Improved leasing conditions, greater stability in Cebu RE

JLL Philippines sees Metro Cebu achieving greater stability in office leasing activity, increasing opportunities for investment, and servicing heightened demand in logistics and sustainability solutions, as presented in the firm’s Metro Cebu Real Estate Market Overview: Availability, Accessibility, Accountability in Real Estate. The event is hosted and moderated by Joey Radovan, JLL Philippines’ Country Head, and featured presentations from JLL Philippines’ business line heads, as well as Elke Kornalijinslijper, JLL Southeast Asia’s Head of Energy & Sustainability Services; and JLL Technologies. 

Office

Janlo de los Reyes, JLL Philippines’ Head of Research and Strategic Consulting, provided an overview of Metro Cebu’s office sector for the first half of 2022, saying that “the market is stable but there is uneven performance in the office sector, wherein there has been a mix of stability and lackluster performance across indicators.”

In Metro Cebu, office leasing volumes post moderate take-up in the second quarter of 2022, closing at 23,825 sqm in gross leasing volume. IT-BPMs continue to drive leasing activity, accounting to 67.3% as of the first half of 2022, while non-IT-BPM industries such as publishing, finance and banking, maritime technology, and engineering and architecture account for a cumulative 32.7%. IT-BPOs contributed to 4,600 sqm of move-ins in Cebu IT Park, and 4,300 sqm of move-ins in Cebu Business Park.

On a positive note, office pull-outs and rightsizing slow down, with the first half of 2022 getting a 79.25% decrease compared to the second half of 2021. “Pull-outs have slowed down to around 9,872 sqm, where we saw around 2,300 sqm BPO pull-out and 800 sqm corporate pull-out,” added de los Reyes. Vacancy remains elevated but has eased to around 21.9% from a peak of 23.7% in the fourth quarter of 2021. “We saw the improvement from Cebu IT park while Cebu Business park registered an uptick,” says de los Reyes.

Despite this, there is still weak precommitment levels where majority of upcoming stock remains vacant, which may pull-up up the already elevated vacancies. de los Reyes expects office rentals to remain soft owing to supply pressure from the sizeable volume of unoccupied future stock. Office rentals saw no movement at PHP 632 per sqm per month.

Capital Markets

P. Ryan Isip, JLL Philippines’ Head of Capital Markets, presented to guests a snapshot of projects for investment in Metro Cebu, including future supply for offices, REITs, resorts and casinos, and residential developments.

Shifting the focus to finance and investment, Isip cataloged PSE-listed developers and REIT companies, and names nine Cebu assets infused to REITs. Going over key business districts: Cebu Business Park, Cebu IT Park, Mandaue, and South Road Properties, Isip said that “land values have dramatically risen since the 1990’s and will continue to rise.”

Finally, he names six investment trends observed over the course of 24 months: opportunistic acquisitions, hotel & hospitality, tenants reevaluating footprint, yielding asset, data centers, and industrial and logistics.

Logistics & Industrial

“The logistics market in the Philippines is still in the early stages of growth, and there’s positive sentiment in a growing market,” said Charlie McNaught, JLL Philippines’ Director for Logistics & Industrial. He presented key factors that underpin market momentum—positive demographic forces, seismic shift in consumer spending patterns, and ESG commitments.

E-commerce and logistics companies remain key sources of demand in Southeast Asia. Global e-commerce spend is projected to be more than 35% of global retail sales by 2030. “There is an opportunity to introduce Grade A logistics to meet the demands of occupiers, as a lot of them improve their supply chain models and become more conscious of their ESG commitments,” adds McNaught. JLL sees the Philippine logistics market experiencing an exponential growth, with a projected 3.06 million sqm by 2025 and 4.80 million sqm by 2030 for Grade A and B logistics facilities. Logistics frameworks are also moving away from the linear model of retailer to shopping center to consumer, to a more omnichannel approach which places emphasis on factors such as next day deliveries, last mile delivery hubs, and increased level of returns which all equate to further demand for warehousing.

McNaught concludes the logistics report with a presentation of what to expect in the Philippine market: strong demand met with more prime stock, local & International Investment, older stock to be refurbished or redeveloped, ESG & automation, and growth of subsectors such as cold storage, self-storage, and urban logistics, all offering excellent short to medium-term growth potential.

Sustainability

Addressing mostly developers, Kornalijinslijper identified key sustainability factors that shape real estate: creating a pathway to net-zero carbon (NZC), improving human performance, modifying resources to reduce waste, water and other by-products, social value, and forward-looking view on physical risk, transition risk, and resiliency. She stressed that tenants are considering sustainability now more than ever and talked about value implications at every asset’s life cycle.

Adding to Kornalijinslijper’s points, Nix Garchitorena, JLL Phlippines’ Energy & Sustainability Services Manager said that developers must consider the entire life cycle of a building as the built environment accounts for 40% of the total carbon emissions, with a third coming from the construction phase. Garchitorena outlined steps to decarbonize assets to increase capital value and occupier benefits, as well as to future-proof buildings. Finally, she encourages strengthening partnerships between landlords and occupiers to achieve net-zero, saying “Pressures from investors, occupiers, employees, and regulators will remain. Hence, pushing further on sustainability to address and mitigate climate-related risks can help businesses attain resiliency and success.”

JLL has been operating in the Philippines since 1997 as a 100% wholly owned entity and currently manages about 9.4 million square meters of real estate with a workforce of over 1,200 employees. With twenty-five years of local expertise working hand-in-hand with its global legacy, JLL provides to the Philippine real estate market an unparalleled synergy of services with a strong commitment to achieve real estate ambitions through future-ready approaches. For further information, visit www.jll.com.ph.