RESEARCH

METRO MANILA REAL ESTATE SECTOR REVIEW

METRO MANILAMARKET UPDATE Q4 2018

FDI RISES AS NEIGHBORING COUNTRIES CONTINUE TO BET ON “ASIA’S RISING TIGER”

formulates policies that will limitconstraints in doing business in thecountry. On October 2018, the 11th

Regular Foreign InvestmentNegative List was amended toinclude five areas that will allow100% foreign investmentparticipation. The list includesinternet businesses (as excludedfrom mass media), teaching athigher education levels provided thesubject being taught is not aprofessional subject (i.e., included ina government board or barexamination), training centers thatare engaged in short-term high-level skills development that do notform part of the formal educationsystem, adjustment companies,lending companies, financingcompanies and investment houses,and wellness centers.

There is a large room for furtherexpansion of the Philippineeconomy in 2019, as strongmacroeconomic fundamentalsremain sound and foreign capitalcontinue to be invested in thecountry. The average inflation in2019 is forecasted to revert back to3%. The service sector will remainthe main driver of growth of theeconomy, backed by an excellentpool of low cost-skilled labor.Moreover, the campaign spendingfor the upcoming mid-termelections and the country’s hostingof the Southeast Asian games in thelatter part of the year are expectedto further advance the country’seconomic performance.

2

COVER | The Philippines remains a popular investment destination for Asian investors

SNAPSHOTSEconomic Indicators

GDP Q4 2018

6.1%

6.1%Inflation RateDecember 2018

3.1%OFW RemittancesNovember 2018

7.02%Avg. Bank LendingDecember 2018

5.11%91-Day T-BillQ4 2018

52.77Avg. PhP-USDDecember 2018

FIGURE 1Net Foreign Direct Investment Level By Country of Origin (in USD Mn)

The Philippines continues to attractForeign Direct Investments (FDI) asthe economy carries onexperiencing growth of above 6%for the past 7 consecutive years.The growth was mainly broughtabout by the increase ingovernment spending from thepresent administration’s “Build,Build, Build” infrastructure program.

At the end of 2017, the Philippinesposted the highest rise in ForeignDirect Investments (FDI) amongASEAN countries. FDI remainsrobust as investments increased by42% in the first half of 2018. As ofOctober 2018, net foreign directinvestments reached $8.5 billion, anincrease of 2% from the previousyear’s $8.4 billion. The largest sharein FDI was investments onManufacturing, which rose to $1.03billion from $894.8 million during thesame period in 2017. Manufacturingwas followed by real estateactivities ($269.6 million), andfinancial and insurance activities($230.2 million).

Equity capital placementspredominantly came fromSingapore ($905.7 million),Hongkong ($264 million) and China($189.3 million), representing45.3%, 13.2% and 9.5% of the totalFDI from January to October 2018,respectively.

The Philippines continuously opensits doors to foreign investors and

384.25

64.413.25 8.56

905.65

263.97189.33 183.51

0

150

300

450

600

750

900

SINGAPORE HONGKONG CHINA JAPAN

2017 2018

Source: Bangko Sentral ng Pilipinas

RISING RENTS AND GROWING SUPPLY TO FURTHER STRENGTHEN THE METRO MANILA OFFICE SECTOR

3

OFFICE | 2019 predicted to be a good year for the office market despite large upcoming stock

SM Prime’s Three E-Com Centerstarted its operations in Q4 2018,with Amazon Philippines as a majortenant. The opening of Three E-Com Center added 68,584 squaremeters of leasable space to BayArea’s total office stock.

Towers 1 and 2 of Ayala Land’sAyala North Exchange in Makatiincreased the CBD’s total officesupply by 56,000 square meters.

L & Y Plaza and Robinsons Land’sCyberscape Gamma in Ortigas andits fringes added 55,490 squaremeters of office GLA to another ofMetro Manila’s most sought-afterbusiness districts.

Net absorption of office space wasmeasured at 337,277 squaremeters in the fourth quarter of2018, bringing the total 2018 netabsorption to almost 600,000square meters of leasable space.Fort Bonifacio, Bay Area, andOrtigas exhibited an active andhealthy office market in the lastquarter of the year.

Fort Bonifacio ended 2018 with thelargest net absorption among theCentral Business Districts CBD) ofMetro Manila. 150,899 squaremeters of Gross Leasable Area(GLA) was absorbed in FortBonifacio in Q4 2018, as the CBDcompetes against Makati, boastingof newer buildings with moderndesigns and architectures.

Bay Area office developmentslogged a net absorption of 68,581square meters in Q4 2018. Demandwas generated from expanding IT-BPO and PAGCOR-enabledcompanies.

Another notable net absorption inQ4 2018 was Ortigas CBD’s 67,489square meters of GLA. Firmschoose to locate in Ortigas giventhe CBD’s competitive rates.

NEW SUPPLY

Completion and turnover of newoffice buildings added 373,331square meters of GLA to theapproximately 5.4 million squaremeters of existing Prime and GradeA office space in the Metro Manilamajor CBDs.

