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Top 10 Predictions for 2016 Colliers International Philippines December 2015
− The economic performance of the Philippines was lower
during the first three quarters of 2015 compared to previous
years, dropping to 5.0% in the first quarter before
recovering to 6.0% by the third quarter. This was due to
lower exports amid a global slowdown, as well as the
government’s decision to cut spending earlier in the year.
− Increased government spending planned for the second
half of 2015 is seen to buoy the economy through 2016.
− While many economists have downgraded their end-2015
forecasts to the low 6% level, they foresee that 2016 will be
a better year, amid strong private consumption and a
benign inflation rate. The national elections will also spur
consumption at least for the first few months of 2016.
− NEDA foresees that GDP can grow as much as 7-8% in the
next six years if key issues such as infrastructure, a stable
business environment and human capital development are
addressed.
1. Robust economic growth to continue
at lower levels in 2016
2016 GDP Growth Forecasts:
• NEDA – 7.0%
• IMF – 6.3%
• WB – 6.4%
• ADB – 6.3%
• ANZ – 6.1%
• Moody’s – 6.0%
Source: National Economic and Development Authority; World Bank, International Monetary Fund, Asian Development Bank
− In Colliers International’s Global Investor Outlook for 2016, a
survey of over 600 investors from across the globe, respondents
held the sentiment that Asia still plays an important role in their
investment decisions despite a slowdown in the region,
particularly in China. However, more investors are taking a more
cautious stance in their Asian investments.
− CBD offices are seen to be the preferred investment type for
those investing in the Asia-Pacific region, followed by direct
investments in development projects.
− On a local level, Colliers observed a substantial increase in
property development interest in the Philippines from foreign
groups in 2015, particularly from Japanese firms. Top-tier
developers were in a position to turn away these interested
parties due to the current accessibility of the capital markets. We
see this changing moving forward as interest rates increase.
− On a global level, liquid markets would be most preferred in the
next few months as uncertainty grows worldwide.
2. Asia to remain a key destination for
global property investment
Joint ventures with a local
partner remains to be the
most popular real estate
investment strategy in Asia.
Source: Colliers International Global Investor Outlook 2016; Colliers International Philippines Research
− On Dec. 16, 2015, the United States Federal Reserve
increased interest rates for the first time in almost a decade,
signaling an end to an era of easy credit. While the rate hike
was minimal at 0.25%, it is anticipated that this would be the
first of a series of increases which would ultimately lead to a
net 1% jump by the end of 2016.
− Many developers and equity analysts have downplayed the
effect of the rate increase on the primary residential market,
particularly on projects that are targeted towards end-users.
On the other hand, speculative investment is seen to decline
since it is usually more sensitive to higher borrowing costs.
− Expected yields on recurring income investments such as
office and retail leasing will increase because of the higher
interest rate environment. Thus, due diligence is seen to be
more stringent in the face of the higher hurdles, and cap
rates will start rising. Land transactions completed at prices
significantly higher than market may also become more rare,
since the cost to borrow would be higher.
3. Rising interest rates to impact the
various property sectors
Cap rates are seen rising
in step with policy rate
increases.
Source: Colliers International Philippines Research
− Following a pre-selling condo boom that began late in the
previous decade, around 13,400 new condominium units are
anticipated to be completed in the major Metro Manila CBDs
in 2016, more than double the levels in 2015. On average,
around 7,500 units shall be completed until 2019. This will
lead to an increase in the CBD condo stock by 45% in such a
short period of time.
− The story is similar in Cebu, where the condo supply will jump
from around 16,000 units by the end of 2015 to around
33,000 units by the end of 2018.
− Developers have begun looking for creative strategies in
order to deal with their rising ready-for-occupancy (RFO)
inventories, either through more flexible payment terms or to
develop leasing models in order to create some cash flow
from these unsold units. As part of the developers’
diversification strategies in the face of a softening residential
sale market, we anticipate that multi-family/apartment leasing
business models similar to other countries will soon emerge.
4. Residential leasing market in Metro
Manila to become more challenging
Source: Colliers International Philippines Research
A rental rate correction of
around 5% is seen in Metro
Manila condominiums.
− While third-party outsourcers still comprise the bulk
of the BPO industry here in the Philippines, shared
services and captives are seen to drive the
demand for space in 2016. Colliers saw interest
surge from this sub-industry in the final weeks of
2015.
− Clients that are currently signed up with third-party
operators are also seen to pull the trigger and set
up their own captive operations after seeing that
outsourcing to the Philippines is a viable strategy.
− The impact of the BPO industry on the office
property market remains dominant, accounting for
around 80% of the take-up of new supply.
5. Shared services to drive the BPO
market in 2016
Companies such as Google, HP and
Ernst & Young are set to expand their
shared services portfolios in the
Philippines significantly in 2016.
Source: Jie Espinosa, Colliers International Executive Director for Office Services
− While growing demand from the BPO industry
have held office vacancy rates down,
unprecedented levels of new supply will be
completed in 2016 and 2017. Despite the fact
that demand is seen to keep growing at double
digit rates, the new supply is increasing at a
much higher rate.
