Robust Real Estate Market Continues

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Manila Bulletin Sunday

27 January 2013

http://www.mb.com.ph/articles/391224/robust-real-estate-market-continues#.UQXQKKB3uvw

The Philippine real estate market will continue on its robust growth path as the country is now the region’s best bet for investments in the property market in terms of price and quality whether it be catering for the BPO sector or leisure destination.

Rick Santos, chairman of property advisory firm CBRE Philippines, said quality and cost perspective would bring in more investors into the country.

Santos said that aside from the strong growth in the outsourcing sector, the lifestyle (hotels, resorts, spas) or the leisure destinations will be an alternative for BPO site selection and office developments outside of Metro Manila.

Joey Radovan, vice chairman of CBRE Global Corporate Services, said that developers will continue to build in the next five years for BPO offices, which is expected to stay in the Philippines for long.

“BPO will continue to be the driver of office space in the next five years because we have attained 700,000 workers last year and is expected to double in 2016 with revenues seen growing to $26 billion in 2016. So, developers will continue building BPO space in the next five years,” he said.

The real estate consultant, that the Philippines has become a corporate cost solution with cheaper price range compared to its competitor in the region.

In terms of office lease rates, the Philippines offers an annual average price $22 per square foot versus $100 to $200 dollars per annum per square foot in other competitor countries.

Despite the rental rate increase in the second quarter of 2012, Metro Manila is still the most cost effective office destination in Asia, outperforming 18 other central business districts.

Compared to Bangalore, its closest competitor in the BPO space, Radovan said the Philippines is still $10 per square foot cheaper.

Average space rental in Vietnam is $50 per square feet per annum for Ho Chi Minh City and Hanoi while Kuala Lumpur is $47, Jakarta at $39, and Bangkok at $28.

Radovan further said the property sector peaked in 2007 but the surged in the developments of green buildings only started in 2012 as corporate offices are also moving into green buildings.

“As the BPO Sector gains strength in the country, CBRE sees more occupiers and developers prioritizing flight to quality, with more green developments becoming a norm rather than an exception,” Santos said. (BCM)

In the major business districts where office space requirements are on a steady uptake with no signs of a slowdown, demand is catching up with supply. Average occupancy rates during the first quarter hovered at 96%. The demand from the sustained expansion of the outsourcing and off-shoring industry and the limited tenant turnover continue to put pressure Aon the already tight supply situation.

Although new supply of traditional and BPO office space is scheduled to come online in the second half of this year, it is not expected to do much to alleviate the supply situation. Already, of the approximately 583,000 square meters of anticipated new supply for 2013, about 130,000 square meters have been pre-committed as of end 2012. The limited supply continues to put an upward pressure on office lease rates.

In the leisure destination area, Liz Silvestre, CBRE associate director for investment and capital markets, said that leisure destination sector is a potential growth opportunity for investments after the Philippines gained international recognition being cited as one of the top leisure destinations globally.

Silvestre said that a typical four star branded residences in Phuket would be $725,000 dollars for one unit residential branded unit whereas in the Movenpick Residences in Cebu only costs $215,000 per unit to about $350,000. Boracay, adjudged as best beach in the world by an international magazine, has a higher cost with average selling price of $293,000 to $666,000 but it has a higher occupancy rate of as much as 90 percent as against Cebu’s 70 percent.

Silvestre, however, said that Boracay is running out of space with only 23 percent of the 628 hectares of alienable lands left for development. The last large track of development is the Aqua Boracay.

“So this is the best time to invest because the price range for leisure destination projects still remain low and foreign tourists prefer the Philippines because we have better beaches and the English proficiency of Filipino workers,” Silvestre said.

Based on her presentation, the country’s top three leisure destinations are Boraca, Palawan and Cebu.

Overall, the country’s property market will continue to be positive.

Other factors working in favor of the property market include the expected investment upgrade of the Philippines; the fiscal dilemma in the US will push more BPOs to the Philippines; pre-leasing commitments will remain strong from the BPO sector with an estimated 80-90% takeup in total office supply; developers prioritizing flight to quality with strong BPO sector; most cost-effective office destinations in Asia; lifestyle or leisure destinations will be an alternative for BPO site selection and office developments outside of Metro Manila; the gaming sector in the Philippines will challenge the gaming revenues of Macau and Las Vegas; the democratization in the housing sector will spur demand further; increased disposable income of the mid-income segment will drive demand for residential and housing developments; aggressive government infrastructure spending will complement real estate growth in the country; tourism efforts now into full swing; increased demand for MICE (Meetings, Incentives, Conferences, and Exhibitions) and; resurgence of the manufacturing industry.(BCM)

Orion Support Incorporated (OSI)

Dear Rick,

Following up from my initial request to you for support in finding a new office location for our company, Orion Support Incorporated.   Well, we moved in to the LTA Building on Perea Street, fifty meters or so from Paseo de Roxas this weekend, only a 4 minute walk to AmCham and under excellent terms.

While I think you assigned both Morgan Mcgilvray and Sherdil Rana to support our original request; as you know, Morgan was very tied up with his wife giving birth during the period we identified this location and negotiated with the landlord, Mr. Mike Arroyo. Yes, the former First Gentleman. But in my short interaction with Morgan, I can see that he is a solid, young professional.

With regards to Sherdil, I want to tell you that with 35+ years of interviewing hundreds and hundreds of individuals, I was impressed with his professionalism, focused support and “can-do” attitude  from the point of identifying our potential office space, and through the negotiation stages prior to the signing of our 6 year contract.  I was impressed with his considered opinions, insightfulness with regards to Philippine business culture and his sage advice related to our strategy in the negotiation process.  Sherdil was able to negotiate a rental rate per square meter about 150 – 200 pesos less than the going rate in this area, and with only a 7% increase after 24 months. Add to that, he secured for us three parking slots at no additional cost, two months security deposit versus the standard three, and two months advance rent to be applied to the front end of our contract versus the back end as is the case in most rental contracts. And, he got the landlord to repaint the entire office with three coats of mildew resistant paint at their expense.   But best of all, we were given a 6 year lease, with only having to give two months notice and forfeit only our two month security deposit to move out anytime with no additional penalty!

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