COLLIER S ANNUAL OF F ICE | CEB U | R ES EARCH | Q1 2020 | 25 JUNE 2020

CEBU CITY A HUB FOR BUSINESS CONTINUITY

Joey Roi Bondoc Developers respond to office demand recovery as occupants decentralize and firm up business continuity plans
Senior Manager | Research |
Philippines
+63 2 8858 9057
Joey.Bondoc@colliers.com

Insights & 2020–22

Recommendations H1 2020 Full Year 2020 Annual Average

While we see a slower pace of > Colliers sees softer absorption in 2020 as
leasing across the country in companies wait-and see due to the
pandemic and lockdown. Colliers and the
2020, Colliers believes that Metro
Demand government project a recovery2 once market 26,900 sqm 55,000 sq m 119,300 sq m
Cebu will likely be among the first conditions improve starting Q1 2021.
locations to recover as it remains
a preferred destination outside
Metro Manila. > Completions in 2020 will likely slow due to
construction delays. We see delivery picking
Colliers recommends that up from 2021 to 2022 as developers respond
developers tap our and to a rebound in take-up and space delayed in
Supply 0 sqm 68,300 sq m 133,500 sq m
government-projected recovery 2020 is completed during the period.
in 2021 by:
> Highlighting the availability of Annual Average
HOH/ YOY / Growth 2019–22 /
PEZA1 and healthy spaces End H1 End 2020
End 2022
> Stressing property
> In 2020, Colliers sees rents declining due to -0.4% -8.0% -0.7%
management capabilities softer demand. We see rents recovering in
amid the pandemic 2021 as leasing activity picks up and occupiers
Meanwhile, occupants should: Rent respond to national and global recovery. PHP631 PHP583 PHP619

> Explore available space within

integrated communities
> Consider Metro Cebu’s
advantages over other sites
including global
competitiveness, availability
of manpower, and access.
> We see vacancy rising in 2020 but this should -2.3pp +0.4pp -0.1pp
be tempered by muted office completions.
The recovery in absorption starting 2021
Vacancy should result in lower vacancy. 9.3% 12.0% 11.3%
Source: Colliers International. Note: 1 sq m = 10.76 sq ft. USD1 to PHP51 as of the end of Q1 2020. 1Philippine Economic Zone Authority (PEZA) proclaimed spaces
where locators enjoy tax and non-tax incentives. 2Economic recovery to start in 4th quarter, Diokno says. Traditional includes companies in various sectors such as
legal, engineering and construction, government agencies and flexible workspace operators.
COLLIER S ANNUAL OF F ICE | CEB U | R ES EARCH | Q1 2020 | 25 JUNE 2020