The Finance Center, Twenty-FiveSeven McKinley, and High StreetSouth Corporate Plaza (Tower 1 &2) constitute the additional 193,257square meters of new office supplyin Fort Bonifacio.

Metro Manila Office Sector ended2018 on a high note with amaintained positive momentum andcontinuing growth in the fourthquarter of 2018. Modernization ofthe workplace and continuingtrends were noted during the year.

NET ABSORPTION & VACANCY RATE

Metro Manila’s overall officevacancy rates was recorded at4.88% in Q4 2018, which wasdriven by the continuing strongdemand in office space frominternational firms, IT-BPOcompanies, and PAGCOR enabledcompanies. Office vacancyremained within healthy levels ofbelow 6% since Q4 2010. Thevacancy level was below 5% in Q42018 despite the more than350,000 square meters of newsupply introduced within thequarter, signifying a robust officemarket.

TABLE 1Q4 2018 Office Data

AreaWeighted Avg Lease Rates

(PhP/sq.m./mo.)

Vacancy Rate

Makati 1,419.68 4.13%

Fort Bonifacio

1,150.54 5.32%

Alabang 772.13 0.36%

Quezon City

900.73 8.62%

Ortigas 698.72 5.85%

Bay Area 842.71 1.27%

METRO MANILA

1,042.35 4.88%

Source: Santos Knight Frank Research

0

1000000

2000000

3000000

4000000

5000000

6000000

7000000

Q1 2018 Q2 2018 Q3 2018 Q4 2018

FIGURE 2Office Space Influx 2018 (in sq.m.)

Source: Santos Knight Frank Research

Ayala North Exchange

© Ayala Land

4

Emerging developments in FortBonifacio drove the weightedaverage lease rate of the CBD toPhP1,150.54 per square meter permonth, which represents a 3.50%Q-o-Q and an 11.25% Y-o-Yincrease. Despite the large numberof upcoming office buildings andcommercial developments inBonifacio Global City (BGC),McKinley Hill, and McKinley West,lease rates are forecasted to growfurther in 2019, given the quality ofthe buildings slated for delivery.

Quezon City (QC) documented aweighted average lease rate of PhP900.73 per square meter permonth, exceeding the PhP900-mark in the last quarter of 2018.Rental rates in QC grew by 0.53%Q-o-Q and 9.33% Y-o-Y.Developments in Cubao, VertisNorth, and townships along the C-5Corridor (Arcovia City, Ortigas East,Bridgetowne and Parklinks) areexpected to drive rental rates up tothe PhP1,000-mark this 2019,following the boosted activities innearby areas.

UPCOMING SUPPLY

Makati is set to witness the turnoverof 191,238 square meters of officeGLA in 2019. Prime-grade officebuilding Nex Tower by Nova Groupis the most notable upcoming officebuilding in Makati. It will increasethe office stock of the country’sfinancial capital by 31,173 squaremeters.

The planned completion of AyalaLand’s Park Triangle CorporateCenter and BGC Corporate Center2 in 2019 will inject 38,875 squaremeters and 26,620 square metersof GLA into Fort Bonifacio,respectively. Moreover, AsianCentury Center of CenturyProperties, also in Fort Bonifacio,should be operational by Q1 2019.It will supply 26,000 square metersof additional GLA to the CBD.Furthermore, Megaworld’s WorldCommerce Place is due Q2 2019,adding another 105,000 squaremeters to the Uptown Bonifaciodevelopment.

Ortigas will be welcoming 398,499square meters of additional officespace in 2019. The notableupcoming developments in Ortigasinclude SM Keppel Tower and SMMega Tower, which will revamp theOrtigas skyline with 103,000 squaremeters and 96,000 square metersof office space, respectively.

WEIGHTED AVERAGE LEASE RATES

Amidst new and upcoming supply,office asking rents in Metro Manilacontinued to rise. Weighted averagelease rates in Metro Manila grew by3.25% Quarter-on-Quarter (Q-o-Q)and almost 10% Year-on-Year (Y-o-Y), increasing by 9.38% in Q4 2018.Weighted Average Rents remainedabove PhP1,000 as it was peggedat PhP1,042.35 per square meterper month.

Makati continued to occupy the topspot in terms of asking rents.Makati’s weighted average leaserates was pegged at PhP1,419.68per square meter per month, anincrease of 3.10% Q-o-Q and10.37% Y-o-Y.

FIGURE 3Upcoming Supply (in sq.m.)

Source: Santos Knight Frank Research

Source: Santos Knight Frank Research

FIGURE 4Weighted Average Lease Rate (in PhP) and Year-on-Year Growth Rate (in %)

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

-

500.00

1,000.00

1,500.00

2,000.00

MakatiCBD

FortBonifacio

Alabang QuezonCity

Ortigas Bay City

Lease Rates Y-o-Y Growth

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

Makati Taguig Ortigas Bay Area Alabang Quezon City

2019 2020 2021

5

CO-WORKING TREND

The biggest trend in the officesector of late is the rise of servicedand co-working spaces. Coworkingis a term first used by entrepreneurBrad Neuberg in 2005. A co-working office space is designed toprovide a dynamic, productive, andcollaborative environment thatboast of ‘breathability’ and‘flexibility’ and without theconstraints of the usual corporateoffice environment. Co-workingusually caters to freelancers, smallstart-up companies, andindependent professionals.

