PROPERTY advisory firm CB Richard Ellis Philippines said the real estate sector will continue to be buoyed by hefty demand for office spaces particularly from business process and outsourcing firms which in turn, will boost expansion of retail development in the provinces, it said in a study dated Aug. 28.

 Further, remittances from overseas Filipino workers (OFWs) will continue to prop demand for the residential and retail sectors.

The key driving force in the Metro Manila ‘grade A’ office market is the rapid expansion of the BPO industry, which provides call centers and back office locations for shared services operations such as accounting, human resource administration, medical and legal transcriptions and financial claim processing, CBRE wrote.

 CBRE defines ‘grade A’ office property as buildings located in a central business district area with high-quality amenities: large floor plates greater than 1,000 square meters, effective central air-conditioning, 100 percent back-up power, a building automation system and the availability of parking facilities.

Demand for office space has swelled in the past years as the BPO industry grew from roughly 1,500 seats and 2,400 employees in 2000 to over 70,000 seats and 112,000 employees at the end of 2005, CBRE said, citing data from industry group BPO Association of the Philippines.

The BPO Association also forecasts that BPO requirements will grow to over 200,000 seats by 2010 which translates to a real estate demand of over 1.4 million square meters.

Today, total gross floor area for ‘grade A’ office spaces stood at 1.36 million square meters, 65 percent of which is in the Makati CBD while 22.3 percent is in the Ortigas business district.

Also, tenants now prefer to locate in technology-focused buildings registered under the Philippine Economic Zone Authority to take advantage of incentives under the law.

CBRE also said there is a shift toward a ‘landlord’s market’ due to a lack of suitable office space and land that can be developed for office use in the Makati CBD.

A landlord’s market means the building owners have the upper hand in negotiating rates with tenants or lessees.

Average vacancy rates in Makati and Ortigas are now showing single-digit figures of 3.3 percent and 5.4 percent respectively, as of June 2006. With the limited amount of space and suitable land upon which to build new office spaces, CBRE estimates that vacancy rates should remain low in the office district for the remainder of 2006.

CBRE said that overall, demand for office space is predicted to exceed new supply, creating a temporary gap in the short to medium term.

CBRE said from mid-2006 until 2009, new supply for Metro Manila grade A offices is seen hitting 96,000 sq.m. The bulk of the new supply is expected to be located in the Ortigas central business district (83 percent) and Fort Bonifacio Global City (17 percent). No new supply is seen from the Makati CBD. Supply of IT buildings is also seen growing by 219,700 square meters from mid-2006 to 2009 which are located in Fort Bonifacio, Mandaluyong, Eastwood City and the Alabang CBD.

Retail

Development of the retail sector in the provinces–such as in Batangas, Bulacan, Cavite, Laguna and Pampanga and other cities like Bacolod, Cagayan de Oro, Cebu, Dumaguete, General Santos and Iloilo, will be influenced by growing BPO activity.

In the past five years, population in these provinces has expanded, fueled by new employment in export-oriented companies. In recent years, mall giants SM Prime Holdings of Henry Sy and Robinsons Land Corp. of John Gokongwei Jr., have pushed expansion plans into the provinces, spurred by lower operating costs and the growing spending capacity of provincial residents.

Higher spending capacity has been supported by higher OFW remittances, BPO expansion into these provinces and improving infrastructure in these provinces via roads, bridges and ‘roll on-roll off’ boats.

In Batangas, Robinsons Land recently completed the expansion of its 36,550 sq.m. Lipa Mall. SM City Lipa, with a gross floor area of 75,000 sq.m., will be launched in the third quarter this year. In Cavite, Robinsons Land plans to build a 15,000 sq.m. mall in Tagaytay in 2008. SM San Pablo (Laguna), on the other hand, is in the planning stages and due for completion in 2008. Robinsons Land is also expected to expand into Davao by 2008 and GenSan by 2009.

Meantime, CBRE estimates that the total amount of additional future supply of shopping malls between 2006 and 2009 in nine key retail districts in Metro Manila (Alabang Center, Bay Area, Makati Central Business District, Rockwell Center, Ortigas Center, Eastwood City, East of Metro Manila, Ermita and Araneta Center) and at the North Triangle area in Quezon City will be limited, growing roughly by 446,672 sq.m. during the four-year period.

Metro Manila is still the capital for retail activities, accounting for 30 percent of the country’s total retail sales.

This consists of an additional 56,000 sq.m. in Alabang Center, 44,000 sq.m. in the Bay Area, 30,000 sq.m. in Ayala Center, 20,000 sq.m. in the Bonifacio Global City and 96,672 sq.m. in Ermita. A 200,000 sq.m. new shopping mall is also underway in the emerging North Triangle area.

Future retail demand will be driven by the continued growth in OFWs’ remittances, improved unemployment rate and easing inflation rate. The National Statistics Office recently said inflation eased to 6.3 percent in August this year, its slowest since June 2004 when the annual rate was pegged at 5.4 percent. OFW remittances in the first half were recorded at .6 billion, higher by 15 percent form the same period last year.

‘Based on these trends, spending power is expected to continue to increase, supporting further growth in the retail market,’ CBRE said.

Competition will come from ‘flea markets’ which have been set up in major centers as bargain shopping appears to be a growing trend, the property consultant added.

Residential

CBRE said the outlook for residential development targeting the middle to high income markets remain upbeat due to growing demand from these consumers. Tight supply however will mark the high-end market since no new developments in this category are seen until 2009. Most developers appear to be focused on the upper middle income residential apartment market.

CBRE defines middle income projects between P50,000 to P70,000 per sq.m. while high income is P70,000 to P100,000 per sq.m. Growth in the residential sector has largely been fueled by OFW remittances and Filipino-Americans as local developers continuously go on an international ‘roadshow’ to market their projects abroad, particularly in the United States.