COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

TOP 10 FORECAST FOR 2019:

Flexibility is the name of the game
Joey Roi Bondoc
Manager | Research | Philippines
+632 858 9057
Joey.Bondoc@colliers.com

Rental Market Vacancy Supply

Summary &
Recommendations > Colliers projects additional supply of about 1
million sq metres and a net take-up of 900,000 sq
For the Philippine property market metres (9.7 million sq ft) for 2019, yielding a
in 2019, flexibility will be the name Office vacancy of 5.3% by end-2019. As we project tight
of the game. The strong demand vacancy into the coming year, we see rents 9% 5.3 % 1.0 million
and evolving preference of tenants growing by about 9% in 2019 sq m
is giving rise to flexible
workspaces.
> Colliers sees the delivery of at least 15,100 new
Residential developers are units in 2019. Almost half is scheduled in the Bay
tweaking their projects to cater to Area. We see vacancy in the secondary market 0.3 % 11 % 15,100
Chinese offshore gaming Residential dropping to 11% and lease rates staying flat.
employees and local professionals. units
Mall operators are more open to > We expect the completion of about 200,000 sq
foreign food and beverage (F&B) metres of new retail space in 2019. Despite the
and home furnishing tenants, new supply, we believe vacancy will remain around
which we see redefining retail 8.5% and lease rates will record growth of about 1.5% 8.5% 200,000
Retail
space absorption in 2019. 1.5% YoY. sq m
We encourage developers to
Infrastructure
continue tapping into the demand Disbursement YTD Growth
brought about by the peculiarities (USD) (%) % of GDP
of the Philippine market.
> The government aims to spend the equivalent of
Developers should also push for 6.5% of the country’s GDP on infrastructure in
the timely completion of 2019. We see the public projects propping up the
infrastructure projects that should property sector and dictating developer strategies 12.0 billion 6% 6.5%
Infrastructure
in 2019.
help redefine the Philippine
property market in the next 12 Source: Colliers International
Note: USD1 to PHP54 as of end-Q3. 1 sq m = 10.76 sq ft
months.
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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

TOP 10 FORECAST FOR 2019: 1. INFRASTRUCTURE-LED

FLEXIBILITY IS THE NAME OF THE GOVERNMENT SPENDING TO SPUR
GAME PROPERTY
Amid the slower economic growth in the first nine months of 2018, the Colliers sees the government’s plan of frontloading infrastructure projects
property sector has remained resilient with major segments such as office driving the country’s property sector. We see a sustained allocation for
and residential poised for record-high demand and supply in 2018. However, public infrastructure projects as the government tries to fulfil its promise to
we see challenges ahead, primarily: Build, Build, Build in Metro Manila and other parts of the country. Public
infrastructure spending has been rising by about 21% annually from 2015 to
> Rising interest rates which could dampen low to mid-income residential
2017 and has even outpaced the annual growth of private construction
demand over the next 12 to 24 months. We believe that a volatile
spending (7%) during the period.
interest rate environment could entice local developers to be more open
to partnering with foreign firms Colliers sees infrastructure implementation dictating the strategies of
developers in and outside Metro Manila. We see a more pronounced
> Rising inflation that curtails consumer spending, which accounts for
dispersal of office and residential developments outside the country’s capital
nearly 60% of the country’s economy
in 2019. Colliers believes that property firms will be more aggressive in
> Continuing private construction delays due to the acute shortage of acquiring parcels of land in Northern and Southern Luzon and ensure that
skilled workers and ramped up implementation of public infrastructure they are strategically positioned, especially in Pampanga, Bulacan, Cavite,
projects Laguna, and Batangas. Developers’ expansion should be supported by the
completion of rail, expressway, and toll road projects between 2020 and
> Uncertainty surrounding the implementation of the second package of
2022 that are planned to pass through these provinces.
the Comprehensive Tax Reform Program. The measure proposes to
reduce corporate income tax rates and rationalise tax and non-tax perks Metro Manila, infrastructure projects, 2020 to 2022
granted to foreign investors
> Right-of-Way issues obstructing the construction of vital infrastructure Infrastructure Project Project Completion
projects across Metro Manila. These projects, once completed, should Metro Manila Subway first three stations 2022, entirety by 2025
ease access to major business districts in Manila and play a major role in Metro Rail Transit 7 (MRT7) 2021
dictating developer strategies over the next three to six years
Light Rail Transit (LRT) 1 Extension 2021
MRT-LRT Common Station 2020
Manila Bus Rapid Transit (BRT) 1 2020
Clark Railway 2021
NLEX-SLEX Connector Road 2021
Cavite-Laguna Expressway 2020
Source: Public-Private Partnership