Regus, Spaces, WeWork andCommon Ground are some of thenotable world-class serviced andco-working offices that areemerging and expanding in thePhilippines. Regus is a popularserviced office provider in thecountry. Its first Philippine venturewas in 1999 and it eventuallyoffered co-working spaces throughthe “Spaces” brand. Spaces has anexisting office in World Plaza inBGC and will be opening anotheroffice in Makati.

Moreover, another US-basedcompany, WeWork, startedoperations in Uptown BonifacioTower 3 and announced a secondoffice in RCBC Plaza in Makati.

Furthermore, Malaysian co-workingbrand, Common Ground, recently-opened its first branch in ArthalandCentury Pacific Tower and isopening another office at IBP Towerin Ortigas.

Local property developersrecognized the sizable co-workingmarket. Ayala Land and RobinsonsLand already ventured into co-working with Ayala Land’s “Clock-In” and Robinsons Land’s“Work.Able”. Clock-In emerged asone of the well-known local co-working brands. It is situated invarious Ayala-owned buildings suchas C2 Bonifacio High Street andBonifacio Technology Center inBGC, Makati Stock Exchange andAyala North Exchange in Makatiand The 30th Corporate Center inOrtigas. Robinsons Land, on theother hand, introduced “Work.Able”in the newly-operationalCyberscape Gamma in Ortigas.

Co-working rates varied dependingon the location. Co-working officesin Fort Bonifacio had a daily rate ofPhP620 to PhP1,000 per table perday. Co-working price range inMakati was pegged at PhP550 toPhP1,000 per table per day. Thedaily rates for Alabang and Pasayco-working space ranged fromPhP400 to PhP600 per table perday. QC and Ortigas had thecheapest co-working rates amongall the CBDs in Metro Manila,ranging from PhP250 to PhP600per table per day.

OFFICE FOR SALE

The ballooning of rental rates ledproperty developers to considerselling office spaces to interestedparties. This will result to bettercashflows and rate of returns to thebuilding owners. Occupiers, on theother hand, opt to purchase spacesto save on recurring rental costs.

Pre-selling office developments inMakati command the highest sellingprice ranging from PhP160,000 persquare meter to PhP320,000 persquare meter. Notable Grade Aoffice developments which areexpected to be completed by 2022include The Gentry Corporate Plazain Valero Street and The StilesEnterprise Plaza in Circuit Makati.

Due to the strong demand for officespace in BGC, all buildings withoffices for sale are 100% sold to-date. At the farther part of Taguig,however, Ayala Land Officeslaunched Tryne Enterprise Plaza inArca South. The 13-storey WestTower has a Gross Saleable Area of19,736 square meters and sells atan average of PhP250,000 persquare meter. The tower isscheduled to be handed over tounit owners in Q4 2023.

Ample office inventories remainavailable for sale in the other MetroManila business districts. Averageselling prices in these areas rangefrom a low of PhP155,000 persquare meter to a high ofPhP260,000 per square meter.

Source: Santos Knight Frank Research

550.00 620.00

400.00 300.00

250.00

400.00

1,000.00 1,000.00

600.00 600.00 550.00

600.00

-

200.00

400.00

600.00

800.00

1,000.00

1,200.00

Makati City Fort Bonifacio Alabang Quezon City Ortigas Bay City

FIGURE 5Co-Working Rate Price Range (Daily Rates)

METRO MANILA RESIDENTIAL SECTOR ENDS 2018 WITH STRONG DEMAND INDICATORSResidential | Robust buying activities from expatriates fueled the demand for residential units

6

The local residential marketcontinued to display vigorousnumbers due to the unwaveringpurchasing activities from bothforeign firms and localprofessionals. Overall monthly take-up in the fourth quarter averaged27.98 units per month, coming from23.1 units per month in the previousquarter. The influx of foreigninvestors and workers, as a result ofthe growing number of PAGCOR-enabled companies in the country,remained to be one of the majordrivers of residential sale in MetroManila. The Philippine Amusementand Gaming Corporation (PAGCOR)reported a growing list of approvedlicenses as of December 2018. Bulkresidential purchases for thepurpose of employee housingcreated an upward pressure on theprices of units.

DEMAND AND ABSORPTION

Q4 2018 overall absorption rate inMetro Manila rose slightly at94.95%, even with new projectlaunches during the quarter.

Bay Area recorded the highestaverage take-up rate among theMetro Manila CBDs in Q4 2018 at49.69 units per month. Majority ofthe Chinese companies are locatedin the Bay Area and some parts ofMakati.

Ortigas closely followed Bay Area,with a 48.4 units per month averageperformance. Investors and endusers in Ortigas are primarilyconsidering the potential for highreturns due to the anticipatedincrease in accessibility once lined-up infrastructure projects arecompleted.

