There is the popular notion of “flight to quality” in which consumers—or occupiers in the case of real estate—would prefer better and in most cases newer options. With the recent real estate boom, brand-new and quality options for office, residential, malls, hotels, and industrial spaces abound. The quality of these options has been pretty much standardized, with minimal upgrades or downgrades offered by developers that can be discerned by the consumers. With quality being almost equal, occupiers are now looking for more economic and efficient options.

As monitored by Pinnacle Research, Metro Manila’s office market reached 8.6 million square meters of Grade A (or better) office building. This is a result of new buildings that recently came online. Overall vacancy across the different business districts slightly increased to 3 percent because the market is still absorbing this new supply.

While the office market is still a landlord’s market because of high occupancy, rents have stabilized with miniscule upward bias. Bonifacio Global City (BGC) and the Makati central business district (CBD) are still the preferred locations of business process outsourcing (BPO) companies. However, for their secondary offices and expansions, BPO companies would not mind going to other CBDs to take advantage of lower rents. Going to other CBDs would also mean tapping to another labor market, which is key in the BPO sector.

Rents in the Makati CBD are stable, where Premium Grade A buildings have a weighted average of Php1,400 per square meter per month. Grade A buildings have a weighted average rent of Php950 per square meter per month, and for Grade B&C Buildings, the weighted average is Php720 per square meter per month.

The weighted average rent in BGC is at par with Makati Grade A buildings at Php950 per square meter per month. The average rent of Grade A office buildings in Ortigas, Alabang, and the Bay Area is estimated at Php680 per square meter per month. Quezon City office rents have a slightly higher weighted average of Php700 per square meter per month. This is because the city has newer and fewer buildings. The averages for Ortigas and Alabang, on the other hand, are weighed down by older buildings in these CBDs.

Pinnacle Research estimates that Metro Manila’s residential condominium projects would reach a total of 240,000 units by the end of 2017. Small and medium players are also waiting for the approval of the implementing rules and regulations and the price ceiling for vertical socialized housing projects.

According to the Bangko Sentral ng Pilipinas’ (BSP) report on total loans released by universal and commercial banks to the real estate sector, a total of Php1.31 trillion loans were extended to borrowers by the end of the first quarter of this year, which corresponds to an increase of 21.5 percent compared to the same period in 2016. This substantial increase shows that there are more people buying real estate and that these purchases are being financed by banks.

SM Prime is the undisputed leader in the commercial retail real estate arena. It is currently operating 60 big malls nationwide, with a goal to penetrate more cities and towns. By year-end, SM Prime will open five more malls in the Philippines, all of which will be located outside Metro Manila. By 2018, SM Prime intends to increase to 75 malls.

SM Retail also operates 48 SM Supermarkets, 44 SM Hypermarkets, 156 Savemore grocery stores, 39 Waltermart stores, 210 Alfamart convenience stores, and 1,749 specialty stores. The group intends to expand its Alfamart platform to 500 stores by next year.

Meanwhile, Cosco/Puregold has also been busy with its own acquisitions apart from operating a total of 329 stores nationwide, comprising 277 Puregold stores (mixed sizes), 12 S&R membership shopping warehouses, 23 S&R New York Style QSRs, nine NE Bodega Supermarkets, and eight Budgetlane Supermarkets. It recently acquired the famous Office Warehouse, and even Liquigaz, which is a big player in liquefied petroleum gas (LPG) distribution.

Other players like Vista Land, Robinsons Land, and Ayala Land have been tinkering with various small retail platforms as well. Overall, the blended average rent for commercial-mall space has been steady at Php1,200 per square meter per month.

Top developers have been busy gearing up their local brands. Robinsons Land has been expanding its Go Hotel operations to 16 properties, and is looking to duplicate its successful Summit Hotel in its Robinsons Magnolia development. Ayala Land has rolled out six Seda Hotels. Vista Land is building four hotels under the Mella Brand to add to its current operation of the Boracay Sands Hotel, while second-tier Eurotower Group has ramped up its operations to nine Eurotel branches and 39 Sogo branches.

In terms of high-end products, Pinnacle Research estimates that there are more than 20,000 deluxe hotel rooms in Metro Manila. The big players have been partnering with international brands to deliver luxury rooms in the market.

The tourism target is still at 6 million arrivals this year. To its credit, the national government and even a number of local governments have been busy attracting international events to increase tourist arrivals and spending. President Duterte’s recent travels have also been key in attracting mainland Chinese and Russian tourists and investors.

The list of economic zones as reported in the Philippine Economic Zone Authority (PEZA) website remains unchanged as of this writing. These operating economic zones comprise 73 manufacturing economic zones, 243 information technology parks or centers, 21 agro-industrial economic zones, 19 tourism economic zones, and two medical tourism parks or centers, which total 358 economic zones.

In addition, there are no changes in the number of economic zones being developed: 29 manufacturing economic zones, 104 information technology parks or centers, six agro-industrial economic zones, and six tourism economic zones, or a total of 145 economic zones being developed.

Since industrial spaces are typically sprawling, average lease on land of selected zones ranges between Php55 and Php70 per square meter per month, while average lease of selected factory spaces ranges from Php150 to Php250 per square meter per month, depending on the level of fit out of the industrial spaces.

Real estate developers have been aggressively capturing the demand of the buyers and renters in the past years, and they are not stopping. The big players have been innovating and blending their product offerings to maximize their margins in every location to put a flag on.

Pinnacle Research expects this steady flight to continue, although this continued growth should be taken with a grain of salt. Consumers are looking for high-quality products with the most attractive rates. Extra diligence should be put into new products to avoid compressing margins later on due to competition. Most people love flying, and flying in economy class, especially those purchased very early, are quite popular among Filipinos. The Philippine real estate market will experience this “flight to economy” without sacrificing quality in the coming months.

Source: http://www.lamudi.com.ph/journal/flight-to-economy-and-efficiency-pinnacles-second-quarter-report/