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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

In 2018 we saw KPO companies representing 26% of total transactions, up

2. METRO MANILA OFFICE
VACANCY TO REMAIN AT SUB-6%
Colliers is expecting Manila office vacancy to reach around 5% by end-2018.
We see strong demand being carried over to 2019, with projected demand
moving in step with the new supply. Over the next 12 months, Colliers sees
the delivery of nearly 1.0 million sq metres (10.8 million sq ft) of new office
space and net take-up of about 910,000 sq metres (9.8 million sqft). This
should yield a vacancy of 5.3% by end-2019. About 30% of office space due
to be delivered in 2019 is pre-leased. Based on 3Q2018 pre-commitment
status, we expect Alabang, Makati CBD, Fort Bonifacio, and the Bay Area to
record the strongest take up in 2019.
Colliers sees the knowledge process outsourcing (KPO) sector driving office
demand in the next 12 months. KPOs provide higher-value outsourcing
services such as health information management, software engineering, and
finance and accounting.
from 16% in 2017. These firms provide higher-value outsourcing services
such as software engineering and shared back-office services.
We still foresee a stronger contribution from KPOs over the next 12 months,
accounting for about 25% of total deals, as the outsourcing market shifts to
higher value services including an upskill or re-skilling of the workforce.
Colliers believes that the presence of top technology firms such as Google in
Manila proves that the country remains on the radar of large KPO
companies. This is reinforced by the recent improvement of Metro Manila’s
ranking in the latest Tholons ¹ global outsourcing survey which ranks the
most competitive outsourcing destinations in the world. In the latest
Tholons survey, Manila’s ranking improved to second from fourth in 2017.
2019 building completions (sq m)
140,000

120,000

Metro Manila office vacancy forecast (sq m) 100,000

Vacant
1,400K 10% 80,000 Pre-leased
5.0% 9%
1,200K 60,000
5.3%
5.3% 8%
5.6% 40,000
1,000K 5.9% 7%
800K 3.4% 6% 20,000
5%
-
600K 4% Alabang Fort Makati Makati Manila Ortigas Ortigas
400K 3% Bonifacio CBD Fringe Bay CBD Fringe
2%
200K
1%
Source: Colliers International
0 0% ¹ Tholons is a global outsourcing advisory firm that ranks the most competitive outsourcing destinations in the
2010

2013

2016
2008

2009

2011

2012

2014

2015

2017

2019F
2018F

2020F

2021F

world every year; Leasing status as of 3Q18.

New Supply Net Take-up Vacancy

Source: Colliers International

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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

These firms have also started to take up office space in key cities outside
3. OFFSHORE GAMING TO EXPAND Manila such as Cebu, Laguna, and Clark in Pampanga. Aside from expansive
office space and residential availability, offshore gaming companies need to
OUTSIDE MANILA operate in cities that have airports offering direct flights to China or areas
that have direct access to and from Manila. This is one of the reasons why
Offshore gaming firms are continuously expanding, looking for office these firms are starting to look at a number of cities in Southern Luzon
buildings with large floorplates. As of 3Q 2018, Colliers recorded 4.8%
vacancy across Metro Manila which is driving offshore gaming firms to look As of end-September 2018, offshore gaming firms occupied a total of
for space outside Manila. We encourage new and expanding offshore gaming 280,000 sq metres (3 million sq ft) of office space, accounting for 25% of
companies to continue looking for space in Cebu, Pampanga, and Laguna total space absorbed in Metro Manila during the period. For 2019, we see
where the bulk of large space is still available. offshore gaming firms occupying between 200,000 sq m (2.2 million sqft) to
300,000 sq metres (3.2 million sqft) of office space, representing about 20%
A number of offshore gaming firms that have secured licences from the to 23% of the projected net take-up in 2019.
Philippine Offshore Gaming Office and permits from city and local
governments are looking for additional space. Initially operating in the Bay
Area, these companies have started to operate in other Metro Manila
4. FLEXIBLE WORKSPACES TO
business districts.
GROW BY 10% ANNUALLY
Coupled with the emergence of a mobile workforce and firms’ drive to bring
Metro Manila, office transactions by tenant sector, 2017 (inner circle) down operating costs, the tight Metro Manila office market has given rise to
vs. YTD 2018 (outer circle) another office sub-segment – flexible workspace. We see Manila’s flexible
workspace stock expanding by at least 10% per annum over the next three
years owing to the continued rise of micro, small, and medium enterprises
(MSMEs); the influx of multinational corporations (MNCs) and outsourcing
16%
firms looking for plug-and-play offices; and the implementation of a set of
9% 33% policy reforms likely to improve the business climate.
Due to stiff competition in the market, we see flexible workspace operators
40% differentiating their features. A number of operators are already
35% incorporating yoga and art classes, gyms, and food and beverage outlets. We
25% believe that co-living is another feature that flexible workspace operators in
Manila should consider in 2019.
16%
Over the next three years, we expect more flexible workspaces to be offered
26% in malls, hotels, and dormitories for professionals.