− Thus, excess supply is anticipated to push
overall vacancy rates up to around 7% by the
end of 2016. There will also be pressure on
developers to start dropping rates in the face
of the supply surplus; Colliers has already
observed that some developers are taking
rents way below their headline rates in the
fringe areas. An overall correction in rents
between 5-10% is anticipated by the end of
2016; this will hit fringe areas harder than
those that are more central.
6. Office rental market to correct amid
all-time highs in new supply
A supply overhang may be
experienced over the next 2-3 years
unless office developers’ aggressive
development plans are delayed.
Source: Colliers International Philippines Research
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Annual New Office Supply (Net Useable Area)
− Despite a slowdown in the residential condominium market in Metro
Manila, developers will continue to pursue township developments in
and outside Metro Manila. Townships offer a better value proposition
compared to standalone projects since they offer mixed-use
developments that make them more attractive to residential buyers.
− With the various issues plaguing Metro Manila, such as overpopulation,
worsening traffic, flooding, lack of good mass transportation systems
and public infrastructure, township developments are seen to evolve
further into mini-cities, where developers take the lead in providing
public infrastructure and other services in order to spur growth in their
developments.
− However, township developments will not be true to their name and will
remain to be glorified office parks with condos for the upper classes
unless they provide affordable housing options. Development progress
in these developments will also be slow unless decent jobs are created.
Exploring affordable housing and apartment leasing business models as
mentioned in Prediction No. 4 is essential, as it will attract highly skilled
labor from established metropolitan areas to move to their
developments and sustain their office projects.
7. More townships to be pursued all over
the country
Townships in the
provinces may prove to
be viable alternatives to
Metro Manila, where
overpopulation and the
lack of infrastructure
are taking their toll.
Source: Colliers International Philippines Research
− As the hotel market in Metro Manila becomes more
crowded, the development of 4- and 5-star hotels in resort
destinations will be more visible in 2016.
− New airport infrastructure is essential in further increasing
both local and foreign tourism. While service at Manila’s
Ninoy Aquino International Airport continues to deteriorate
until an alternative airport location is identified, the
development of international airports in major destinations
such as Cebu, Boracay and Bohol will allow foreign tourists
to bypass Manila.
− We foresee that established branded hotel chains will come
in to take over old, locally-managed resorts that are in
excellent locations but are past their prime.
− Branded condotel investment models with defined revenue
sharing schemes will be more popular than leisure home
investments with no clear program on how to maximize the
investment.
8. Hotel developments to focus on resort
destinations
Foreign arrivals in 2015 are
seen to exceed the 5.5 million
target set by the government.
Source: Colliers International Philippines Research
− Cavite has been known as a suburban support area to Metro
Manila. With its relatively cheaper housing costs, Cavite has drawn
hundreds of thousands to settle within its boundaries but who still
commute daily to their jobs within Metro Manila.
− A plethora of infrastructure projects that have been launched
recently will allow Cavite to bloom (and boom) on its own. The LRT
1 extension project will terminate in Bacoor; the government has
now started the bid for the LRT 6 which will further extend the LRT
line from Bacoor to Dasmarinas City. Furthermore, the 44-km.
Cavite-Laguna Expressway (CALAX) project will provide necessary
access to growth areas in Cavite.
− With the completion of the Muntinlupa Cavite Expressway (MCX), a
toll road which connects the South Luzon Expressway (SLEX) to
Daang Hari, we foresee that property values in the vicinity will
escalate rapidly. The new toll road will spur rapid development in
emerging master-planned communities such as Vista Land’s Vista
City and Ayala Land’s Vermosa Estate, which have the potential to
establish themselves as full-blown CBDs.
9. Cavite to come to its own as an urban
center
With several major
infrastructures underway
in Cavite, developers
have already started
projects that are well-
positioned for future
growth.
Source: Colliers International Philippines Research
− Despite a stock of around 7.8 million sqm of leasable
area, the warehousing and logistics market in Metro
Manila is very tight, operating at an average of 98%
occupancy for the various warehousing districts.
Warehouses in central locations in the metropolis have
been dwindling as land values rise and demand for
residential and commercial space increase, driving out
these low-value warehouses.
− On the other hand, the retail market is expected to
reach a historical high in 2016 with 725,000 sqm of
new retail space coming up. This will of course
increase demand for warehousing and storage space,
amid the already tight market in Metro Manila.
− Warehouse rentals have already exceeded P300 per
sqm in key areas in the metropolis. Given the increase
in demand and the worsening traffic conditions in the
metro, we see rates rising in the short term in key
areas.
10. Growth in retail to lead to higher
warehousing and logistics demand
Gentrification of industrial areas
into condominium and
commercial buildings has led to a
lack of centrally located
warehousing and logistics
facilities.
Source: Colliers International Philippines Research
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Metro Manila Retail Supply & Demand
New Supply During Year (LHS)
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TEL +63 2 888 9988
Julius Guevara
Director | Research & Advisory Services
+632 888 9988
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