Prospects of the Real Estate Sector in 2012 and Years to Come

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Felix Newman
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1 Prospects of the Real Estate Sector in 2012 and Years to Come NREA-HUDCC National Convention, 20 September 2012 Presented by VICTOR J. ASUNCION Executive Director for Retail Investments, Global Research & Consultancy Part of the CBRE affiliate network Philippines

2 Strong Economic Performance Among Highest Gainers in Neighboring Asia (Q2) CHINA 7.8% THAILAND 4.2% INDONESIA 6.4% SOUTH KOREA 2.4% PHILIPPINES 5.9% SINGAPORE 2% MALAYSIA 5.4% JAPAN 1.4% VIETNAM 4.4% TAIWAN -0.18% CB Richard Ellis Philippines Page 2

3 Country 2050 Rank Change From 2010 China 1 +2 US 2-2 India 3 +5 Japan 4-2 Germany 5-1 UK 6-1 Brazil 7 +2 Mexico 8 +5 France 9-3 Canada 10 same Italy 11-4 Turkey South 13 Korea -2 Spain 14-2 Russia Country Wider World in th Biggest Economy in Rank Change From 2010 PHILIPPINES Indonesia Australia 18-2 Argentina Egypt Malaysia Saudi Arabia Thailand Netherlands 24-9 Poland 25-1 Peru Iran Colombia Switzerland 29-9 Pakistan Citing the country s favourable macroeconomic fundamentals and improved governance, the Philippines, as reported in the Wider World in 2050 report, is set to be the biggest gainer and become the 16 th largest economy in 2050 with an average growth rate of 7% in the next 40 years. Source: HSBC CB Richard Ellis Philippines Page 3

4 Emerging Markets: The Next 11 Population to Drive Growth in Emerging Markets Country 2011 Population (in Millions) GDP 2011 (current US$B) Bangladesh Egypt Indonesia Iran Mexico ,185.2 Nigeria Pakistan Philippines South Korea 49 1,163.8 Turkey Vietnam Population would be the backbone of growth for emerging countries. After the financial crisis in First World Economies, the trend is to go back to Bricks and Mortars. Thus, countries with large population base like the Philippines will have a sustainable consumerbased economy. Source: IMF Estimates CB Richard Ellis Philippines Page 4

5 Debtor-to-Creditor Role Reversal PHILIPPINES now a creditor nation, contributing funds to aid the Eurozone. Philippines a recipient of IMF funds for almost 3 decades. CB Richard Ellis Philippines Page 5

Philippines is back on the Investment Map Upgrades on Credit Rating

losses in property markets and the US grapples with increasing debts and

just be within reach for the PHILIPPINES.

6 Philippines is back on the Investment Map Upgrades on Credit Rating Status While the Eurozone struggles with falling credit ratings and losses in property markets and the US grapples with increasing debts and a protracted period of sluggish growth, an investment grade rating may just be within reach for the PHILIPPINES. BB with a Positive Outlook Ba2 with a Positive Outlook BB+ with Stable Outlook CB Richard Ellis Philippines Page 6

7 Stock Market Performance 6, PSEi 4, , INDEX YTD (August 30) PSEi 17.8% STRAITS 13.8% VNINDEX 13% NKY 6.2% HSI 6.1% INDEX YTD (August 30) VHINDEX 5.4% JKSE 5.3% KOSPI 4.4% KLSE 0.6% SHCOMP -6.7% CB Richard Ellis Philippines Page 7

TOURIST ARRIVALS Foreign Tourist Arrivals Catching Up On Tourism Country 2006 2007 2008 2009 2010 2011 2012* PHL 6.74% 10.71% 1.29% -3.91% 16.68% 11.28% 13.05% SG ID TH MY 9.04% 5.47% -1.64% -4.