Others* BPO (KPO) Gaming BPO (Voice)

Source: Colliers International

*Others segment includes traditional firms, government agencies, and flexible workspace operators
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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

We think developers with parcels of land in the Bay Area should consider
Manila, total stock, supply and new supply of flexible workspaces
building residential towers that cater to the upscale and high-end markets.
450 Condominium units that target these markets are those priced over PHP6
million (USD112,000) per unit. Colliers believes that the Bay Area is an
350 attractive location for wealthy families from Southern Luzon and cities in
GLA (‘000 sqm) Metro Manila that are upgrading to condominium living. The Bay Area is
250 likely to remain an attractive location due to its proximity to Manila
International Airport and ease of access to other business hubs across the
150 country’s capital.
50
6. LUXURY RESIDENTIAL MARKET

2019F
2020F
2016
2017
2018
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
-50
TO REMAIN STRONG, PRICE TO
Co-working Hosted Service
Serviced Office Yearly new supply BREACH PHP400K PER SQ M
Source: Colliers International
Colliers believes that luxury condominium demand should remain strong due
5. MANILA BAY AREA TO to Metro Manila having one of the most attractive rental yields in the region
with 5.1%, relatively low prices, and sustained demand from affluent
Filipinos, foreign investors, and offshore gaming firms. The luxury market in
DOMINATE METRO MANILA the country’s capital is relatively small but demand has been stable over the
past few years. The projects being leased out or sold to the secondary
CONDO PRICE AND SUPPLY market continue to receive strong demand.

The completion of new condominium units in the Bay Area has been This entices affluent locals and foreign investors to look for similar
aggressive since 4Q 2016 as developers respond to strong demand from a developments in Metro Manila. In fact, the pent-up demand encourages
mix of local and Chinese investors. In 3Q 2018, the Bay Area overtook Ortigas mid-income condominium developers to scale up and construct high-end
Center as the third largest submarket in terms of condominium stock, with projects in emerging business districts such as the Manila Bay Area.
200 more residential units available compared to Ortigas Center. SM Prime is partnering with Federal Land to build a luxury residential project
We expect Bay Area to continue to overtake other submarkets such as on a 3,500 sq metre (37,700 sqft) lot between Ritz Towers and Discovery
Makati CBD by 2021. Primea along Ayala Avenue in Makati CBD. Colliers believes that the project
may breach the PHP400,000 (USD7,400) per sq metre price point.
This rapid growth of the Bay Area has been accompanied by the increase of
pre-selling condominium prices in the area.
In 2019, Colliers believes that pre-selling condominium prices in the Bay Area
will remain among the most expensive, with prices in the reclaimed business
hub projected to breach the PHP300,000 (USD5,700) per sqmetre mark in
2019.
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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

Metro Manila, residential supply (units)

7. F&B TO FURTHER DOMINATE
Location 2018F 2019F Growth (2019 vs 2018) RETAIL ABSORPTION
Alabang 450 200 5%
Colliers believes that the food and beverage (F&B) segment will remain the
Araneta Center 310 - - major driver of retail space absorption in Metro Manila. At present, the
Eastwood City - - - sector covers 30% to 50% of leasable space in shopping centres across the
metro area, one of the highest levels in the Asia Pacific region. We see this
Fort Bonifacio 3,800 4,800 15% being sustained over the next 12 months.
Makati CBD 1,500 1,300 5% We believe that the continued inflow of remittances from OFWs and rising
disposable incomes, coupled with a generally stable macroeconomic
Manila Bay Area 3,100 6,900 35%
backdrop, are luring more foreign F&B brands to establish a foothold in the
Ortigas Center 120 1,200 7% Philippines. A number of foreign F&B brands such as Popeye’s, Panda
Express, and Shake Shack are reportedly opening branches in Manila over
Rockwell Center 350 760 17% the next 12 months, and we see this contributing to greater retail space
absorption across the country’s capital.
Total 9,630 15,160 13%
Source: Colliers International
Colliers expects faster take-up of retail space in Metro Manila, especially if
the government relaxes the foreign ownership restriction in the retail sector.
Select Asian cities, gross residential yields, 4Q 2017 A number of legislative measures intended to liberalise the retail sector are
pending in Congress and are likely to be tackled after the May 2019
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% elections. This should help sustain retail vacancy of around 8.5% in 2019
despite the planned completion of about 200,000 sqmetres (2.15 million sq
Jakarta 8.0% ft) of new retail space.
Ho Chi Minh

