A robust business process outsourcing (BPO) sector—which is expected to remain strong in 2014—will drive the real estate industry further up this year.
The country’s outsourcing industry will still be one of the best in Asia. CBRE Philippines said that as more occupiers relocate to the country, expansionary growth in Metro Manila’s fringes and provinces will be seen.
Metro Cebu, Mactan and Clark were cited as becoming the preferred lifestyle and BPO sites.
For property analyst Enrique M. Soriano III, the office market would continue to grow, and demand will be dispersed out of the traditional central business districts in favor of new CBDs.
“Cebu, Davao and Iloilo will continue to book solid growth for as long as the local government leadership provides regulatory and marketing support,” said Soriano, Ateneo program director for real estate and senior adviser for Wong+Bernstein Business Advisory.
CBRE Philippines added that BPO expansion would be among the several factors (the others being the influx of tourist arrivals and the demand for expat housing) that would speed up luxury residential property takeups.
These properties, including luxury and high-end hotels, are scarce and mostly located in Bonifacio Global City, Makati, Cebu and Boracay.
“There is potential for developers to look into investing into this market,” said CBRE.

More office buildings
Colliers International’s real estate market report in the fourth quarter of 2013 indicated the BPO industry to continue to influence the commercial office sector in the next few years.
According to the report, with the recent announcement of Tholons, a global outsourcing research and advisory firm, Manila has overtaken Mumbai as the second leading outsourcing location in the world. Colliers expects that more BPO companies will enter the country and establish operations. As a result, there would be a need for office buildings that cater to the specific needs of their prospective tenants.
Colliers added that this would be well within the forecast of the IT and Business Process Association of the Philippines  that the industry will hire 1.3 million full-time workers and earn export revenues of $27 billion by 2016. Complementary to this, Colliers forecasts that through 2014 and 2015, an average of 570,000 square meters of net usable space would be delivered to sustain the office space requirement of the O&O (offshore and outsourcing) industry.
Meanwhile: Jones Lang LaSalle’s January 2014 property market monitor revealed the following:

  • Ohio-based O&O company Convergys Corp. is set to acquire Stream Global Services Inc., partly owned by Ayala-led LiveIt Investments Ltd., for around P36 billion. The acquisition is set to be finalized by first quarter of 2014.
  • SilkRoad, a US-based, cloud-based human resource solutions provider, recently opened its new office in the Philippines. Its office demonstrates the Philippines’ importance as a growth source for the firm in the Asia-Pacific region, mainly due to the robust performance of the O&O and IT sector in the country, which continues to attract numerous investors.
  • Alphaland Corp. is in talks with prospective buyers, particularly foreign firms, for the sale of its recently completed 34-story office building, Alphaland Tower. According to the firm, while there are numerous companies interested in leasing a portion of the building, Alphaland aims to sell the entire development. The Philippine Long Distance Telephone Co. previously expressed its interest to acquire Alphaland Tower, but has decided not to continue with the acquisition.
  • The Philippine O&O sector is expected to lead the industry among the members of the Association of Southeast Asian Nations, according to a corporate executive of Teleperformance Asia Pacific. The robust performance of the local sector may be attributed to its cost efficiency, the English language proficiency of the workforce and the quality of services. The rising demand for nonvoice activity is also seen as one of the growth drivers for the O&O sector.

 

MANILA, Philippines – Despite the impact of the devastation brought about by Super Typhoon Yolanda, the international investor community remains bullish on the growth prospects of the Philippines, Standard Chartered Bank said in its latest research note.

“Optimism about the Philippine economy remains strong. International sentiment towards the Philippines has improved, particularly in 2013. Investment is becoming a growth engine, albeit at a slow pace,” it said.

However, it said expectations on the peso-dollar exhange rate are more divided.

StanChart said investors also expect inflation to rise but still within the central bank’s target zone in 2014.

“As early as Q1 2013, domestic and international investors had priced in the stronger economic performance seen since 2012 and the Philippines’ ability to achieve an investment-grade credit rating. Since March 2009, business sentiment for the next quarter has been generally optimistic, though the recent typhoon disaster did affect it to some degree in the latest survey. The Philippines has also climbed international rankings. It ranked 108 in the Ease of Doing Business in 2014, from 133 a year ago,” it said.

It singled out the Philippines as one of the economies that made significant improvements, particularly in “dealing with construction permits”, “getting credit” and “paying taxes”.

StanChart said the Philippines has also made some progress in improving investment-driven growth.

“We note that investment growth has contributed at least 1.5 percentage point to GDP growth over the past seven quarters, providing the economy with a secondary growth driver. This has been supplemented by strong durable equipment growth, showing that the Philippines is investing in future productive capacity,” it said.

But it said while progress has been made, the Philippines has a relatively low investment-to-GDP ratio compared with other Southeast Asian economies (20.2 percent in 2013 versus 19.4 percent in 2012).

“This will need to be driven higher by both domestic and external sources – we note that in 2013 that the Philippines remained dependent on domestic investment. The increase in investment growth needs to be sustained in order for the economy to benefit in the long term,” it pointed out.

StanChart said it expects the Philippines’ investment story to benefit from certain trends this year.

“It is likely that better global growth will support stronger FDI growth in the Philippines. Historically, Japan and the US have been big investors in the Philippines; we think this has further upside potential. In addition, higher labor costs in China have driven production chains towards Southeast Asia, including the Philippines, where labor costs are lower. With an English-speaking population and a sizable labor force, it is likely that the Philippines has the excess capacity to benefit from these trends in 2014,” it said.

The Philippine economy will expand at an average of 6.5 to 7 percent over the next decade, according to a report by London-based consultancy firm Capital Economics.

In the latest report on Emerging Asia Economics Weekly, Capital Economics said the reduced risk of an external crisis, an improvement in the fiscal position, healthy demographics, a reform-minded government, and a developing manufacturing sector contribute to an optimistic outlook for the Philippines.

“The Philippines has run a current account surplus in every year since 2003, while foreign exchange reserves have increased five-fold over that period. The large current account surplus, and the resulting lack of dependence on foreign financing, limits the country’s vulnerability to sudden capital outflows,” it said.

It also noted the government debt to GDP ratio has fallen to less than 40 percent in the past decade against a high of around 70 percent in 2003.

Capital Economics said that means the chances of a sovereign debt crisis are greatly reduced and the government has more money to use for infrastructure, education, and healthcare instead of servicing debt.

It added a United Nations projection that the country’s population of working age is expected to rise by over 40 percent from 2010 to 2030 will mean a potential boost in productivity as long as jobs can be provided.

Meanwhile, a crackdown on corruption and other reform initiatives “have boosted the Philippines’ rankings on a range of league tables by groups such as the World Economic Forum and the Heritage Foundation, which measures the quality of a country’s business environment and the progress being made on reform.”

It said the next administration will be able to build on the gains of the current administration if it continues reforms. “However, there are clearly no guarantees this will be the case,” it said.

It added “a weak, incompetent or corrupt leader” might fail to take advantage of the gains, or even reverse them.

The report also said the Philippines has helped nurture a competitive manufacturing sector, with manufacturing output in the country growing faster than in the region as a whole.— JDS, GMA News