Colliers International Philippines believes that luxury condominium demand should remain strong due to Metro Manila having one of the most attractive rental yields in the region; relatively low prices; and sustained demand from affluent Filipinos, foreign investors, and offshore gambling firms. The luxury market in 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 market continue to receive strong demand. This entices affluent locals and foreign investors to look for similar developments in Metro Manila. In fact, the pent-up demand encourages mid-income condominium developers to scale up and construct high-end projects in emerging business districts such as the Manila Bay Area.
More affluent locals are seeing luxury condominium projects as a viable investment option aside from the stock market. The shift in lifestyle also encourages the high-end investors and end-users from posh villages to embrace condominium living.
We think developers with parcels of land in the Bay Area should consider building residential towers that cater to the upscale and high-end markets. Condominium units that target these markets are those priced at PHP6 million (USD112,000) and up. Colliers believes that the Bay Area is an attractive location for wealthy families from Southern Luzon and cities in Metro Manila that are upgrading to condominium living. The Bay Area is an attractive location due to its proximity to Manila International Airport and ease of access to other business hubs across the country’s capital.
Metro-wide occupancy improves
The occupancy of residential condominiums offered to the secondary market further improved in 2Q2018. Colliers attributes this to stronger leasing from foreign and local professionals working in CBDs as well as Chinese investors and workers employed by offshore gaming companies.
Metro Manila vacancy declined to 11.3% in 2Q2018 from 12.4% in 1Q2018 as major submarkets such as Makati CBD, Ortigas Center, Manila Bay Area, and Rockwell posted lower vacancies.
Makati CBD’s vacancy in 2Q2018 declined to 11.5% from 12.3% in 1Q2018. Vacancy across Premium and Grade A condominium buildings dropped to 17% and 10%, respectively.
Colliers has observed that condominiums in the fringes of Makati have become very popular among Chinese offshore gaming employees. These residential towers are preferred by Chinese nationals due to their proximity to office buildings that house offshore gaming companies. The ground floor retail of the condominiums has also evolved – now housing a mix of Chinese restaurants, convenience stores, and international coffee chains.
Fort Bonifacio’s vacancy dropped further to 15.8% from 17.3% in 1Q2018. Over the past few years, Fort Bonifacio has become the preferred location of multinational outsourcing companies, foreign embassies, and international schools. Aside from sustained demand from expatriates, condominium units in the business hub continue to benefit from a sustained interest from affluent families looking for residential units to stay and invest in. Chinese investors are also drawn to the business hub due to its proximity to Manila International Airport and the presence of international schools. The transfer of the Philippine Stock Exchange operations to Fort Bonifacio should also have a positive impact on Fort Bonifacio's residential towers.
From 14.8% in Q1 2018, the Manila Bay Area’s vacancy dropped to 12.9% in Q2. The business district continues to benefit from strong demand from Chinese nationals employed by offshore gaming firms in the area. Local and foreign investors have also purchased completed condominium units in this business hub. Some investors lease their units to Chinese employees or locals working for outsourcing companies, hotels, and traditional/non-outsourcing firms operating within the Bay Area.
Rockwell’s vacancy during 2Q2018 dropped to 10.3% from 11.3%. Condominium units in Rockwell Center continue to benefit from stable demand from expatriate families drawn to the residential enclave’s community environment.
Throughout 2018, we expect Metro Manila vacancy to hover between 11% to 12% given the strong demand.This is lower than our initial projection of about 12% to 13%. Aside from sustained demand across the country’s capital, Colliers attributes the lower vacancy to the drop in projected delivery of new condominium units for the rest of 2018. From 2019 to 2021, we see vacancy inching up to 12% to 13% per year as the completion of new units picks up.
Leasing units to target Chinese, more partnerships with foreign developers
Colliers recommends that developers with significant ready-to-occupy units, especially in the fringes of established business hubs, to specifically target the Chinese employees of offshore gaming firms. We see the offshore gaming sector’s impact on the residential sector spilling over to areas such as Cebu, Pampanga, and Laguna as these firms have started to occupy office space in these key locations. Colliers encourages developers to capture opportunities in these areas by exploring the type of residential component, condominiums or condormitel (condominium units operated as dormitories,) which are favourable to this tenant profile.
Colliers Philippines has been receiving queries from firms based in Japan, Hong Kong and Mainland China planning to tie up with local developers. Colliers believes that local and foreign companies mutually benefit from joint venture projects. While foreign firms are enticed by high yields derived from Philippine projects, local developers can improve their brand image by partnering with prominent foreign brands known for their precision and high architectural and engineering standards. Hence, Colliers recommends that developers be on the constant lookout for potential JV deals with foreign developers.
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