8 TOURIST ARRIVALS Foreign Tourist Arrivals Catching Up On Tourism Country * PHL 6.74% 10.71% 1.29% -3.91% 16.68% 11.28% 13.05% SG ID TH MY 9.04% 5.47% -1.64% -4.28% 20.20% 13.17% 12.30% -2.61% 13.02% 13.24% 1.43% 10.74% 9.24% 8.81% 19.49% 4.65% 0.50% -2.66% 12.63% 19.84% 7.27% 6.10% 20.11% 5.26% 7.27% 4.24% 0.41% 1.20% *YoY Growth as of May 2012 CB Richard Ellis Philippines Page 8

OFW Remittances Real Estate Driver Year Total (in 000US$) 2005

2008 16,426,854 14% 2009 17,348,052 6% 2010 18,762,989 8% 2011

9 OFW Remittances Real Estate Driver Year Total (in 000US$) ,689,005 Growth Rate ,761,308 19% ,449,928 13% ,426,854 14% ,348,052 6% ,762,989 8% ,116,992 7% 2012F 21,122,842 5% CB Richard Ellis Philippines Page 9

10 Office Property Sector Part of the CBRE affiliate network Philippines

11 Metro Manila Office Market MAKATI CENTRAL BUSINESS DISTRICT ORTIGAS CENTER EASTWOOD CITY CYBERPARK BONIFACIO GLOBAL CITY CB Richard Ellis Philippines Page 11

12 3,000 2,500 2,000 Slowdown in Rental Growth and Gradual Increase in Vacancy Rate Building Occupancy Declining Rents and Double Digit Vacancy Rates Metro Manila Office Market Historical Trend Stable Rents and Declining Vacancy rates Rental Recovery and Vacancy Rate Within 5% Level 1,500 1, Occupied Space Available Space CB Richard Ellis Philippines Page 12

13 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Consistent demand growth from traditional offices 70% of upcoming supply for the year already taken up as of 1H2012 Transactions concentrated on preleasing due to limited supply from existing offices Higher average lease rate expected on the second half due to relatively higher lease rates from the upcoming supply Metro Manila Office Market Makati Central Business District 2Q2012 1Q2012 4Q2011 Lease Rate* Vacancy Rate *Average of Existing Buildings only 3.48% 3.43% 4.47% Lease Rate Vacancy 12.00% 10.00% % % % % % CB Richard Ellis Philippines Page 13

14 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Demand fast catching up with supply with most BPO buildings at full occupancy Consistent low vacancy rate even with the turnover of new offices Continued increase in lease rates due to strong demand from BPO companies Expansion of Wells Fargo & Co. reflects confidence on the BPO industry Strong take-up of pre-leasing buildings Metro Manila Office Market Fort Bonifacio Business District 2Q2012 1Q2012 4Q2011 Lease Rate* Vacancy Rate *Average of Existing Buildings only 2.2% 1.74% 4.16% Lease Rate Vacancy 9.00% 8.00% % % % % % % % % CB Richard Ellis Philippines Page 14

15 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Continued to be challenged by the newer business districts Stable supply with no office turnover during the quarter Lease rate up as a result of higher demand and fixed office supply Office supply in pipeline allotted for BPO operations Metro Manila Office Market Ortigas Business District 2Q2012 1Q2012 4Q2011 Lease Rate Vacancy Rate 5.67% 3.72% 5.68% Lease Rate Vacancy 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% CB Richard Ellis Philippines Page 15

16 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 BPO offices at full occupancy Strong rental growth due to the high demand for offices and limited supply Available supply limited to traditional office Tight BPO supply due to lack of new office turnover Metro Manila Office Market Alabang Business District 2Q2012 1Q2012 4Q2011 Lease Rate Vacancy Rate 0.61% 0.41% 3.84% Lease Rate Vacancy 18.00% 16.00% 14.00% 12.00% % % % 4.00% 2.00% % CB Richard Ellis Philippines Page 16

17 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2011 2Q2011 3Q2011 4Q2011 1Q2012 2Q2012 Office requirements dominated by BPO demand No additional office supply during the quarter Most buildings at full occupancy Sustained increase in office lease rates due to scarcity of supply Metro Manila Office Market Quezon City Business District 2Q2012 1Q2012 4Q2011 Lease Rate Vacancy Rate 0.21% 2.73% 2.33% Lease Rate Vacancy 20.00% 18.00% 16.00% 14.00% % 10.00% 8.00% % % 2.00% % CB Richard Ellis Philippines Page 17

18 Metro Manila Office Market Major Business Districts Most BPO offices at full occupancy Tight supply situation with limited office space turnover Rising lease rates of BPO offices resulting from supply pressures Strong pre-leasing demand Most cost effective prime office destination in Asia Increasing flight-to-quality demand from traditional offices Business District 2Q2012 Rents 2Q2011 Rents Y-o-Y Change Makati % Fort Bonifacio % Ortigas % Alabang % Quezon City % CB Richard Ellis Philippines Page 18

