After Fitch upgrade, record low vacancies in office space, premium residences seen

Top property developers believe office and premium residential vacancies will drop to record lows, in the expectation of more foreign companies and investors establishing their presence in the country after the Philippines' recent upgrade to investment grade. “Vacancies in premium residential [areas] and offices within key business districts will be at an all-time low,” Colliers International Philippines research analyst Karlo Pobre said when asked about the expected impact on the real estate sector of Fitch Ratings' March 27 upgrade of the Philippines. In its report sent to GMA News Online, property consultancy firm CBRE Philippines explained that an investment grade credit rating will result in more investments and foreign companies coming in, stoking demand for office spaces. For example, when the three top credit raters gradually hiked the Philippines' sovereign rating to one notch below investment grade in 2010 to 2012, a corresponding decrease in vacancy rates for office spaces in Makati central business district (CBD)—from 9.25 percent in 2010 to 4.25 percent in 2012—was seen, CBRE said.   Pobre noted that office and premium residential vacancies will continue to go down. This, despite an increase of over a million square meters (sqm) in office spaces in key business districts in Metro Manila alone coupled with developments of luxury condominiums. “Developers are continuing to provide office spaces and developments this year and the next. But demand and inquiries from foreign firms looking at relocating here are just going up,” Pobre said. Growth in the business process outsourcing (BPO) and off-shoring and outsourcing (O&O) sector—with a focus on the voice segment—fueled demand for office spaces in recent years.   “The Philippine BPO sector will continue to thrive in the next years. The country provides a conducive environment for foreign investors: an excellent pool and low cost of skilled labor, outstanding customer service, a quality destination, and one of the cheapest rental rates and highest yields in Asia,” CBRE Philippines chairman and founder Rick Santos said. In addition, consultancy firms see more financial companies setting up offices here. “Foreign insurance and financial firms are already on the move to set-up operations in the country,” CBRE's report read, adding that expected tracked take-up of office space will total 450,000 sqm in 2013. With companies relocating here comes an influx of expatriates or “expats.” This is seen to fan demand for living spaces in high-end villages like Ayala Alabang and Forbes Park, and consequently retail spaces. “This setting will increase demand for premium residences in the areas surrounding and within CBDs, like Makati, Rockwell, among others,” said Pobre. CBRE echoed the view, saying: “In the long run, a domino effect will carry the benefits of an investment influx toward the residential and retail sectors.” Currently, only Fitch rates the Philippines at investment grade. But analysts expect Standard & Poor's and Moody's to follow suit soon, further increasing foreign investors' interest in the country. Given this backdrop, Santos describes the current state of the real estate industry as “the best market I’ve seen in the Philippines in the last 20 years.” “It reminds me a lot of the excitement and activity we saw in Hong Kong, Singapore and China during their real estate booms in the early 2000’s,” he said. — BM, GMA News