Manila 5.1%
6.0%
8. MORE FOREIGN PLAYERS IN
Bangkok 4.0% HOME FURNISHING AND LUXURY
Singapore 2.9%
RETAIL IN THE BAY
Shanghai 2.0%
We see sustained demand for home furnishings given the increasing
Hong Kong 2.0% popularity of condominium living in Metro Manila. Nearly 60% of projects
launched in 3Q 2018 are studio and one-bedroom units. Hence, we
Guangzhou 1.6%
encourage foreign retailers to focus on the furnishing requirements of the
more compact condominium units.
Source: Colliers International

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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

The home furnishing segment is still dominated by local players. Colliers Meanwhile, the prices of pre-sale condominiums in the reclaimed business
believes that this will become a more interesting segment once foreign district have been rising. A number of projects have recorded increases of
players become more aggressive in opening shop in Metro Manila. between 30% and 80% since being launched in 1Q 2017. This is indicative of
the spending profile of tourists and foreign investors in the area. Colliers
Metro Manila, new announced retail brands, expected 2019 believes that the Bay Area is ripe for more high-end F&B, footwear and
clothing brands. Prada, Givenchy, and Salvatore Ferragamo have opened
Chain Location Franchise Holder shops in Solaire casino. The area continues to attract high-end retailers and
M Bakery One Bonifacio High Street Phil Jacobe Ventures
we see more luxury brands opening shop in the reclaimed business district
over the next 12 months.
Samjin Ayala Mall Circuit N/A
The completion of new malls in the Bay Area such as Aseana mall is an
Elephant Grounds One Bonifacio High Street The Standard Group opportunity for operators to house luxury retailers. The entry of more high
end brands should differentiate the Bay Area’s retail offerings from the
The CHINO Group and Chef Erik retailer profile of other business hubs including Makati CBD, Fort Bonifacio,
Chino's One Bonifacio High Street
Idos and Ortigas Center.

Panda Express Fives store in MNL Jollibee Food Corp

Philippines, CAGR of consumer spending (2010-2017 vs. January to
Ringer Hut N/A N/A September 2018)
Red Lobster S Maison Bistro Group
Item 2010 - 2017 Jan-Sept 2018
Popeyes N/A Kuya J Holdings
Health 8.6% 3.6%
Shake Shack N/A SSI
Restaurants & Hotels 8.1% 6.8%
Alphaland, Vertis North, Miscellaneous goods and services 7.6% 9.1%
Zoo Coffee N/A
SM Megamall
Transportation 7.3% 1.3%
See the World through Coffee Recreation and Culture 6.1% 4.2%
% Arabica Bonifacio Global City
Corp. (Allue Hortaleza)
Food & Beverage 5.8% 4.6%
Pizza Express Uptown Mall Tasteless Food Group
Housing, water & electricity 5.6% 8.5%
Podium Mall, Newport Education 5.6% 11.3%
Wolfgang's
Mall, One Bonifacio High Sumosam Restaurants Concepts
Steakhouse Communication 5.3% 6.0%
Street
Furnishing & house equipment 4.1% 6.1%
Hawker Chan Mall of Asia Pasay Foodee Global Concepts
Alcoholic beverage & tobacco 3.7% -4.7%
Marugame Udon Bonifacio High Street Suyen Corp
Clothing & footwear 1.5% 0.3%
Source: Colliers International
Source: Philippine Statistics Authority

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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

Metro Manila, proportion of local and foreign retailers by segment, Among the stations well suited for townships is North Avenue given its
date interconnection with other mass transportation systems. We see Quirino
and Tandang Sora stations providing residential options supporting offices
near the North Avenue station. North Avenue station is also a practical
Item Local Foreign
choice for hotel projects.
Apparel 49% 51%
With renewed interest in Quezon City, we see the proliferation of more
Shoes 33% 67% integrated communities similar to Ayala Land’s and Eton Properties’ existing
estates. In 2019, Colliers recommends and expects more aggressive and
Bags and Luggage 57% 43% strategic land banking by developers around the first three stations in
Sporting Goods 45% 55%
Quezon City. This could even extend to key cities in Northern Luzon such as
San Jose del Monte in Bulacan which is likely to benefit from the
Jewelry, Watches, and Accessories 75% 25% interconnection brought about by the MRT-7 due to be completed in 2021.

