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Quarterly Review

PHILIPPINES | RESIDENTIAL
3Q 2016
10 NOVEMBER 2016

Forecast at a glance
Subdued outlook
amid construction Demand
In 3Q2016, weaker absorptions were recorded
across major business districts.

delays, challenging Supply

rental market
Only one out of seven projects set for completion
in 3Q2016 was delivered. The delay in
completions is attributed to the acute lack of
skilled construction workers.
Joey Roi Bondoc
Research Manager | Philippines Vacancy rate
Vacancies continued to rise despite the slowdown
Construction delays continue to plague several in delivery. This is due to completions that are
residential projects under construction which results now starting to trickle into the market.
in a significant decrease in actual completions. For
the third quarter of the year only one project was
delivered out of the seven originally slated for Rent
completion. The construction sector remains tight Despite the slowdown in deliveries, rents
and the shortage will be exacerbated by the continued to soften due to slow absorption.
governments plan to intensify infrastructure
development.

Vacancies around the central business districts have been Colliers recommends that developers look into worker
rising despite the slowdown in project completions. This is accommodation projects to cater to the highly-mobile
due to recent completions that are now starting to trickle young urban professionals who cant afford to own their
into the market. Despite the slowdown in deliveries, rental own apartment yet or rent a condominium unit within the
rates continued to soften as a result of increased
established business districts such as Makati, Fort
vacancies. We encourage developers to be more
proactive in exploring creative lease models as investors Bonifacio, and Ortigas Center.
now face an increasingly challenging rental environment.
But developers must ensure that the worker-
Makati CBD Residential Stock accommodation projects have amenities similar to
condominium developments in the CBDs to entice more
30K 25% users.
25K 20%
number of units

20K
15%
15K
10%
10K

5K 5%

K 0%
1Q16
2Q16
3Q16
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015

4Q16F
1Q17F
2Q17F
3Q17F

Residential Stock (LHS) YoY Change (RHS)

Source: Colliers International Philippines Research


Only 1 out of 7 projects completed Vacancies rise despite slowdown in
Only one project was delivered in the third quarter completions
Ayala Land Premiers Park Terraces Tower 2 out of the
seven originally slated for completion. This reflects the Vacancies around the metro continued to rise despite the
slow delivery observed in the previous quarter, wherein slowdown in project hand over. This is primarily due to
only one out of six projects was completed. completions in the past quarters that are now being
offered to the market.
According to BCI Economics BCI Forecaster report in
October 2016, construction starts in the country from During the third quarter of 2016, overall vacancies in
October to December 2016 will increase by more than Makati CBD rose to 11.5% from 10.2%. The increase
1,000%. Construction starts in the long term will increase was more apparent in the Premium segment, where
by 4%. The projects are primarily composed of private vacancies jumped to 13% from 9.8% in the previous
developments. Construction starts in the residential quarter. Vacancies in Grade A residential units also rose
segment are expected to grow by 1,264%. With the albeit at a slower pace, from 7.7% to 8.5%. We see
projected surge in new developments, there will be further vacancies in Makati CBD rising to 12% to 13% over the
pressure on contractors to complete their projects in light next twelve months due to the completion of additional
of their already insufficient labor pool. units within the business district and the delivery of new
units in its fringes and other major CBDs such as Fort
But while a number of developers experience delays in Bonifacio.
their completion, other firms are able to deliver projects
earlier than expected. For example, DMCI Homes has
Makati CBD Comparative Residential Vacancy
notified their buyers for one of their projects that they Rates (%)
could get their unit turned over much earlier than GRADE 2Q 2016 3Q 2016 3Q 2017F
scheduled. Having a good track record in terms of project
Premium 9.76 12.96 14.59
turnover will result in a better reputation as a reliable
Others 10.29 11.25 12.69
developer and will eventually lead to higher sales.
All Grades 10.23 11.48 12.94
The hand over of Park Terraces Tower 2 in 3Q2016
Source: Colliers International Philippines Research
added 380 units to Makati CBDs residential stock. The
project represents only 18% of the total number of units
Overall vacancies in Fort Bonifacio rose to 10.4% in
supposed to be completed during the period. If the seven
3Q2016 from 9% in the previous quarter as vacancies in
projects were completed on time, these would have added
Premium buildings rose from 9% to 12%. Colliers sees
a combined 2,100 units to the Metro Manila residential
overall vacancies in the business district increasing
stock.
between 10% and 11% in the next twelve months given
Among residential projects expected to complete by the delivery of an estimated 7,500 units, covering nearly
4Q2016 in the major CBDs are Eton Tower (786 units), 60% of the projected new supply.
Greenbelt Hamilton (425 units), and Park Terraces Tower
Ortigas Center prime condominium vacancies increased
3 (370 units) in Makati CBD; Avida Towers BGC 34th
slightly to 7.5% from 6.8%. Among the three major
Street Tower 2 (682 units), One Uptown Residences-
CBDs, Ortigas Center registered the lowest increase in
North Wing (436 units), and Park West (713 units) in Fort
vacancies given the low level of new supply relative to
Bonifacio; and Avant Garde Residences (120 units) and
other districts. It will account for only a 10% of the total
Zitan (342 units) in Ortigas Center. These projects will add
number of units expected to be delivered in the next
about 3,900 units to Metro Manilas residential supply.
twelve months, hence we do not see a significant rise in
Forecast Residential New Supply
LOCATION AS OF 2015 2016F 2017F 2018F 2019F 2020F TOTAL
Makati CBD 19,643 4,129 2,675 1,072 598 334 28,451
Rockwell Center 4,159 - 346 492 269 - 5,266
Fort Bonifacio 22,387 5,612 4,842 3,858 3,022 - 39,721
Ortigas Center 16,250 462 1,027 782 570 614 19,705
Eastwood City 7,548 - 988 - 632 - 9,168
Total 69,987 10,203 9,878 6,204 5,091 948 102,311

