012 has raised concerns regarding the possibility of a bubble. The central bank said loans had reached P821.7bn ($18.89bn) according to its own calculations, higher than the banks’ reported figure of $14bn.

BSP governor, Amando Tetangco Jr, told reporters in May he was confident that there was no imminent risk to the market but said that the bank was considering new regulations to address the issue. The topic is expected to be on the agenda at the next Financial Sector Forum, an inter-agency coordination meeting held every two months.

One final factor that could contribute to growth in demand is the weakening currency. A crash in the equities market on June 11 saw the peso close at P42.20 against the dollar, marking its lowest rate in more than a year. While making the Philippine economy more competitive, a weaker peso also provides incentive for higher remittance inflows, which are expected to reach $24bn in 2013. With few other options offering similar returns, the real estate sector is likely to look even more attractive to investors.

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