Makati occupied the third spot withan average take-up of 44.24 units

per month, a remarkable 11-unitincrease from Q3 2018.

Demand for middle-income projectscontinued to be highest in MetroManila, with a take-up of 37.46units per month at an average. 1-bedroom sales overtook studiounits in the quarter, making it themore sought-after unit type. 1-bedroom units sold at an average of15.62 units per month in Q4 2018.Most of the 1-bedroom units soldwere intended for employeehousing in the Bay Area.

SELLING PRICES AND YEAR-ON-YEAR GROWTH

Bay Area and Makati registered thehighest year-on-year growth inprices among the Metro ManilaCBDs in Q4 2018 at 65.7% and32.7%, respectively. Bay Area’sindicative weighted average sellingprice remained the highest acrossMetro Manila for the last 3consecutive quarters. Residentialcondominium prices in the Bay Areaaveraged Php242,467 per

square meter in the last quarter of2018. Taguig and Makati followedwith average selling prices ofPhP214,491 per square meter andPhP205,452 per square meter,respectively.

TABLE 2Q4 2018 Residential Condominium Sales Market Statistics

AreaUnits

Sold (%)

Avg.

Monthly

Take-up

Makati 95.45% 44.24

Taguig 94.63% 12.89

Quezon City 91.61% 14.15

Ortigas* 91.22% 48.40

Alabang 96.35% 11.93

Bay Area 95.24% 49.69

METRO

MANILA93.46% 27.98

*Includes parts of Mandaluyong, Pasig, and

San Juan

137,135 125,605

75,873 81,649 82,074

172,743

399,136

502,894

251,294 237,532204,130

290,271

0

100,000

200,000

300,000

400,000

500,000

600,000

Makati City Taguig City Quezon City Ortigas Alabang Bay Area

FIGURE 6Indicative Average Selling Prices per Area (PhP/sq.m.)

Source: Santos Knight Frank Research

7

Some of the notable upcomingtownships are concentrated alongthe C-5 Corridor. Eton Propertiesand Ayala Land’s Parklinks projectboasts of being the largest mixed-use development in the area,covering 35 hectares of land.

Megaworld Corporation continues to expand its township portfolio with

the construction of Arcovia City inthe Pasig side of C-5. The first high-end condominium project in ArcoviaCity, 18 Avenue De Triomphe, is forlaunching within 2019. The 37-storey residential project will offer576 residential units of differentcuts, targeting the youngprofessionals working in the area.

High-end condominium projectsrealized the highest year-on-yeargrowth in prices, with selling pricesgrowing at an average of 23% in thefourth quarter. High-end projectssold from Php122,554 per squaremeter to Php399,137 per squaremeter in Q4 2018.

NEWLY-LAUNCHED PROJECTS

Residential property developerscontinue to bank on thegovernment’s large-scaleinfrastructure program by acquiringland and master-planningdevelopments proximate to plannedinfrastructure projects. Uptown ArtsResidences, MegaworldCorporation’s newly launchedproperty in Taguig, is located nearthe proposed Skytrain UptownStation and the bridge that willconnect Fort Bonifacio to Pasig. Inaddition, Megaworld Corporationrecently launched Vion Tower inMakati, which capitalizes on itsaccessibility to the proposedMagallanes Transport Hub. Makatiis likewise set for a majortransportation upgrade with theconstruction of a subway system.The new infrastructure is expectedto improve capital values andrejuvenate interests in the city. Alsoin Q4 2018, Aseana ResidentialHoldings launched the first two ofthe four towers of MidPark Towers.The residential project is withinAseana City in Parañaque City andis in close proximity to the recentlylaunched Parañaque IntegratedTerminal Exchange.

GENTRIFICATION IN MANILA

The massive infrastructure projectsof the government and lack ofdevelopable land within the MetroManila CBDs paved the way for thegentrification of fringe areas. Majordevelopers expand their portfolio byacquiring land outside the city coreand turning them into urbantownship developments. Townshipsare ideal for residents because itoffers an integrated communitywhere they can live proximate toretail establishments andworkplaces.

Vion TowerSource: Megaworld 18 Avenue De Triomphe

Source: Megaworld

MidPark TowersSource: BusinessMirror

8

Notable co-living projects includeAyala Land’s The Flats Amorsoloand SMDC’s MyTown Dormitories.At present, there are 16 MyTownprojects in various locations withinBGC and Makati while The Flatshave upcoming sites in BGC FifthAvenue, BGC Parkway and CircuitMakati..

A bed in The Flats is pricedPhP6,250 per month (excludingutilities) for the first 6 months oflease. The monthly occupancy costincreases to PhP6,700 per month(excluding utilities) in thesucceeding months.

MyTown rates, on the other hand,vary depending on the type ofaccommodation. Rooms that couldfit 6, 4, and 2 persons costPhP4,050 per bed per month,PhP4,200 per bed per month andPhP8,100 per bed per month,respectively. A Private Queen Roomis also available for PhP16,100 permonth.

Another co-living project to watchout for is First Georgetown’s GRID,which is also situated in Makati.

