2010-07-19 Key Insights on the Real Estate Sector of the Philippines ; Although the Philippines’ economy rode out the global financial crisis fairly well, 2009 was a difficult year for most protagonists in the country’s commercial Real Estate sector. Over the course of the year, rental rates fell sharply in all three cities for which we have gathered data – Manila, Makati and Cebu. Worse, protagonists are far from confident that there will be a major recovery in the coming year or so. The conventional wisdom is that market rates will stabilise and/or rise by around 5% in the wake of the elections that are due for May 2010. In Cebu especially, there appears to have been over-building of commercial Real Estate and consequent over-supply. However, our sources indicate that a more important problem has been the general lack of confidence about the prospects for the Philippines on the part of landlords/owners and tenants. In most of the countries where real estate sectors are monitored, a slippage in rental rates during 2009 – in the wake of the global financial crisis – has resulted in a corresponding fall in yields. Typically, there are few or no transactions, so rental rates have fallen in relation to prices and capital values that were determined some time previously. In the Philippines, by contrast, it is very difficult to generalise about the movement in rental yields over the last year or so. In some sub-sectors, such as Makati offices and Cebu retail space, yields have actually risen sharply. In most others, they have tracked sideways or fallen. Our suspicion is that, in the areas where yields have risen (meaning that capital values have slipped sharply relative to rental rates which were falling) there have been a number of distressed sales. Looking forward, we assume that yields will remain broadly unchanged over the next five years if they are already well into double-digits. In other sub-sectors, we anticipate that yields will rise gradually as investors assess that meaningful improvement in the Philippines’ business environment is unlikely. Interviews with our in-country sources were conducted in late March 2010. Key Features Of This Report ; This is the latest edition of a new series of industry reports that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. Once again, the questions that we seek to answer for each country remain as follows: What are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term? What are the main constraints that they face? What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries? For Q3 we have introduced a very substantial new improvement to the reports. We have incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main sub-sectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report Edit/Delete Message

http://www.colliersinternational.com...rt_1Q_2011.pdf Abstract: Executive Summary ECONOMY: VULNERABLE TO GLO BAL CONDITIONS Despite the recent tragedy in Japan and the political unrest in the Middle East, the Philippine government is still optimistic in achieving a GDP growth of 7% - 8% for 2011. Inflation has also started to accelerate, with March at 4.3%, a nine-month high. The ADB recently upgraded its forecast for the Philippines to reach 5% at the end of the year. Land values are still inching up, albeit at a slower pace than the last quarter of 2010. With the current planned developments in the traditional business districts, land values are expected to grow at an average of 3% - 5% for 2011. For the full year of 2010, the HLURB issued more than 324,000 licenses, lower than in 2009 by more than 100,000 licenses issued. Leading the pack, high-rise residential licenses continued to rise, accounting for 17% of all licenses issued. The low cost segment, where the majority of the backlog for housing is coming from, increased by only 6%. OFFICE: BPOs SHIFTING TO NON-CBDs; LO CATION STILL TRANSIT-ORIENTED Bonifacio Global City increased its office stock by 30,000 sq m, with three office buildings completed in the First Quarter. Other areas with new supply are Alabang, Eastwood City, Pasay City and Quezon City. Rents in the Makati CBD continued to climb by 1.2% for Premium buildings, to P820 per sq m, and 2.4% for Grade A buildings, averaging P680 per sq m. With a high take-up of about 40,000 sq m, the vacancy rates in the Makati CBD decreased further, to 3.8% from the previous quarter’s 5.4%. The Outsourcing & Off-shoring industry is still the major driver in occupying space across all submarkets tracked by Colliers, although Makati is still the preferred address of traditional offices. RESIDENTIAL : SURGE OF SMALLER UNITS DRIVES OCCUPANCIES LOW For the First Quarter, Bonifacio Global City has about 500 units recently completed and about 2,500 more in the pipeline, more than 30% of the total inventory expected for 2011. For the Luxury segment, the market is awaiting the anticipated Raffles Residences in Makati, which is set to be complete by year-end. Vacancies in the Makati CBD and Bonifacio Global City continually widens at the 9% level for the First Quarter, compared to 6% in the previous Quarter. In the other major CBDs, vacancies remain stable at the 3% to 4% level. In Makati, Ortigas, and Rockwell considered as prime locations, and with an availability of Luxury Three Bedroom units, average rents continue to rise and, although there will be no new supply coming in the medium term, long-term prices are still expected to rise, due to the limited supply for expatriate requirements. RETAIL : GEOGRA PHIC EXPANSION TO TA P PRO VINCIAL MARKETS Retail continues to grow, with new expansion plans of mall developers gearing towards the provinces. The current trend in Metro Manila are the redevelopment or small-scale expansion of existing malls, there are also new community malls that are seen as a support component for the BPO offices and the residential community. Vacancies across the super-regional and regional malls continue to be at an all-time low, with occupancy rates at the 99% level, thus pushing rental rates to P1,180 per sq m in the Makati CBD.