RECOMMENDATIONS Highlight property management …

Similar to what we see in Metro Manila, occupiers are now placing a
Cebu as part of outsourcing firms’ business continuity plans (BCP) premium on the safety and quality of office spaces. The need to provide
more office space per employee is likely to party drive demand over the next
Colliers sees Metro Manila-based outsourcing companies aggressively
12 months. But aside from allocating larger spaces, Colliers believes that
looking at diversifying their office footprint and establishing operations
occupants are likely to prioritize sanitation, emergency preparedness, and
outside Metro Manila. In our opinion, landlords in Cebu should
design considerations (e.g. air circulation and glass ratio for natural sunlight).
comprehensively assess the space requirements of outsourcing occupants
planning to open shop or expand in Cebu city. In our opinion, spaces within …and safety of office space
the Cebu IT and Business Park as well as their fringes are among the more
attractive options due to availability of PEZA space. Colliers believes that the pandemic has only raised occupants’ demand for
green and health office spaces. Firms need to look after the safety of
Highlight availability of PEZA space employees and should consider allotting more space per employee and
providing increased natural light. In our opinion, now is an opportune time
One major reason why outsourcing firms continue to keep Cebu in their
for developers to highlight their green 5 and LEED-certified6 office spaces.
investment radars is the availability of PEZA-proclaimed3 office space in
Metro Cebu. About 111,000 sq metres (1.2 million sqfeet) of new space due Occupy space within integrated communities
from 2020 to 2022 is PEZA-proclaimed. Colliers sees the granting of PEZA
proclamation to Abiathar Commercial Complex in Cebu, which covers One Colliers sees the demand for office space within business parks and their
Montage building, further raising PEZA availability within Cebu Business Park peripheral areas rising especially when we believe market sentiment starts
fringe in the next few years, which should benefit outsourcing occupiers. recovering in early 2021. Colliers expects Cebu IT Park and Cebu Business
Park and their fringes to account for 77% of new supply from 2020 to 2022.
Highlight Cebu’s advantage over other locations
Cebu office supply, demand and vacancy, 2016-2022F
Colliers believes that Cebu remains a preferred business destination outside
Metro Manila due to its competitiveness in terms of manpower, Supply Net Take Up Vacancy Rate
infrastructure, and cost of doing business. In Tholons’ 2019 survey of the 100
200,000 14.0%
most attractive outsourcing sites in the world, Cebu ranked 12 4. Among
12.3% 12.0% 12.0%
Tholons’ criteria are talent, infrastructure, and innovation. 11.4% 11.6% 11.7% 11.3%
150,000 10.0%
Assess ESLs’ office space requirements
8.0%
100,000 6.7%
Colliers sees demand from online English as a Second Language (ESL) 6.0%
companies growing as a result of the COVID-19 pandemic. With global travel 4.0%
50,000
restrictions, students from China, Japan and South Korea are likely to shift to
2.0%
online education instead of undergoing an intensive physical classroom
- 0.0%
education in Cebu. We see this potentially increasing the office space
2016 2017 2018 2019 2020F 2021F 2022F
requirements of ESL centres operating within Cebu IT and Cebu Business
Parks. Colliers encourages developers to assess the office space Source: Colliers International. Note: 3Philippine Economic Zone Authority (PEZA) proclaimed spaces where
requirements of these firms and be more proactive in responding to their locators enjoy tax and non-tax incentives. 4Tholons, Tholons Services Globalization Index, 2019. 5According to
the World Green Building Council, a Green building reduces or eliminates negative impacts on our climate and
office requirements. natural environment. 6LEED = Leadership in Energy and Environmental Design.

2
COLLIER S ANNUAL OF F ICE | CEB U | R ES EARCH | Q1 2020 | 25 JUNE 2020

NEW SUPPLY TO DROP BY 50% Among the major outsourcing deals recorded in 2019 are Tech Mahindra,
Accenture, 24/7 In Touch and Google.
In 2019, Metro Cebu’s office stock reached 1.17 million sq metres (12.5 Previously, the Department of Labor and Employment noted that the
million sq feet), from 1.04 million sq metres (11.1 million sq feet) in 2018. A outsourcing sector keeps providing jobs amid the pandemic. The agency said
combined 43% of the new supply in 2019 was completed in the Cebu IT and that new outsourcing jobs are likely to go to Cebu, among other locations 8.
Business Parks. These expansions should temper Cebu’s office vacancy, which we see
Due to construction delays brought about by the pandemic and lockdown, dropping to 11.7% in 2021 from 12% in 2020. Colliers sees traditional and
Colliers sees muted office completion in 2020. From our original projection outsourcing firms dominating office space take-up in 2020.
of 129,000 sq metres (1.4 million sq feet), we see completion plummeting to Breakdown of Cebu office transactions, Q1 2020
only 68,300 sq metres (734,900 sq feet).
New supply (sq m) and % of total new supply, 2020 to 2021 9%
26K | 10%
70K | 27% Orion Corporate Center Traditional
Central Bloc 2
Skyrise 3B
28% BPO
Mabuhay Tower 2
Mandaue
22K | 9%
30K | 12%
Faustina Center KPO
Filinvest Cebu Cyberzone Cebu IT Park 62%
F. Cabahug 49K | 19%
Tower 3 CITP Fringe
CBP Fringe 1 Nito Tower
Cebu Exchange (Phase 1)
JEG Tower
36K | 14% Cebu Business Park
Johndorf Tower
24K | 9%
Reclamation Area Grand Tower Cebu
Latitude Corporate Center Condo Office Source: Colliers International
Source: Colliers International. Scale: 1cm = 1km.
RENTS TO RECOVER IN 2021
VACANCY TO DROP IN 2021 Colliers sees office lease rates in Cebu declining by 8% in 2020 before
posting a 3% annual growth in 2021. In our opinion, the slowdown in office
In 2019, prior to the COVID-19 pandemic, the IT and Business Process leasing is affecting not just Metro Manila but also key locations such as Cebu
Association of the Philippines (IBPAP) 7 noted that the growth in employment and Davao.
in the outsourcing sector was primarily due to more jobs created in
outsourcing sites beyond Metro Manila, including Cebu. While investors take Colliers believes that a recovery in 2021 will likely hinge on Metro Manila-
a wait-and-see stance and plan to revisit leasing options in the next three to based occupiers’ decisions to diversify locations and lease space in Cebu,
six months due to the pandemic, we see the government-projected along with the overall expansion of national and regional economies in 2021
economic recovery in 2021 contributing to greater office space absorption in which should partly encourage traditional occupiers to take up new office
Metro Cebu during the period. We see this trend continuing and this should space.
raise Cebu’s proportion of Filipino outsourcing employees, which currently Overall, Colliers sees a quicker pace of rental recovery amongst buildings
stands at about 10%. located in Cebu IT and Business park and their fringes as new and expanding
Note: 7IBPAP is the umbrella association for the Information Technology and Business Process Management (IT- occupiers gravitate towards these locations.
BPM) firm of the Philippines. 8Manila Bulletin, DOLE Sees Resurgence of BPO Jobs, 2020
3
Primary Author: For further information, please contact:
Joey Roi Bondoc David A. Young
Senior Manager | Research | Philippines Chief Operating Officer | Philippines
+63 2 8858 9057 +63 2 8858 9009
Joey.Bondoc@colliers.com David.A.Young@colliers.com