Source: Colliers International Philippines Research

2 Quarterly Review | 10 November 2016 | Philippines | Residential | Colliers International


vacancies. Colliers sees Ortigas Center vacancies Makati CBD Comparative Residential Lease
hovering between 8% to 8.6% in the next twelve months. Rates for Exclusive Villages (PHP / mo)
Makati CBD Residential Vacancy 3BR - 4BR, Unfurnished to Semi-Furnished

VILLAGE LOW HIGH


18%
16% Forbes Park 250,000 650,000
14% Dasmarinas Village 230,000 600,000
12%
Urdaneta Village 250,000 360,000
10%
8% Bel-Air Village 230,000 350,000
6% San Lorenzo Village 140,000 250,000
4% Magallanes Village 130,000 250,000
2%
0% Ayala Alabang Village 120,000 280,000
2007

1Q16
2Q16
3Q16
2001
2002
2003
2004
2005
2006

2008
2009
2010
2011
2012
2013
2014
2015

4Q16F
1Q17F
2Q17F
3Q17F
Source: Colliers International Philippines Research

Rental rates in Fort Bonifacio slid by 1.5% to PHP848 per


Makati CBD Residential Vacancy
sq m a month from PHP861 per sq m. Colliers sees rents
in the business district declining by 5.8% to 6.1% over
Source: Colliers International Philippines Research
the next twelve months.

Softer rents across CBDs Rockwell rents declined by 1.3% to PHP942 per sq m a
month. Rental rates are projected to slide by 2% to 4%
Despite the slowdown in deliveries, rental rates continued over the next twelve months.
to soften due to slow absorption.
Ortigas center rents posted the slowest drop at 0.4%.
Rental rates for premium three-bedroom units in Makati Rents are now at PHP516 per sq m a month from
CBD declined by 1.3% to PHP847 per sq m a month from PHP518 per sq m a month in 2Q2016. We see rents in
PHP858 per sq m in the previous quarter. The rental rate Ortigas declining between 2.5% and 5% in 2017.
drop was slightly faster than the 1.2% decline recorded in
2Q2016. With the substantial amount of new supply in
2017, rental rates in Makati CBD are projected to drop by
around 5.1% to 5.4% over the next 12 months.
Prime 3BR Units Residential Rents

1200
PHP / sq m / month

1000
800
600
400
200
0
4Q16F
1Q17F
2Q17F
3Q17F
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
1Q16
2Q16
3Q16

Makati CBD Rockwell Fort Bonifacio

Source: Colliers International Philippines Research

Metro Manila Residential Condominium


Comparative Luxury 3BR Rental Rates (PHP / sq m / month)
LOCATION 2Q 2016 3Q 2016 % CHANGE (QoQ) 3Q 2017F % CHANGE (YoY)
Makati CBD 580 - 1,130 570 - 1,110 -1.31 540 - 1,050 -5.37
Rockwell Center 800 - 1,100 790 - 1,080 -1.30 750 - 1,030 -4.89
Fort Bonifacio 660 - 1,050 655 - 1,040 -1.46 610 - 980 -5.78