19 Metro Manila Office Market Upcoming Office Supply Makati Taguig Pasig QC Alabang Mandaluyong Pasay CB Richard Ellis Philippines Page 19

20 Makati Office Supply Glorietta 2 4Q 2012 Glorietta 1 1Q 2013 CB Richard Ellis Philippines Page 20 Zuellig Building 3Q 2012 Alphaland Ayala Tower 1Q 2013

21 Fort Bonifacio Office Supply BHS Phase Central 1Q 2012 Science Hub 1 1Q 2012 Science Hub 2 2Q 2012 Science Hub 3 3Q 2012 Science Hub 4 4Q 2012 Bench Building 4Q 2012 Eight Campus A 4Q 2012 Eight Campus B 2Q 2013 Eight Campus C 4Q 2013 W@Fifth 4Q 2012 CB Richard Ellis Philippines Page 21 One Upper McKinley 1Q 2014 Uptown Bonifacio Tower One 1Q th Corporate Ctr 2Q 2013 Uptown Bonifacio Tower Two 1Q 2015

22 Ortigas & Mandaluyong Office Supply SM Megamall BPO 1Q 2012 Filinvest EDSA 3Q 2012 BTTC Centre 3Q 2012 Cyberscape Alpha 1Q 2013 Cyberscape Beta 1Q 2013 Estancia at Capital Commons 2Q 2013 CB Richard Ellis Philippines Page 22

23 Bay Area, Pasay, Paranaque Office Supply Two Ecom 1Q 2012 Met Parq 4Q 2013 Three Ecom 3Q 2014 CB Richard Ellis Philippines Page 23

24 Quezon City Office Supply Three Cyberpod Centris 1Q 2014 Gateway Tower 4Q 2012 Technoplaza 2 2Q 2012 UP Ayala Technohub K 2Q 2012 CB Richard Ellis Philippines Page 24 UP AyalaTechnohub L 2Q 2013 UP Ayala Technohub M 2Q 2013

25 Alabang Office Supply ATC BPO 4Q 2013 Alabang Zapote 2Q 2013 CB Richard Ellis Philippines Page 25

26 In Thousands Metro Manila Office Market Pre-Leasing Performance % pre-committed % pre-committed Available Pre-Leased Completion Year CB Richard Ellis Philippines Page 26

27 in Millions (US$) Metro Manila Office Market BPO Revenues Global Share 5% 6% 6% 7% 8% 8% 8%-9% 10% Source: BPAP and CBRE estimates CB Richard Ellis Philippines Page 27

28 In Thousands Metro Manila Office Market Full-time Employees Source: BPAP CB Richard Ellis Philippines Page 28

29 Business District US$ / sq ft/ Annum Hong Kong Core Central 222 Beijing CBD 173 Tokyo 171 Shanghai Puxi 120 Mumbai BKC 109 Singapore 106 New Delhi - CBD 94 Mumbai Nariman Point 82 Seoul CBD 67 Taipei 60 Achievable Prime Rents Most competitive lease rate among business districts in Asia Business District US$ / sq ft/ Annum Hanoi 49 Ho Chi Minh 47 Kuala Lumpur 45 Jakarta 45 New Delhi Gurgaon 37 Bangalore 30 Bangkok 29 Makati 23 CB Richard Ellis Philippines Page 29

30 Residential Property Sector Part of the CBRE affiliate network Philippines

Metro Manila Residential Market Upcoming Condominium Supply 40,000 35,000 37,678 34,120 143,123 upcoming residential condominium units (as of 15 June

31 Metro Manila Residential Market Upcoming Condominium Supply 40,000 35,000 37,678 34, ,123 upcoming residential condominium units (as of 15 June 2012) 30,000 25,000 27,351 25,933 20,000 15,000 14,224 10,000 5, , CB Richard Ellis Philippines Page 31

More than 2/3 of upcoming supply located in QC, Makati, Mandalu yong and Manila Biggest

32 Metro Manila Residential Market Upcoming Condominium Supply Muntinlupa 4% Manila 12% Paranaque 4% Pasay 7% Quezon City 24% Others 2% Makati 18% Taguig 9% Mandaluyong 15% More than 2/3 of upcoming supply located in QC, Makati, Mandalu yong and Manila Biggest concentration of upcoming supply is in Quezon City Pasig 5% CB Richard Ellis Philippines Page 32

