As the office and residential sectors remain robust, Santos Knight Frank predicts that the next wave of expansion will come from sectors such as logistics, hospitality, retail and REITs.
The Philippines’ real estate industry continues to be a key driver of economic growth. As the office and residential sectors remain robust, Santos Knight Frank predicts that the next wave of expansion will come from sectors such as logistics, hospitality, retail and REITs.
REITs to unlock new capital for future developments.
Since the passing of Republic Act No. 9856 in 2009, the real estate market has been anticipating the realization of the Real Estate Investment Trust (REIT). A REIT is a publicly listed stock corporation that owns income-generating real estate assets, such as malls, offices and hotels. Envisioned to promote the development of the capital market, REITs are instruments to generate capital. REIT companies are also mandated by law to distribute 90% of their retained earnings as dividends, which benefit investors.
With the recent move by the Government to amend rules on REITs, developers have been increasingly looking at listing their income-generating assets as REIT companies.
Rick Santos, Chairman & CEO of Santos Knight Frank says: “REITs have the power to democratize the Philippine property market, allowing the individual investor on the street to invest in high-value real estate assets along with the big players.”
Santos adds: “We believe REITs will substantially boost the Philippines’ capital market. New capital for developers will enable expansion of the real estate sector not only in Metro Manila but also in the provinces.”
Generally, REITs have outperformed their non-REIT and overall domestic market over the past one to five years in major Asia Pacific markets, according to Knight Frank’s analysis of REITs in Singapore, Japan, Hong Kong and Australia from Thomson Reuters Datastream.
Santos Knight Frank estimates the prime and Grade A office market in Metro Manila’s four major central business districts (Bay Area, Makati, BGC and Ortigas) at PHP 1.02 trillion.
REITs are not only limited to office assets. With 4.3 million sqm (gross leasable area) in Manila’s retail, Santos Knight Frank expects developers to convert mall assets into REIT companies. Assets such as energy, infrastructure, transportation, hospitals, schools and tourism have also been converted into REITs in other countries.
Logistics: 626% growth in investments recorded in 2018
The logistics and industrial real estate sector has been going through a major transformation over the past few years driven by growing middle class, booming e-commerce market and the decentralization trend outside of Metro Manila. Amid challenges in infrastructure and connectivity, the sector has seen strong demand for last-mile delivery hubs, inner-city distribution centers, cold storage and warehouse facilities.
Investments into the transportation and storage industry grew by 626% to PHP 129.6 billion in 2018 from PHP 17.8 billion in 2017, according to the Philippines’ Bureau of Investments.
To increase efficiency and profitability, warehouse operators are adopting new technology such as the Automated Storage and Retrieval Systems (ASRS) and adding new services. In addition, developers are exploring the fringes of Manila and the regions for the next site of their industrial investments, capitalizing on rising demand in various hubs across the country.
Kash Salvador, Associate Director of Investment & Capital Markets at Santos Knight Frank says: “More warehouses are now needed outside Manila, including Visayas and Mindanao, to connect suppliers with customers. The scarce industrial land in Metro Manila, the drive towards decentralization and the huge demand in the e-commerce and traditional retail sectors offer huge opportunities for players in the logistics and real estate sector.”
Hotels: 10,700 upcoming rooms in Manila and Cebu until 2023
Tourism continues be an attractive sector for investors. Foreign tourist arrivals grew by 7.6% in the first quarter of 2019 to 2.2 million, the majority of which came from South Korea (24%), China (21%) and the U.S. (13%), according to the Department of Tourism. Filipinos are also seen as a strong market for the industry, with 60 million domestic trips made by locals every year.
With a rosy outlook for tourism, major destinations such as Manila and Cebu have witnessed a rising number of new hotels which will cater to expected growth in demand. Manila has the greatest number of upcoming hotel rooms with 6,970 in the pipeline until 2023, concentrating mainly in the Bay Area, Makati, Ortigas and BGC.
Meanwhile, Cebu has at least 3,806 rooms in the pipeline until 2023, majority of which will be in Lapu-Lapu City. Two integrated resort developments – Isla dela Victoria and Emerald Resort & Casino – are expected to increase tourism arrivals in Cebu.
Clark increases tourism competitiveness ahead of SEA Games
In Clark, the increasing number of tourist arrivals, business and investment activities have caught the attention of international hotel operators. Clark International Airport reportedly catered to more than 2.6 million passengers in 2018 – a 75% growth year-on-year. The growing number of occupiers in Udenna’s Clark Global City and Filinvest’s Mimosa and New Clark City also present huge opportunities for business hotels and serviced apartments.
After Marriott Hotel Clark opened in 2018, Hilton and Hyatt this year will each add their own properties within the area. Despite this, the supply of branded hotel rooms within Clark Freeport Zone is still seen as limited and has put pressure on rates. The weighted average daily rate of 5-star hotels within Clark Freeport Zone (PHP11,151) has already surpassed the average in Makati (PHP8,432) and BGC (PHP9,158), while a night in a 4-star hotel in Clark (PHP7,674) is now generally more expensive than Makati (PHP6,441).
Clark is one of the host destinations of the Southeast Asian Games. The Government has invested in building new sports facilities in New Clark City.
Jan Custodio, Senior Director for Research & Consultancy of Santos Knight Frank says: “The Southeast Asian Games which the Philippines will host this year will strengthen Clark as a destination in terms of tourism and allow it to showcase key developments in airport infrastructure, sports facilities and property.”
Retail as an experience
Amid the decline of malls in markets such as the U.S., the retail industry in the Philippines continues to expand, especially in the traditional bricks-and-mortar shop sector. In fact, mall space in Metro Manila has grown by 15% over the last six years to 4.3 million sqm (gross leasable area) as of the first quarter of 2019, according to data from Santos Knight Frank. Vacancy in the first quarter of 2019 ranged from 1% (BGC) to 4.2% (Makati).
Strong household consumption (which grew faster than GDP at 6.3% in the first quarter of 2019) and Filipinos’ love for socializing and shopping have been the backbone of the country’s robust retail industry. But faced with greater competition and changing consumer behavior, players in the industry are now looking at other ways to create more unique experiences with their space to draw more attention from customers.
Kash Salvador says: “As a trend, ‘Retail as an Experience’ has transformed ordinary spaces into virtual reality playgrounds, ‘escape rooms’, quirky restaurant concepts, fitness centers, co-working facilities and pet activity areas – adding value to the mall experience. We expect more of such concepts to be developed as customers look for quality experiences with family and friends.”
Article source: RetalkAsia