Source: Colliers International Philippines Research

3 Quarterly Review | 10 November 2016 | Philippines | Residential | Colliers International


Comparative Residential Lease Rates (High-Rise)
3BR, Semi-Furnished to Fully Furnished
LOCATION MINIMUM AVERAGE MAXIMUM
Apartment Ridge/Roxas Triangle
Rental Range (PHP / mo) 150,000 200,000 300,000
Average Size (sq m) 286 303 330
Salcedo Village
Rental Range (PHP / mo) 100,000 175,000 260,000
Average Size (sq m) 165 234 332
Legaspi Village
Rental Range (PHP / mo) 130,000 200,000 250,000
Average Size (sq m) 142 206 296
Rockwell
Rental Range (PHP / mo) 140,000 180,000 250,000
Average Size (sq m) 127 189 285
Fort Bonifacio
Rental Range (PHP / mo) 120,000 200,000 260,000
Average Size (sq m) 138 223 310

Source: Colliers International Philippines Research

Capital values drop amid softer Prime 3BR Units Residential Capital Values
outlook 180K
Capital values for Makati CBD residential properties 160K
PHP / sq m / month

140K
declined by 0.7% to PHP146,488 per sq m per month
120K
from PHP147,579 per sq m a month in 2Q2016. Fort
100K
Bonifacio prices declined by 1.8% to PHP143,691 per sq 80K
m per month. Prices in Rockwell also slid to PHP158,486 60K
per sq m per month, a 1.1% drop compared to average 40K
prices in the previous quarter. 20K
K
Due to a subdued outlook on the residential market, we
4Q16F
1Q17F
2Q17F
3Q17F
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
1Q16
2Q16
3Q16

see Makati CBD prices dropping by about 5% over the


next twelve months while Fort Bonifacio and Rockwell
Makati CBD Rockwell Fort Bonifacio
prices will decline by around 5% to 6%.
Source: Colliers International Philippines Research

Metro Manila Residential Condominium


Comparative Luxury 3BR Capital Values (PHP / sq m / month)
LOCATION 2Q 2016 3Q 2016 % CHANGE (QoQ) 3Q 2017F %CHANGE (YoY)
Makati CBD 103,770 - 191,380 103,010 - 189,960 -0.74 97,570 - 179,940 -5.27
Rockwell 120,390 - 200,040 119,090 - 197,870 -1.08 113,360 - 188,350 -4.81
Fort Bonifacio 111,760 - 180,760 109,790 - 177,580 -1.76 103,380 - 167,220 -5.84

Source: Colliers International Philippines Research

4 Quarterly Review | 10 November 2016 | Philippines | Residential | Colliers International


Demand for worker accomodation
units
Colliers believes that the need to explore a creative lease
model is needed as investors face an increasingly
challenging rental environment. We recommend that
developers look into worker accommodation projects to
cater to the highly-mobile young urban professionals who
cant afford to own their own apartment yet or rent a
condominium unit within the established business districts
such as Makati, Fort Bonifacio, and Ortigas Center. These
halfway residential units are for professionals who want to
live near their place of work during weekdays but go home
to their families suburban areas during weekends. The
worker-accomodation units are also more practical for
employees working in CBDs as the worsening traffic in
Metro Manila only makes their commute to and from work
more unbearable.

But developers must ensure that the worker-


accomodation projects have amenities similar to
condominium developments in the CBDs to entice more
users. Since they are targeting millennials they should
apportion amenities and facilties such as gyms, retail
shops and lounges with fast broadband internet
connection. In light of falling occupancy rates in the CBDs,
it may be prudent for developers with projects under
construction within and outside the CBDs to organize their
own leasing arms in order to assist their buyers to lease
out their units and attain the yields that they were
promised. For developers that have significant ready-for-
occupancy (RFO) units, leasing out these units either
individually or maybe even as shared units may make
sense, as long as it does not conflict with the market
positioning of the property and does not lead to a
deterioration of its perceived value.

For more information: Contributors:


Julius Guevara Joey Roi Bondoc Randolf Ilawan Richard Raymundo
Director Research Manager Research Assistant Deputy Managing Director
Valuation & Advisory Philippines Philippines Philippines
+632 858 9050 +632 858 9057 +632 858 9068 +632 858 9028
julius.guevara@colliers.com joey.bondoc@colliers.com randolf.ilawan@colliers.com richard.raymundo@colliers.com

Copyright 2016 Colliers International.


The information contained herein has been obtained from
sources deemed reliable. While every reasonable effort has
been made to ensure its accuracy, we cannot guarantee it.
No responsibility is assumed for any inaccuracies. Readers
are encouraged to consult their professional advisors prior to
acting on any of the material contained in this report.

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