Cebu Property Market Report 1H2014

Research & Forecast Report Cebu 1H 2014

Accelerating success.

Regional growth sustains real estate activities in Cebu Office

Retail

Office stock increased by 12,000 sq m during 1H 2014 with the completion of Skyrise Alpha in Cebu Business Park. In the next two years, close to 200,000 sq m are expected to be delivered in key locations. Demand was driven by the Business Process Outsourcing (BPO) industry as companies pursue expansion activities, with 3,000 sq m of office space taken up during the period. Meanwhile, overall vacancy in Metro Cebu increased to 5.2%, 240 basis points higher than the previous period.

With a strong regional economy backed by consumer spending, retail developers are delivering close to 400,000 sq m of retail space by 2016 to seize opportunities in the market. Apart from national developers, new players are entering the market with three new retail projects slated for delivery in the next two years.

Meanwhile, retail vacancy reached high 98% levels as more retailers expanded their presence in Metro Cebu.

Residential

Market Indicators

Project launches decreased by 25% YoY, as residential developers have assumed a wait-and-see approach. Despite the slowdown in launches, net take up remained relatively flat as 2,900 units were sold during the period. By 2017, residential inventory in Metro Cebu will reach 30,300 units, 75% of which will be located in Cebu City.

OFFICE RESIDENTIAL RETAIL

Office supply grows as BPO sustains regional economy The office sector is riding on the momentum of an expanding regional economy. In FY 2013, the Gross Regional Domestic Product (GRDP) of Central Visayas grew by 7.4%, higher than the national average of 7.2%. The growth is attributed to the 6.9% increase in the services sector, which comprised 57.6% of the regional economy. As a response to positive growth in the economy, developers are expected to deliver close to 115,000 sq m of office space by the end of the year, mostly catering to Business Process Outsourcing (BPO) companies.

The BPO industry is seen to sustain the upward trajectory in the services sector as BPO companies are currently undergoing expansion activities. Net take-up during 1H 2014 was recorded at 3,000 sq m, signifying an increasing demand for office space despite the introduction of Skyrise Alpha (12,150 sq m) in Cebu Business Park. Xerox, a BPO company providing IT services, recently completed its lease acquisition in Skyrise Alpha, apart from its current operations in Cebu IT Park. In addition, another BPO company is expected to close a leasing deal in Cebu Business Park as the company has experienced growth in their business.

Overall vacancy in Metro Cebu increased by 240 basis points to 5.2% in 1H 2014, from the previous half’s revised vacancy rate of 2.8%. Cebu IT Park enjoyed low vacancies at 1.3% during the period, while vacancy rates in Cebu Business Park swelled to 4.8%. On the other hand, the Uptown Area and its environs experienced an increase in vacancy at 14.4%, as stand-alone buildings experienced difficulties in leasing their office spaces.

Feedback from BPO companies highlighted their preference to

set up and expand their operations in mixed-use developments because of the support services, security, and mobility mixeduse developments provide to the employees. It is because of this that Mactan Newtown, an emerging development in LapuLapu City, enjoyed full occupancy during the period. Colliers predicts vacancy in Metro Cebu to increase by 2 to 3% due to the expected delivery of nine office buildings by year-end, including E Bloc 3 (14,800 sq m) in Cebu IT Park, Cebu IT Tower 2 (10,200 sq m) in Cebu Business Park and Norkis One (8,000 sq m) in Mandaue.

Average rental rates in Cebu Business Park increased by 4.0% HoH to a monthly rate of PHP 502 per sq m, due to the strong demand in the area. Meanwhile, rental rates in Cebu IT Park increased modestly, registering a 0.6% HoH growth to a monthly rate of PHP 505 per sq m. In the Uptown / Osmena Area and its environs, monthly rental rates ranged between PHP 300 to PHP 550 per sq m.