Health and Beauty 51% 49% Metro Manila subway stations

Home Furnishing 92% 8%
Subway Station Submarket
Food and Beverage 67% 33%
Quirino Highway Station Quezon City
Source: Colliers International
Tandang Sora Station Quezon City

9. MORE STRATEGIC LAND North Avenue Station

Quezon Avenue Station
Quezon City
Quezon City
BANKING AND TOWNSHIP East Avenue Station Quezon City
Anonas Staion Quezon City
DEVELOPMENT IN QUEZON CITY Katipunan Station Quezon City

The groundbreaking for the Manila subway, the most expensive project Ortigas North Station Ortigas CBD
approved by the government, is planned for the third week of December
Ortigas South Station Ortigas CBD
2018, with the first three stations in Quezon City – Mindanao Avenue,
Tandang Sora, and North Avenue – due to be completed in 2022. Kalayaan Station Makati Fringe

Colliers sees Quezon City benefiting from the planned subway as seven of BGC Station Fort Bonifacio
the 13 stations (see table) are planned within the city. With improving
Cayetano Station Others - Taguig
connectivity given the construction of the Manila Subway, Metro Rail
Transit-7 (MRT7) and the common LRT-MRT station, we see Quezon City FTI Station Others - Taguig
becoming more attractive for mixed-use projects that feature office, Source: Japan International Cooperation Agency (JICA)
residential, and retail projects.

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COLLIER S OUTLOOK MANILA | R ES EAR CH | 19 D ECEMB ER 2018

We recommend more residential developments be built in areas traversed

10. UPGRADED INFRASTRUCTURE by or near these infrastructure projects. We also suggest that developers
build more residential projects that are leisure and lifestyle-oriented in
TO SPUR CEBU LEISURE anticipation of the increased interest brought about by the infrastructure
improvements.
Aside from the modernised and expanded airport, Colliers sees Cebu’s
tourism sector growing due to a number of infrastructure projects which Developers are responding to improving infrastructure connectivity in Cebu
should open new opportunities in the countryside. The completion of these by building more accommodation facilities. In 2019, Colliers expects the
projects should spur demand for more hotels and serviced apartments completion of 700 new rooms, raising Cebu’s hotel stock to 11,300 rooms
outside the Metro Cebu (which comprises Cebu City, Lapu-Lapu, and from 10,600 rooms in 2017.
Mandaue) corridor.
Over the next 12 months, we see property firms taking a more aggressive
approach in exploring parcels of developable land especially in the Mandaue
and Mactan areas that will benefit from the completion of major
infrastructure projects such as the expanded Mactan-Cebu International
Airport; the Cebu Cordova Expressway Link; Cebu Bus Rapid Transit (BRT);
and the Cebu-Negros bridge. Mandaue and Mactan are highly viable for
resort-oriented townships.

Cebu infrastructure projects

Source: Department of Transportation and Public-Private Partnership Center, Colliers International

9
Primary Authors: For further information, please contact:
Joey Roi Bondoc David A. Young
Manger | Research | Philippines Chief Operating Officer | Philippines
+(632) 858 9057 +(632) 858 9009
joey.bondoc@colliers.com David.A.Young@colliers.com

Richard Raymundo
Managing Director | Philippines
+(632) 858 9028
Richard.Raymundo@colliers.com

Arren Faronilo
Senior Research Analyst | Research | Philippines
+(632) 863 4116
arren.faronilo@colliers.com

Donica Cuenca
Research Analyst | Research | Philippines
+(632) 858 9068
donica.cuenca@colliers.com

About Colliers International Group Inc.

Colliers International Group Inc. (NASDAQ: CIGI) (TSX: CIGI) is a top tier global real estate services and investment management company operating in 69 countries with a workforce of more than 13,000 professionals.
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Colliers is led by an experienced leadership team with significant equity ownership and a proven record of delivering more than 20% annualized returns for shareholders, over more than 20 years.
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The information contained herein has been obtained from sources deemed reliable. While ev ery reasonable effort has been made 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.