Emerging Trends in Real Estate – Asia Pacific 2018

In recent years, office demand in the Philippines has been driven by the phenomenally successful BPO sector. Although growth in this area has slowed, office fundamentals continue to be very strong. Vacancies stand at a low 3 percent, while rent and capital values in the first half of 2017 are up a healthy 5.3 percent and 8.6 percent respectively year-on-year, according to JLL. Land prices, meanwhile, rose between 25 and 33 percent in the most popular areas of the city.

To the extent that BPO growth has slowed, the slack has been taken up by new demand from offshore online gaming companies, which are now the second-largest occupier of office space in Metro Manila after the BPO sector. One investor questioned whether this was a sustainable trend, however.

Sentiment among overseas investors has recently been dented by an on/off territorial rights dispute in the South China Sea. There seemed to be plenty of opportunistic funds willing to invest in Manila, however, with one noting there is “definitely demand for more office space” in Manila. At the same time, however, more than one interviewee complained of the difficulties of finding good partners.

Comparing it favorably to investing in Indonesia, one investor said: “I think they local developers generally would love to have a partner and they would be happy to give you the controls that you want and be institutional about it, which I’m not sure most of the groups in Indonesia, for example, would do. That being said—and this is an issue across Southeast Asia, except possibly Vietnam—the returns that local or regional Southeast Asian groups will develop at are pretty low, so on a risk-adjusted basis that makes it a bit challenging. We have the big Filipino groups who’d be happy to develop at 12 percent IRR in the local currency, and it’s kind of hard to justify that.”