Bridgetown Business Park byRobinsons Land Corporation willsoon introduce residentialcondominiums to complement theupcoming office buildings in themixed-use development. Thetownship will mostly cater to theBusiness Process Outsourcing(BPO) sector.

BOOM OF CO-LIVING

With the strengthening of the IT-BPO sector in the country,residential demand for productsspecifically targeting BPO workersand employees entices propertydevelopers to conceptualize andunveil products and projects thattap into the huge unserveddemand.

Co-Living projects present analternative accommodation thatmeets the needs, desires andpreferences as well as addressesthe focal concerns of BPO workersand staff, young urbanprofessionals, ordinary officeworkers and students. Bed androom options for individuals andstaff housing are available.

The worsening traffic situationwithin the major business districtsof Metro Manila creates a demandfor housing units that are close toplaces of work. This promotespersonal and monetary well-being,saving the worker a great deal oftime and money. Also, renting aresidential condominium unit mightbe too expensive for employeesliving on a strict budget. Hence, thedormitory model appears to bemore compelling and practical.Sharing living spaces likewisepromotes social interactions andfriendly collaborations for anenhanced overall living experience.

The Flats AmorsoloSource: Make It Makati

Arcovia CitySource: Megaworld

PROPERTY DEVELOPERS MOVE INTO WAREHOUSING AND LOGISTICSINDUSTRIAL | New opportunities in the industrial sector identified by local firms

The Gross Domestic Product (GDP)of the Philippines grew by 6.1% inthe final quarter of 2018, bringingthe full year GDP growth to 6.2%.The industry sector grew fastest at6.9%. Manufacturing andconstruction were the largestcontributors to industry growth at62% and 25%, respectively.Moreover, government spending oninfrastructure increased by 6.9%,the fastest pace since 2013.

With the projected prolongedelevated level of fuel prices and ase-commerce continues to reshaperetail, last-mile delivery hubs, inner-city distribution centers, coldstorage and warehouse facilities willremain in high demand.

The average lease rate for industrialspace were at a minimum ofPhP152 and a maximum of PhP589per square meter per month. Citiesof Makati, Mandaluyong andParañaque recorded the highestlease rates at PhP589, PhP457 andPhP438 per month, respectively.

The scarce supply of industrialproperties within Metro Manila,nevertheless, has been forcing

property developers to re-visitopportunities in logistics andwarehousing outside the city core.Developers likewise formulatestrategies that cater to the notablegrowing demand coming fromSmall and Medium Enterprises(SME).

Double Dragon Properties is set toopen the Central-Hub Iloilo, awarehousing hub that will add22,000 square meters to thepresent industrial supply.

In addition, Prime Orion Properties,in partnership with Mitsubishi Corp.,plans to build a new StandardFactory Building (SFB) inside the11-hectare Laguna Technopark.The SFB will have an estimatedGLA of more than 60,000 squaremeters and will includecommissaries, cold storage, lightmanufacturing and logisticsfacilities. The total area will bedivided into 40 leasable units, eachhaving an estimated area of 1,200to 1,500 square meters.

The Juan Luna Logistics Center inBinondo, Manila will be AnchorLand Holdings, Inc.’s third

in the country. The building will have29 storeys of modern storage, withonly 8 units per floor. An extraspace is to be provided per unit,which can be used as showroom oroffice space. The ground floor willbe dedicated to banks, for easiertrading and transactions betweenbusinesses and clients.

9

FIGURE 7Industry Sector Composition (Q4 2018)

Mining & Quarrying

3%

Manufacturing62%

Construction25%

Electricity, Gas & Water

Supply10%

₱152

₱157

₱225

₱255

₱300

₱438

₱457

₱589

₱0 ₱100 ₱200 ₱300 ₱400 ₱500 ₱600 ₱700

Valenzuela

Las Piñas

Pasig

Quezon City

Taguig

Parañaque

Mandaluyong

Makati

FIGURE 8Industrial Space Average Lease Rates (PhP/sq.m./mo)

Juan Luna Logistics CenterSource: Anchor Land Holdings Website

Source: Philippine Statistics Authority

Source: Santos Knight Frank Research

the prospect of long-haul flights toEuropean cities while Cebu Pacific islooking at direct flight opportunitiesto North Asia. These new links willserve as the country’s silk roadconnecting the country’s more than7,000 islands with the rest of theworld, which will consequentlystimulate trade, tourism andinvestments across the hospitalitysector.

Complementing the expansion ofvarious routes to and from thecountry, the DoT, together with theDepartment of Transportation(DOTr), is prioritizing theimprovement of the country’sinternational airports, especiallythose catering to the market oftourist destinations. Improvement ofat least 85 airports are in thepipeline, including New ClarkInternational Airport, New Bohol(Panglao) International Airport andBacolod Airport. The Philippinegovernment is likewise interested indeveloping smaller airports with theobjective of redirecting load awayfrom the country’s main gateways.