Metro Manila Residential Market Comparison of Upcoming Supply 70,000 50,000 60,000 40,000 50,000 60,804 30,000 20,000 10,000 0 891 40 and below 46,925 44,533 38,303 >40-80 >80-100 above 100 40,000

33 Metro Manila Residential Market Comparison of Upcoming Supply 70,000 50,000 60,000 40,000 50,000 60,804 30,000 20,000 10, and below 46,925 44,533 38,303 >40-80 > above ,000 30,000 20,000 10, ,727 40K and below 52,663 >40K to 80K >80K to 100K 24,929 Above 100K As of End 2011 As of 15 June 2012 Upcoming residential condominium supply shifting to the >80K to 100K price range with less focus on projects priced above 100K. CB Richard Ellis Philippines Page 33

Metro Manila Residential Market Distribution by Price Range as of end 2011 0.7% 3.3% 29.3% 35.9% 17.4% 36.8% 34.1% 42.

As of 15 June 2012 Share of upcoming residential condominiums with the >80K to 100K price range increased from 34.

34 Metro Manila Residential Market Distribution by Price Range as of end % 3.3% 29.3% 35.9% 17.4% 36.8% 34.1% 42.5% 40K and below >40K to 80K >80K to 100K above 100K 40K and below >40K to 80K >80K to 100K above 100K As of End 2011 As of 15 June 2012 Share of upcoming residential condominiums with the >80K to 100K price range increased from 34.1% to 42.5% while share of projects priced above 100K declined from 29.3% to 17.4%. CB Richard Ellis Philippines Page 34

35 Metro Manila Residential Market Developments Priced Above PhP100K/SQM Take-up: 305 units every month % Take-up: 221 units every month Available Units Total Take-up % 24% % Makati City Fort Bonifacio CB Richard Ellis Philippines Page 35

36 Residential Condominium Growth Areas ILOILO CITY CEBU DAVAO CITY CB Richard Ellis Philippines Page 36

37 Cebu Condominium Market Pre-selling Supply and Demand 4,000 3,500 3,000 3,446 Take-up: 434 units every month 3,378 2,500 2,000 1,500 1,000 1, >40K to 80K >80K to 100K Above 100K CB Richard Ellis Philippines Page 37

38 Davao Condominium Market Pre-selling Supply and Demand 2,500 2,000 2,209 Take-up: 60 units every month 1,500 1, >40K to 80K >80K to 100K CB Richard Ellis Philippines Page 38

39 Iloilo City Condominium Market Pre-selling Supply and Demand Take-up: 29 units every month >40K to 80K Above 100K CB Richard Ellis Philippines Page 39

40 Tourism & Leisure Property Sector Part of the CBRE affiliate network Philippines

41 Tourism-Leisure Market 11.68% increase in foreign tourist arrivals as of June % growth in foreign tourist arrivals in 5 years. CB Richard Ellis Philippines Page 41

Boracay Island Metro Cebu Cagayan de Oro City Puerto

42 Tourism-Leisure Market Hotel Development Hot Spots (Outside MM) Clark/ Angeles City Subic/ Olongapo City Tagaytay City Boracay Island Metro Cebu Cagayan de Oro City Puerto Princesa City Palawan Davao City CB Richard Ellis Philippines Page 42

43 Tourism-Leisure Market Casino Portfolio in the Philippines CB Richard Ellis Philippines Page 43

44 Tourism-Leisure Market The Future of Manila Bay Skyline PAGCOR ENTERTAINMENT CITY CB Richard Ellis Philippines Page 44

45 Philippine Gaming Advantage More Than A Gaming Destination! CB Richard Ellis Philippines Page 45

46 Moving Forward Land banking should remain as a major thrust among developers. Growth opportunities will be focused on residential, tourism and office developments. Developers should position relative to infrastructure. Economic activities would naturally shift towards regionalization and so will developments in the Real Estate Sector. CB Richard Ellis Philippines Page 46

47 Thank You Q & A Philippines CB Richard Ellis Philippines Page 47 Part of the CBRE affiliate network

CBRE RESEARCH R E A L E S TAT E M A R K E T O U T LO O K

CBRE RESEARCH R E A L E S TAT E M A R K E T O U T LO O K R E A L E S TAT E M A R K E T O U T LO O K TABLE OF CONTENT PAGE 05 PAGE 07 Softer growth ahead PAGE 13 PAGE 20 Workplace efficiency will be key Creating the total retail experience 2 TABLE OF CONTENT