The Philippines is gearing up towards the upcoming presidential and congressional elections in May 2010, amid a rising level of political uncertainty. Indeed, the ruling Lakas-Kampi-CMD will be facing a resurgent opposition benefitting from a revival of democratic fervour stemming from the death of former president Corazon Aquino, who was instrumental in overthrowing the despotic Marcos administration via the 'People's Power' revolution in 1986.

But a fragmented opposition with multiple presidential contenders will probably mean that the incumbent Lakas-Kampi-CMD will remain in power. CB Richard Ellis (CBRE) reported that the property investment market was relatively inactive in Q109, with local investors accounting for the majority of the small number of transactions. Investors are slowly coming back to the table, although it will not be until Q110 that we will be able to estimate with any confidence the level or sustainability of this recovery. Many deals in the current climate have been related to occupational end-use.

Capital values remain relatively stable, especially in the residential market. Transactions and decision-making in the Philippines are reported to be very slow. Developers are now focusing on mid-range and affordable residential projects.

They continue to lobby the government to introduce tax exemptions for mass housing projects as part of a plan to revive the construction industry, which is one of the main drivers of the economy. The run-up to the general elections next year may complicate this lobbying process.

Declining rental values and vacancy rates trending upwards suggest there will be no recovery in H110 in demand for office space. Also weighing on demand is an expected continuing pressure on BPO activities that have traditionally been a large driver of demand.

Having said that, performance is likely to vary from district to district. While comprehensive data remains unavailable for H109, previous indicators and recent news reports suggest a number of additional office projects due for completion outside Makati CBD in the course of 2009 that are likely to make the supply situation worse.

Rental values in Metro Manila have fallen at least 15% in the central business district and, according to CB Richard Ellis in May 2009, office rents in Metro Manila have fallen 20% y-o-y and total occupancy costs by 17.4% over the same period.

Source: Business Monitor International

For more discussions and information about Philippine housing market, visit http://mabuhaycity.com/forums/bahaytalaan-ph-philippine-real-estate-property-forum/

The Philippines is emerging from the global financial crisis relatively unscathed, while many of its neighbours have experienced deep recessions. The economy’s relative buoyancy is largely due to structural features, such as the fact that the domestic sector accounts for more than 75% of the country's real GDP. This renders it less vulnerable to the trade problems that have engulfed many of its neighbours.

There are still a number of structural weaknesses, especially pervasive corruption, a lack of transparency and regulatory inconsistency; however, the economy’s relative openness to trade and investment serve as a boost to business.

Politically, there is uncertainty over who is likely to win the presidential and congressional elections in May 2010. The gap has narrowed between the two frontrunners, Benigno Aquino III of the Liberal Party and Manuel Villar Jr of the Nacionalista Party.

The Philippines’ property investment market remains relatively stable. With the state of the world economic situation, and the uncertainty of the approaching presidential and congressional elections in May 2010, property decisions and transactions are reported to be very slow.

In the residential market, capital values have held up, and activity has been low.

In the office market, there is a general oversupply of office space, and a continuing weakness in demand, leading to falling rents and increasing vacancy rates. The outlook for this year is not promising, at least for H110.

The industrial property market in Manila remains flat, but there are some signs of improvement. Exports are recovering slightly, leading some companies to consider expansion plans.

For more discussions and information about Philippine housing market, visit http://mabuhaycity.com/forums/bahaytalaan-ph-philippine-real-estate-property-forum/