The Ninoy Aquino InternationalAirport (NAIA) received 42 Millionpassengers in 2017, which isbeyond the airport’s 30.5 millionannual capacity. In response, asuper consortium of the country’stop conglomerates was awardedthe Original Proponent Status (OPS)to rehabilitate and increase thecapacity of the Philippine’s mainand most congested airport. Thetarget commencement ofrehabilitation works will be inSeptember 2019. Estimatedcompletion will be in 2 to 6 yearsfrom start date. The goal is toincrease NAIA’s capacity to 47million in the next 2 years and to 65million in the succeeding 4 years.

In addition, after a seven-yearclosure, the Manila – Davaoshipping route was reopened,providing another link betweenManila and four of the country’s far-flung cities. The route is serviced bythe 2Go Group, a Philippine-basedcompany engaged in transportingpeople and cargo with the use of

The Department of Tourism (DoT)celebrated a momentous occasionas the country welcomed thehighest number of tourist arrivals indecades . Foreign tourist arrivals inthe country increased by 7.68% to7.1 million in 2018 despite theclosure of Boracay Island.Boracay’s closure opened upopportunities for alternative touristdestinations in the country, such asCebu, Iloilo, Palawan and Siargao.

South Korea remained thecountry’s top tourism market withabout 1.6 million visitor arrivals inthe full year of 2018. South Korea(19%), China (15%) and US (12%)occupied the top 3 spots in termsof 2018 visitor arrivals to thePhilippines. China was recognizedas the most improved tourismmarket, achieving an almost 30%year-on-year growth in touristarrivals, with 1.3 million Chinesenationals visiting the country in2018.

EXPANSION OF ROUTES AND AIRPORTS

In December 2018, AirAsiaPhilippines added a new direct flightroute from Manila to Shenzhen,months after the launching of theairline’s Cebu – Shenzhen flights.The primary objective was to caterto the growing Chinese markettraveling to and from China. Thenew flight routes are expected togenerate increased volumes oftourism and investment activities,as well as foreseen to furtherenhance relations between Chinaand the Philippines.

Philippine Airlines (PAL), thecountry’s flag carrier, and CebuPacific, a low-cost airline in thePhilippines, are also expected tolaunch new domestic andinternational routes in 2019,pending the delivery of newairplanes. PAL is currently studying

HOSPITALITY MARKET STEADILY CRUISING THE 2018 FLIGHT PATH HOSPITALITY | New Transportation Routes, Expansion of Airports and Hotels, Rising Tourist Arrivals and

Better Utilization of Technology all show a Brighter Future for the Capital

South Koreans19%

Chinese15%

Americans12%

Japanese8%

Aussies3%

Taiwanese3%

Canadians3%

British2%

Singaporeans2%

Malaysians2%

Indians2%

Hong Kong SAR1%

From Other Countries

28%

FIGURE 9Philippine Foreign Tourist Arrivals 2018

10

Source: Department of Tourism

11

enhancement of trade andinvestments, and the expansion ofa logistics provider’s capability.

METRO MANILA’S HOSPITALITYINDUSTRY

As the country’s center of culture,economy, education andgovernment, Metro Manilawelcomed the most number ofvisitors, both domestic and foreign,among all other places in thePhilippines. Manila is often thevenue of choice when hostinginternational conferences,conventions and events, such asconcerts and economics summits.The Metro Manila hospitalityindustry growth remains mainlydriven by Meetings, Incentives,Conferences and Exhibitions(M.I.C.E.) and local guests onstaycation.

A number of hotel openings wererecorded in Q4 2018, includingSheraton Manila by MariottInternational at Newport City inPasay. 390 new rooms were addedto Newport City’s present supply ofmore than 2,600 rooms. Moreover,Hotel Okura is set to open in Q22019, adding another 196 rooms.Continuing and increasing demandis noted despite the presence ofnumerous hotels in the area.

Budget hotels continue tomushroom in various areas in andoutside of Metro Manila. Hop InnTomas Morato recently-opened inQC, bringing the number of hotelrooms in QC to 2,919 rooms.

Newly-minted into the PhilippineHospitality Industry, RedDoorz, anonline budget hotel marketplace,partners with low-cost hotel ownersto standardize product offerings,formulate marketing and salesstrategies, and handle customerfeedback. RedDoorz and othersimilar service providers, such asZen Rooms, Nida Rooms and OyoRooms, play a huge role in theintroduction of small and lessknown hotels to the market.

In response to growing touristvolume, developers have beeninvesting in the hotel industryacross the Philippines. Brandedhotels are expanding not only withinthe capital but also in locationssuch as Zambales (Rosewood), LaUnion (dusitD2, a Dusit brand),Bacolod (Citadines, an Ascottbrand), Davao (Dusit) and Cebu(Dusit, Sheraton, Radisson andCitadines). Meanwhile, homegrown

inter-island ferries and cargoships.