Contributors: Richard Raymundo

Managing Director | Philippines
Donica Cuenca +63 2 8858 9028
Research Analyst | Research | Philippines Richard.Raymundo@colliers.com
+63 2 8858 9068
Donica.Cuenca@colliers.com

Martin Aguila
Research Analyst | Research | Philippines
+63 2 8863 4116
Martin.Aguila@colliers.com

About Colliers International

Colliers Inte rnational (NASDAQ, TSX: CIGI) is a leading rea l estate professiona l services and investment management company. With ope rations in 68 countries, our m ore than
15,000 enterprising professionals work collaboratively to provide e xpert advice and services to maximize the value of property for real estate occupiers, owners and investors. For
more than 25 years, our experienced leadership, owning approxima tely 40% of our equity, has delivered compound annual investment returns of a lmost 20% for sha reholders. In
2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in our investment management segment. Learn
more about how we accelerate success at corporate.colliers.com, Twitter or LinkedIn

Copyright © 2020 Colliers International

The information contained herein has been obta ined from s ources deemed relia ble. While every reasona ble effort has been ma de to ensure its accuracy, we cannot guarantee it.
No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.
COLLIER S ANNUAL R ES ID ENTIAL | CEB U | R ES EAR CH | Q1 2020 | 25 JUNE 2020

OPPORTUNITIES FOR CEBU RESIDENTIAL

Joey Roi Bondoc
Senior Manager | Research |
DEVELOPERS AND INVESTORS
Philippines Property stakeholders in Metro Cebu line up efforts to recapture demand in 2021
+63 2 8858 9057
Joey.Bondoc@colliers.com

2020–22
Insights & 2019 Full Year 2020 Annual Average
Recommendations > Colliers sees residential demand declining in
2020 as a result of the COVID-19 pandemic.
Colliers sees muted residential Economic contraction and lower remittances
completion and take-up in Metro Demand from OFWs are likely to soften residential 9,000 units 7,000 units 7,000 units
Cebu in 2020 due to the take-up.
pandemic. We see economic > The work stoppage across Metro Cebu due
recovery in 20211 supporting a to the lockdown has adversely affected
rebound in condominium and residential construction. Due to construction
house and lot demand. Supply delays, Colliers projects 2020 completion 2,900 units 3,120 units 4,700 units
halving to 3,120 from our original forecast.
In our opinion, developers should
Annual Average
position themselves to take YOY / YOY /
Growth 2019–22 /
advantage of the recovery by – End 2019 End 2020
End 2022
> Tapping rising demand for > Colliers projects a slower 3% growth in 2020 7.7% 3.0% 5.2%
residential units located prices as we factor in a slower demand from
within integrated Capital end-users and investors. The prices should
communities. Values/ grow at a faster pace in 2021 and 2022 on PHP120,100 PHP123,700 PHP136,300
Yields the back of a recovery in residential take-up.
> Serving the residential
demand of end-users and the
Overseas Filipino Worker MID-INCOME SEGMENT TO LEAD COMPLETIONS
(OFW) market.
The demand for mid-income2 condominium units has been driving launches and take-up in Metro Cebu. The growing
> Highlighting property appetite for this segment indicates the rising purchasing power of Cebuano investors and end-users over the past
management and sanitation few years. In fact, from 2020 to 2022, we expect the segment to deliver around 45% of the 14,200 new
within residential buildings. condominium units scheduled to be completed within the period. While we see a softer demand in 2020, developers
have been lining up their mid-income projects to recapture demand in the next 12 to 36 months.
> Offering flexible lease terms
Source: Colliers International. USD1 to PHP51 as of the end of 2019.
to potential buyers. Note: Demand, supply, and capital values represent only the vertical (condominium) residential market. Capital values indicated are average price per sq metre.
1BusinessWorld, DBCC Slashes Proposed Budget for 2021, 2022, (2020). 2Mid-income projects are priced between PHP3.2 million to PHP6.0 million.
COLLIER S ANNUAL R ES ID ENTIAL | CEB U | R ES EAR CH | Q1 2020 | 25 JUNE 2020

