Decongesting Metro Manila, building necessary infrastructure
critical to sustaining growth
The Philippines' continuing economic growth has enabled it to become one of the more popular
investment destinations in Southeast Asia. While other countries are still recovering from the
effects of the 2008 financial crisis, the Philippines has grown steadily, posting 6.2% growth for the
2nd quarter of 2014 and getting credit rating updates from key international debt-watchers
Standard & Poor’s, Fitch, and Moody’s.
In its 3rd Quarter Report, real estate services agency KMC MAG Group noted that the Philippines
will need to focus on two key issues—decongesting Metro Manila and building the necessary
infrastructure—in order to stay ahead and to sustain the momentum it currently enjoys. “The
long-term economic growth of the Philippines is dependent on whether or not it can address the
issue of decongestion and make smart, sustainable decisions to improve its infrastructure,” said
Michael McCullough, Managing Director of KMC MAG Group. “If the Philippines can bring the
growth in Manila to other areas within the country and support that with infrastructure, then we
see no reason why it wouldn’t fulfill its promise of being the next Asian miracle.”
The real estate services agency highlighted that efforts to decongest have become more visible,
with business parks and special economic zones being built in provinces outside Metro Manila,
such as Cavite, Laguna, and Batangas, and in areas outside of Luzon, such as Cebu, Davao,
Cagayan de Oro, and Zamboanga.
Meanwhile, within Metro Manila, developers are exploring Quezon City and Bay City as potential
central business districts, which could potentially spread out job opportunities, foot traffic, and
even investments more evenly within Metro Manila. McCullough noted that Quezon City has
shown a lot of potential, given its size, the presence of government institutions, educational
institutions, and major broadcasting networks, and its extensive road and railway network.
Another area that could potentially develop into a business district is Bay City, the reclaimed area
located near Roxas Boulevard on Manila Bay, which currently houses the Mall of Asia and
Entertainment City. Bay City is also the site of various business parks, such as Aseana Holdings
Inc.-backed Aseana City, the SM-backed Future City, and the Metrobank Group-backed
Metropolitan Park.
“Previous investments by the government and the private sector have shown that these areas can
grow into central business districts,” shared McCullough. “For both Quezon City and Bay City, it
will be critical to provide more public transport options and ensure that social services are in
place for these two areas to fully develop.”
2. real estate market overview
Very positive sentiment
Demand remains high in residential sector but moving towards lower segment
Local players have massive CAPEX plans to cover current constructions and new launches
Main drivers:
OFW remittances
IT-BPO industry
Domestic demand
Tourism
66%
9%
21%
4%
Office
Other
Dev site
Hotel
Transaction volume by type of use, last 12 months
Developer
CAPEX 2014
Ayala Land
Php 70B
SM Prime
Php 70B
Megaworld
Php 46B
Vista Land
Php 20B
Filinvest
Php 20B
Robinsons Land
Php 16B
Source: KMC MAG Group Research
3. real estate market overview
Mid end residential
Luxury residential
Office
Industrial
Retail
Late upswing
Early downswing
Late downswing
Early upswing
Sustained growth in demand, increasing construction
Positive but falling demand, increasing vacancy
Increasing demand, decreasing vacancy
Falling demand, decreasing vacancy
Source: KMC MAG Group Research
4. office market update
Attractive landlord’s market
Strong market performance
Driven by shortage of supply
New supply will put pressure on rental growth and vacancy rate
Rental growth will continue but will be more conservative
0.0
200.0
400.0
600.0
800.0
1,000.0
Rental Rate Php/sqm/month
Makati CBD
Bonifacio Global City
Ortigas
Grade A Office Market
Makati CBD
Bonifacio
Global City
Ortigas CBD
Rental rate
(PHP/sqm)
940.5
827.3
584.8
Source: KMC MAG Group Research
5. residential market update
Average net rental
levels Q2 2014
Average net rental
levels Q3 2014
Makati CBD
764.1
768.5
Bonifacio
Global City
868.5
874.3
Ortigas CBD
689.5
695.0
Slight increase in average rental rates from Q2 2014
Positive demand for residential market
Focus of developers is shifting to the lower segments from the luxury segment
Middle income market keeps demand buoyant
Source: KMC MAG Group Research
6. property bubble|the central bank’s measures
The high activity has raised issues of an overheated property market
The Central Bank introduced stress tests
Macro prudential measure
To ensure the banking industry’s healthy exposure to real estate lending
Good initiative to stabilise liquidity and restrain speculation
This will gear up the economy for the possible normalisation of global interest rates
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
In Billions PHP
Commercial REL
Residential REL
Bank Average Lending Rate
Reverse Repo Rate
Real estate loans and interest rates, 1999-1H/2014
Source: KMC MAG Group Research
7. upcoming cbd|quezon city
What makes Quezon City the next CBD?
Largest city in Metro Manila
Location of numerous government offices and headquarters of PNP & AFP
Home of major broadcasting networks
Major educational institutions
Extensive railroad and road network
What areas does QC need to become a full- fledged CBD?
Infrastructure interconnecting the sub- districts
Public transport options
Source: KMC MAG Group Research
Average Rental Rate
PHP 635.4/sq.m
Vacancy Rate
3.5%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
n Grade A Office
8. upcoming cbd|bay city
What makes Bay City the next CBD?
Entertainment City
Future tourism hotspot
Multiple business parks being built:
Aseana City
Metropolitan Park (Metrobank Group)
Future City (SM)
What areas does Bay City need to become a full-fledged CBD?
Proper support infrastructure (roads, public transport, healthcare, etc.)
Source: KMC MAG Group Research
Average Rental Rate
PHP 589.2/sq.m
Vacancy Rate
2.04%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
n Grade A Office
9. decongesting metro manila
Key to decongesting Metro Manila is fixing the traffic and transport system
Poor infrastructure costs the PH P2.4B/day
All things needed to improve the situation is ready and waiting for the go signal
The plans are there: JICA Study
The money is there: the Philippines has the best credit ratings it has ever had (cheaper debt)
Why is there no go signal?
Main issue is lack of political will
Source: KMC MAG Group Research, JICA, NEDA
10. hotel & leisure industry
Tourism industry continues to welcome more arrivals each year
Biggest hindrance to growth is the vital infrastructure that provides accessibility to the country
NAIA renovation is purely cosmetic, the infrastructure still lacks support for more planes to land
There is a need for more runways or airports in order to absorb more transit arrivals
The Hotel & Leisure industry is all about access
0
1,000,000
2,000,000
3,000,000
4,000,000
2010
2011
2012
2013
2014
Visitor Arrivals to the Philippines, January to August
2,355,628
2,626,134
2,832,207
3,180,903
3,268,542
Source: KMC MAG Group Research, DOT
11. hotel & leisure industry
Outside of Metro Manila, developers are focusing on Cebu, Boracay, and Palawan particularly in El Nido and San Vicente
Source: KMC MAG Group Research
Lio
Developed by Ayala Land
Located in El Nido, Palawan
Mactan Newtown
Developed by Megaworld
Located in Mactan, Cebu
Boracay Newcoast
Developed by Megaworld
Located in Boracay
Sta. Barbara
Developed by Megaworld
Located in Iloilo