From Davao, the ship first stops inGeneral Santos (South Cotabato)then in Zamboanga, followed byIloilo, before it finally docks inManila, and vice-versa. Thisinterconnectivity between the fivecities provides another avenue oftransport at competitive prices, aboost in domestic tourism,

FIGURE 11MM Upcoming Hotel Room Supply

Alabang6%

BGC7%

Makati29%

Ortigas14%

Bay Area & Pasay

(others)33%

QC11%

FIGURE 10MM Q4 2018 Hotel room Supply Distribution

NAIA Terminal 1 (08-19-18)

Image Source: DZBB Super Radyo

Source: Santos Knight Frank Research

Source: Santos Knight Frank Research

847

613713 678

275

1010

591

280

1214

200

Makati Ortigas Bay Area &Pasay

(others)

QC Taguig

2019 2020 2021-2023

players are also expanding theirtourism and hotel portfolio, suchas Ayala with the Seda hotel brandand its new tourism estate, SicogonIsland.

At present, Bay Area and otherareas in Pasay have the mostnumber of hotel rooms in MetroManila, accounting for 33% of thetotal. Moreover, about 3,000 newrooms will soon be available in theBay Area. Makati likewisecomprises a large portion of thehotel supply with a 33% share intotal number of rooms. Another1,700 hotel rooms will be added tothe Makati supply within the nextfive years. A total of 6,400 roomsare upcoming in Metro Manila until2023, with nearly 2,900 expected toopen in 2019.

In terms of Average Daily Rates(ADR), Bay Area and other areas inPasay have the highest ADR acrossthe 5-Star-rated hotels in MetroManila. ADR of 5-star hotels in theaforementioned areas averagedPhP15,000.00 in Q4 2018. Theprice was mainly driven byintegrated hotels and casinos. ADRin Makati was recorded at a littleover PhP9,000.00 while ADR in therest of the areas were estimatedbetween PhP6,000.00 toPhP7,000.00.

Overall ADR follows the pattern ofthat of 5-star hotels, with prices inBay Area and other areas in Pasayleading all the other businessdistricts, pegged at almostPhP12,000.00. BGC’s overall ADRwas almost PhP9,000.00 while theoverall ADR of the rest of the areasranged between PhP4,000.00 toPhP5,000.00.

6,553.20

9,362.96

6,770.44 6,721.80

14,838.15

Alabang BGC Makati Ortigas Bay Area &Pasay (others)

FIGURE 12MM 5-Star Hotels ADR Q4 2018 (in PhP)

Source: Santos Knight Frank Research

4,681.23

8,847.77

4,849.14 4,785.44

11,813.08

4,188.99

Alabang BGC Makati Ortigas Bay Area &Pasay

(others)

QC

FIGURE 13MM Hotels Average Daily Rate Q4 2018 (in PhP)

Source: Santos Knight Frank Research

12

BRICK & MORTAR ESTABLISHMENTS SUSTAIN GROWTH AMIDST BUSTLING E-COMMERCERETAIL | Evolving landscape increases demand for new concepts and technologies

13

OPENINGS & EXPANSIONS

Both internet and traditional retailhave thrived in the Philippines amidchanging dynamics of customerpreferences. Despite the rapidemergence and notable growth ofe-commerce, Filipino consumerscontinue to prefer the actualshopping and dining experience ofvisiting physical stores. Moreover,retail expansions far and wideascertain that retail developersexpect the market to remainpatrons and regulars of shoppingmalls.

Ortigas and Company is rampingup the Estancia Mall in CapitalCommons, adding another 65,000square meters of GLA in 2019. Themall expansion will include an SMdepartment store, movie houses,new and exciting restaurants andmore global lifestyle brands. Thecompany is keen on making CapitalCommons an integrated hub forlive-work-play in the Ortigas CentralBusiness District.

The Podium of SM Supermallsrecently revealed the mall’s muchawaited expansion, which isactually a renovated version of theoriginal mall. The estimatedadditional area is 20,000 squaremeters of leasable space.

Robinsons Magnolia in QC islikewise undergoing a considerableexpansion. The mall expansion willadd 10,000 square meters ofleasable space to the existing mallGLA.

Ayala Land Inc. is further boostingthe Bay Area retail sector in 2019with the scheduled unveiling of thefirst phase of Ayala Malls Bay Area.The new mall is expected to seize alarge share of the existing SM Mallof Asia market. Nevertheless, SMMall of Asia continues constructionworks on an 8-phase expansion

project, targeting to finish 1 phaseper year.

Upon completion, an additional250,000 square meters of retailspace will be added to the mall’sexisting GLA. Global furniture retailerIKEA is a notable locator in theexpansion, with slated opening in2020.

Mitsukoshi Mall, Japan’s oldestsurviving department store chain, ismaking its way to the Philippines.Complete with an authenticJapanese food court and asupermarket featuring wines, meats,sweets, and confectioneries,Mitsukoshi Mall will surely captivatethe hearts of the Filipino market.Federal Land, Inc. together withNomura Real Estate Developmentand Isetan Mitsukoshi Holdings Ltd.teamed up to bring the high-endmall to the country. It will be locatedin Federal Land’s Veritown project inBGC. The target completion is in2021.

To further enhance the retailexperience, a number of shoppingmalls underwent renovation.Robinsons Galleria in Ortigassubstantially completed renovation intime for the Christmas season. As aresult of the renovation, the numberof food and beverage storesincreased by 10% and seats in thefood court rose from 1,000 to 1,200seats. The renovation of theRobinsons Movieworld-Galleria ison-going and, once completed, willintroduce recliner seats good forabout 100 viewers.