Highlight sanitation and property management

RECOMMENDATIONS
Tap demand for integrated communities
Similar to other urban areas outside Metro Manila, Colliers believes that the
COVID-19 pandemic has only highlighted both the investors and end-users’
desire to be in an integrated community. Condominium investors, for
instance, have become more aggressive in scouting for properties that are
within integrated communities. Colliers believes that in the next 12 to 36
months, the demand for residential projects, whether house and lot (H&L)
or condominium units, will likely hinge on integrated features, i.e. residents
having immediate access to essential goods and services. Colliers
recommends that developers highlight the integrated features of their
residential projects. We estimate that 39% of condominium units that are
planned to be developed from 2020 and 2022 are within integrated projects.
Cebu vertical take-up by segment, 2019
Economic, Luxury,
6% 3%
Upscale,
13%
Colliers sees residential investors and end-users becoming more discerning
with options in the market. The pandemic has only raised the need to
strictly implement physical distancing protocols and property management
procedures within residential buildings. In our opinion, developers and
property management firms should highlight sanitation and emergency
preparedness as these are among the major considerations of buyers.
Offer flexible lease terms
While the government-projected economic slowdown is likely to soften
residential take-up in key urban areas including Cebu City, our estimated
pace of recovery in 2021 is likely to revivify demand in the largest residential
market outside Metro Manila. To continue capturing demand, Colliers
encourages developers with projects in Cebu to offer flexible lease terms to
complement the prevailing low mortgage rates in the market.
Cebu vertical launches and take-up 2019, (units)
15,000 Launches Take-up
11K
10,000 9K
6K 7K
6K
4K
5,000

Mid-Income, -
Affordable, 2013 2014 2015 2016 2017 2018 2019
60%
19%
Source: Colliers International

Residential price segment, (PHP)

Source: Colliers International
Segment Average Total Contract Price (TCP)
Continue serving the requirements of Cebu’s end-user market Luxury 8 million and above
Upscale 6 million to 8 million
Colliers believes that H&L projects remain attractive among OFWs. Mid-income 3.2 million to 6 million
Anecdotally, the OFW market is a major driver of the Cebu H&L market as
Affordable 1.7 million to 3.2 million
this buyer segment is also the end-user. This can be attributed to the OFWs’
Economic 580,000 to 1.7 million
preference for outdoor lot space. We recommend developers to continue
Socialized Below 580,000
catering to this market.
Source: Colliers International
2
COLLIER S ANNUAL R ES ID ENTIAL | CEB U | R ES EAR CH | Q1 2020 | 25 JUNE 2020

