JLL: Real estate industry remains resilient; logistics an emerging sector
JLL Philippines, the country’s premier real estate consultancy firm, continues to be optimistic for future of the Philippine real estate industry, especially for the logistics sector. This is amidst recent economic developments that present a possible decline in real estate investment opportunities.
23 OCTOBER 2019/MAKATI CITY – JLL Philippines, the country’s premier real estate consultancy firm, continues to be optimistic for future of the Philippine real estate industry, especially for the logistics sector. This is amidst recent economic and legislative direction that presents a possible decline in real estate investment opportunities.
Janlo de los Reyes, JLL’s Head of Research and Consultancy, presented the company’s third quarter market report during “Know the POINT: Predictions, Opportunities, Insights, News, and Trends,” which was held in cooperation with the Makati Business Club.
During the event, de los Reyes expounded on the trends and future of the office, residential, retail, and hotel property markets, with focus on the factors that having been driving demands for each.
Office property market
Offshoring and outsourcing (O&O) firms, Philippine offshore gaming operators (POGOs), and flexible work operators continue to drive demand for office spaces in the third quarter.
Global firms remain to bank on the highly skilled talent found in the Philippines to optimize their cost of operations. Particularly, O&O leads the market in terms of lease transactions in the third quarter, making up more than half of the total size transacted. Quezon City and Taguig City lead in terms of geography, attributed to the large amount of supply completed in the third quarter able to absorb large office space requirements by firms.
Offshore gaming operators from Mainland China continue to bring strong leasing demand. The industry is seen to stay intact after the government’s announcement to keep operations running despite Beijing’s request to cease all forms of gambling.
Lastly, both foreign and local operators of flexible workspaces remain to expand in several parts of Metro Manila. Despite the issues on the larger WeWork company, the New York-based operator is on its way to its fifth site in Metro Manila. Malaysia-based Common Ground also added sites in Ortigas Center. Local operators, KMC Solutions and DTSI, are also active in expanding to more sites in key and emerging areas.
On the whole, about 483,600 square meters of leasable space was completed in the third quarter, most of which are in Taguig City and Quezon City, and the market is expected to see around 403,400 square meters more supply in the fourth quarter.
On the other hand, average vacancy in Metro Manila as a whole is recorded at 8.0%, primarily pulled by the high vacancy in Mandaluyong City and Manila City from recently completed office buildings with low pre-commitment rates prior completion.
Residential property market
High-net-worth individuals (HNWIs), young professionals, OFW families, and upgrading families still drive the sale demand for residential properties.
Lease demand, on the other hand, is driven by corporate housing needs of expatriate employees working in MNCs, O&O firms, embassies, and consulates propel the upper-mid to luxury development leasing market of Makati CBD, BGC, and, to an extent, Ortigas Center.
With the continuous boom of POGOs, employment housing for online gaming employees propel the leasing market in Bay City where a lot of POGOs are located. This driver is on the rise in other areas, where POGOs are spreading out and increasing presence in Quezon City and Muntinlupa City.
About 6,000 units are added in the vertical residential market in Metro Manila. Upcoming condominiums are expected to bring an additional 90,900 units through 2022.
Vacancy rates among Mero Manila cities are generally healthy below 5%, with Quezon City having the highest average vacancy rate, primarily due to the large existing supply. Strong investment interest from buyers can also be observed, as upcoming projects are almost sold out at city average of 99.6%.
Hotel and retail property markets
Even the hotel property market continues to take advantage of the rise of POGOs.
Hotel occupancy rates are generally steady and above 50%, with Paranaque City leading at 92% followed by Pasay City at 73%, due to the concentration of entertainment establishments in these cities.
Government agencies also help in driving the occupancy rates for MICE events, typically in Quezon City. Meanwhile, the private sector usually holds MICE events in Pasay City, due to its proximity to NAIA, and Makati City, due to its proximity to businesses’ headquarters in CBDs.
In terms of the retail market, food and beverage (F&B) sector is still the main demand driver in the third quarter. Cosmetics and skincare are also ushering in demand as these are becoming more popular not just with women.
“Recent economic and legislative direction such as the PEZA moratorium, CITIRA bill, and geo-political disruptions on POGOs are seen as headwinds—there is a possible negative impact in the real estate industry but only in the short term,” said Christophe Vicic, JLL Philippines Country Head. “We still see a big room for growth in the long term, especially in logistics, which is a promising sector in the Philippines.”
Logistics: An emerging sector
JLL’s event likewise zoomed into logistics in the country and the Asia Pacific, with JLL’s Director for Industrial and Logisitics, Tom Over, spearheading the discussion on the emerging market. Ninja Van’s Chief Operating Officer, Vin Perez, was also present in the panel to expound on how Ninja Van tackles logistical challenges of delivery in the Philippines.
Southeast Asia’s online economy is expected to grow 20% CAGR by 2025, with total e-commerce market to reach USD 88 billion by 2025, with Indonesia making up half of this. Ride hailing, online media, online travel, and e-commerce are among the major contributors to the Southeast Asian online economy.
Zeroing into the Philippines, Over cited the country’s stable young population, an opportune demographics to make up a large consumer market and drive e-commerce, logistics, and manufacturing.
Lazada has doubled its plant in Cabuyao, Laguna, while Zalora is targeting to expand its warehouse facility in Cavite in 2019 to accommodate five million product inventory or five times more than the one million product inventory capacity of its existing warehouse.
However, cash payment is still the preferred method of many Filipinos and slow internet speed make a dent in logistics. These pose as limitations—and therefore potential areas for growth—for the further flourishing of the industry.
“Industrial and logistics real estate has incredibly strong growth fundamentals across both a global and national scale,” said Over. “Infrastructure projects and technology will combine to drive rapid evolution of the logistics market in the Philippines.”
“JLL remains optimistic about the future of the real estate industry in the Philippines, and we believe that the logistics sector will soon take flight and contribute significantly to the country’s economic development. To complement this growth, JLL has a dedicated industrial and logistics team which will leverage PropTech to find solutions in a rapidly changing industrial real estate market,” concluded Vicic.
JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of nearly 92,000 as of June 30, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com