Shangri-la Mall in Ortigas enhancedthe overall shopping mall experienceby renovating the 30-year old moviehouses. The new and improved Red

Carpet cinemas were uncovered inQ4 2018.

NEW BRANDS & TRENDS

As of the last quarter of 2018, thereare 257 upcoming brands in all of themajor retail establishments in MetroManila. The Food & Beveragecategory takes the lead representing42% of the entire upcoming brandspie. Milk Tea takes up 6.5% whileFood Buffets make up 10.3% of theF&B. The remaining percentage arerestaurants, coffee shops and otherfood concepts.

36% of the upcoming brands iscomposed of collaborative retailshops, furniture, entertainment, health& wellness, supplies, tech, generalmerchandise, sports, cosmetics, andservices.

Shops on health & wellness comprise21.3% of the brands placed under theOthers category. This trend signifiesthat Filipinos are becoming morehealth conscious and are aspiring tolive a more active lifestyle.

FIGURE 14Upcoming Retail Supply Per Retail Category

Source: Santos Knight Frank Research

Food & Beverage

42%

Clothing & Apparel

22%

Others36%

14

Asia’s main mall. Another noticeablygrowing skincare brand is TheSaem, which means spring water orfountain in Korean. It now has 9branches in different locationswithin Metro Manila.

In December 2018, the BenchGroup opened the second branchof Bench Cafe in Greenbelt, Makati.This illustrates the concept ofcombining shopping and dining fora better retail experience, which isan evidently developing trend in thecountry.

players recently participated, suchas China’s AliPay and WeChat Paythat partnered with AUB Paymateto cater to the growing number ofChinese nationals in the country.

According to PayPal’s Cross-Border Consumer Research 2018,the total online spend of Filipinoshoppers for 2017 was PhP92.5billion. This number is expected torise to PhP122 billion in 2018, a32% increase from 2017 statistics,and grow further to more thanPhP185 billion in 2020. The top 3purchases were for Clothing &Apparel at 68%, followed byConsumer Electronics at 57% andCosmetics at 56%.

The remaining 22% is made up ofclothing & apparel, eyewear,accessories, and footwear.

Japanese brands grouped togetherto create a single destination for theselling of Japanese merchandise.The opening of @Tokyo in variousmalls made it easier and moreconvenient for patrons of Japaneseitems to shop for their favoriteproducts. Brands such as Seiko,Legato Largo, AccessoriesBlossom, Karuizawa Shirt, Prospex,and Annello are participatingnames. More brands are in thepipeline. These stores share acommon payment counter, similarto a department store, creating afeel of a mall-within-a-mall. Unlikecollaborative retail stores, @Tokyohouses well-established brands,each with their own hard-walledbooth as partition. @Tokyo hasexisting branches in Uptown BGCMall and Market! Market!, andupcoming branches in The Podiumand Estancia Mall.

From a simple hot dog cart inMadison Square back in 2001,Shake Shack now has around 200global branches serving burgers,milkshakes, hot dogs, frozencustards, beer, and wine. ThisAmerican-favorite food place ismaking its way to the country withits first-ever Philippine branch inBGC’s Central Square.

We are yet to see an end to the MilkTea phenomenon as anotherforeign entrant, Taiwan’s popularmilk-tea shop, Tiger Sugar, arrivedin the country. It has opened its firstbranch in Bonifacio High Street.Customers line up for hours just forthe experience. What sets TigerSugar apart from its competitors isthe use of fresh cream instead ofmilk, which is a rich twist to theoriginal recipe.

An increasing demand for beautyand skin care products led to thefurther expansion of Korean skincare brands in the Philippines.Influenced by Korean telenovelas,Filipinos try to achieve a “glass-skin” complexion (clear, luminous,seemingly transparent skin). PopularKorean skincare brand Innisfree setup its first branch in the country atthe ground floor of SM Mall of

Inside of @Tokyo in Uptown Mall, BGC

Local drug store accepting Chinese e-wallets as form of payment at SM Mall of Asia

VACANCY AND RENTS

Retail lease rates in Metro Manilaaveraged PhP1,342.46 per squaremeter per month in the fourthquarter of 2018. Bay Area led theMetro Manila CBDs, having anaverage lease rate of PhP1,750.00per square meter. This was drivenby SM Mall of Asia rents. Bay Arealikewise displayed the lowestvacancy rate with as little as 0.08%of available space as of Q4 2018.Following Bay Area in terms of leaseand vacancy rates is Fort Bonifacio,with average rents pegged at PhP1,541.67 per square meter andvacancy estimated at 0.94%.Sound indicators render Bay Areaand Fort Bonifacio as significantgrowth drivers of the retail sector.

In addition, retail establishmentsstarted accepting cashlesstransactions to offer consumers amore convenient way of paying forpurchases and elevate the buyingexperience. The country’s strongestplayer of digital wallets (also knownas e-wallet, mobile payment),GCash and Paymaya, are availablein a number of major malls. Foreign

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