In 2020, we project a slowdown in residential demand given the impact of

COMPLETION DELAYS IN 2020 the pandemic. From 2020 to 2022, we project take-up in the vertical
segment to reach 7,000 units annually, down from 9,000 units in 2019.
By the end of 2019, total condominium supply in Metro Cebu reached more
than 44,100 units with 76% located in Cebu City. By the end of 2022, we Cebu horizontal take-up by segment, 2019
project total condominium supply in Metro Cebu to grow by 32% to 58,400
units, or around 4,700 units annually from 2020 to 2022. Of the total during 100% 0.4%
2% 8%
the period, about 52% will likely be in Cebu City. The city remains a favored Luxury
80% 37%
location for condominium developments as most businesses continue to 36% Upscale
gravitate towards the city’s IT and Business Parks. 60% 1% Mid-Income
Pre-pandemic, we initially estimated total supply to reach 62,000 units. 33% 2%
40% Affordable
However, our projection had to be revisited due to construction delays all 53%
over Metro Cebu. 20% 21% Economic
0% 8% Socialized
While we see delays in completion for the remainder of 2020, Colliers sees
project completion picking up pace starting in 2021 as developers respond to H&L Lot Only
demand picking up on the back of a macroeconomic recovery.
Source: Colliers International

Cebu vertical residential supply forecast, (units)

SLOWER PRICE GROWTH
Total
As of 2019 2020 2021 2022 End-2022 In 2019, mid-income and affordable H&L projects recorded a strong take-up.
Cebu City 33,600 1,800 2,700 2,900 41,000 These are the segments that command an average price of between PHP1.7
million(USD33,300) and PHP6.0 million (USD117,600) per unit. Interestingly,
Lapu-Lapu City 7,400 120 2,500 440 10,460
upscale lot-only projects also performed well during the period. These lot-only
Mandaue City 2,800 1,200 480 1,900 6,380 projects are priced between PHP1.8 million (USD35,300) and PHP2.4 million
Talisay City 390 - - - 390 (USD47,100). In 2019, most of the take-up under this segment was located in
Consolacion, located more than 19 km from Cebu City. Anecdotally, the
Liloan - - - 170 170 demand for this segment is driven by local investors and OFWs looking for
Overall 44,190 3,120 5,680 5,410 58,400 bigger open space for their families. Colliers encourages developers to further
Source: Colliers International. Note: estimated distance of areas from Cebu City: Lapu-Lapu 18.7 km, explore the viability of higher-priced lot-only projects covering mid-income
Mandaue 7.4 km, Talisay 11.7km, and Liloan 22.8km. and upscale segments.
Colliers projects prices of condominium units to record an average increase of
DAMPENED DEMAND IN 2020 5.0% per year from 2021 to 2022, faster than our projected 3.0% growth in
2020. We project a faster pace of price increase from 2021 to 2022 to reflect a
Total take-up of condominiums and house and lots in 2019 reached a record- stronger residential market during the period. Metro Cebu is likely to be a
high 9,000 units and 5,500 units, respectively. Close to 50% of the take-up for major beneficiary of the government-projected recovery starting 2021, being
vertical projects in 2019 were located in Cebu City. Bulk of the demand (29%) the largest metropolitan area outside Metro Manila. A pick up in OFW
for house and lot projects during the same period also came from the city. remittances during the period should also stoke the H&L market.
3
Primary Author: For further information, please contact:
Joey Roi Bondoc David A. Young
Senior Manager | Research | Philippines Chief Operating Officer | Philippines
+63 2 8858 9057 +63 2 8858 9009
Joey.Bondoc@colliers.com David.A.Young@colliers.com

Contributors: Richard Raymundo

Managing Director | Philippines
Donica Cuenca +63 2 8858 9028
Research Analyst | Research | Philippines Richard.Raymundo@colliers.com
+63 2 8858 9068
Donica.Cuenca@colliers.com

Martin Aguila
Research Analyst | Research | Philippines
+63 2 8863 4116
Martin.Aguila@colliers.com

About Colliers International

Colliers Inte rnational (NASDAQ, TSX: CIGI) is a leading rea l estate professiona l services and investment management company. With ope rations in 68 countries, our m ore than
15,000 enterprising professionals work collaboratively to provide e xpert advice and services to maximize the value of property for real estate occupiers, owners and investors. For
more than 25 years, our experienced leadership, owning approxima tely 40% of our equity, has delivered compound annual investment returns of a lmost 20% for sha reholders. In
2019, corporate revenues were more than $3.0 billion ($3.5 billion including affiliates), with $33 billion of assets under management in our investment management segment. Learn
more about how we accelerate success at corporate.colliers.com, Twitter or LinkedIn

Copyright © 2020 Colliers International

The information contained herein has been obta ined from s ources deemed relia ble. While every reasona ble effort has been ma de to ensure its accuracy, we cannot guarantee it.
No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.