Cebu Office Stock (1H 2014) LOCATION

USEABLE STOCK (NUA SQ M)

Cebu Business Park

167,657

Cebu I.T. Park

211,411

Others

218,432

Total

597,500

a

Includes office developments in Mandaue, Mactan, and Cebu City and excludes those in Cebu Park District Source: Colliers International Philippines Research a

Cebu Average Office Vacancy (1H 2014) LOCATION

VACANCY (%)

Cebu Business Park

4.77

Cebu I.T. Park

1.30

Uptown / Osmeña Blvd. Area

14.43

Overall

5.17

Source: Colliers International Philippines Research

Cebu Office Lease Rates (1H 2014) LOCATION

LEASE RATES (PHP / SQ M / MONTH)

Cebu Business Park

420 – 750

Asia Town IT Park

500 – 700

Uptown / Osmeña Blvd. Area

300 – 550

Source: Colliers International Philippines Research

Cebu Future Office Supply (NUA Sq M) LOCATION

FY2013

2014

2015

2016

TOTAL

Cebu Business Park

155,508

53,379

44,621

68,787

322,295

Cebu I.T. Park

211,411

14,784

23,218

-

249,413

Others

218,432

46,142

49,171

11,700

325,715

Total

585,351

114,305

117,010

80,487

897,153

a

Source: Colliers International Philippines Research

2

a

Includes office developments in Mandaue, Mactan, and Cebu City and excludes those in Cebu Park District

Research & Forecast Report | 2Q 2014 | Cebu | Colliers International

Residential demand remains resilient despite decline in new launches Residential condominium developers have assumed a waitand-see approach as new launches decreased by 25% YoY during 1H 2014, from 3,200 to 2,400 units. Developers are holding back from launching new projects as they wait for their inventory to be absorbed by the market. Among the projects that were launched during the period are Solinea Lazuli Tower (605 units) by Alveo Land, Avida Towers Riala Tower 3 (666 units) by Avida Land, and The Midpoint Residences (335 units)

by Pacific Land Ventures & Property Dev’t, Inc. On the other hand, take-up remained strong during 1H 2014 as close to 2,900 units were sold, 100 units shy of take-up figures recorded in 1H 2013. This scenario was a first for the preselling market in Metro Cebu, where take-up exceeded new launches. This can be attributed to continued strong demand for affordable end-user housing, as Colliers noticed a fast take-up for projects in the low cost segment. At the same time, more local developers are marketing their products as a viable investment option, thereby opening the market to local and foreign investors.

Approximately 19,700 units will be delivered in Metro Cebu by 2017, the highest of which will be in 2015 at 7,300 units.

Cebu City remains the preferred location for residential condominiums, as an average of 3,900 units will be completed annually from 2014 to 2017. Meanwhile, Lapu-Lapu houses a majority of the leisure condominiums projects in Metro Cebu, which will stand at 2,900 units by 2016. Among the projects that will contribute to the supply stock by 2H 2014 are One Pavillion Place North (299 units) and South (251 units) Towers by Gold Peach Properties, Grand Residences East Tower 1 (247 units)

by Grand Land, and Calyx Residences (238 units) by Innoland Development Corporation.

Cebu Residential Condominiums Cumulative Supply Stock (1H 2014) LOCATION

NUMBER OF UNITS

Cebu City

9,209

Lapu-Lapu City

1,970

Mandaue City

1,357

Source: Colliers International Philippines Research

Cebu Residential Condominiums Future Supply Stock LOCATION

FY 2013*

2014

2015

2016

2017

TOTAL

3,071

6,361

3,215

2,939

23,243

390

831

1,543

252

4,986

682

144

288

-

2,067

7,336

5,046

3,191

30,296

Cebu City

7,657

Lapu-Lapu City

1,970

Mandaue City

953 10,580

4,143

TOTAL

Source: Colliers International Philippines Research

3

Research & Forecast Report | 2Q 2014 | Cebu | Colliers International

* Cumulative as of period indicated, revised

Strong consumer spending induces retail supply growth Consumer spending has always been a key component of Central Visayas’ regional economy. In fact, it comprised 70% of the economy for the last three years. In addition, regional household spending expanded by 7.0% in FY 2013, signifying a growing consumer base amid increasing incomes. Based on the data from the Family Income and Expenditure Survey of the National Statistics Office (NSO), average income in Central Visayas increased by 6.4% annually since 2006 with its effects likely to spill over in the provincial level. With the typical Cebuano gaining greater purchasing power, retail developers are bullish as close to 400,000 sq m of retail space is expected to be delivered over the next two years.

Cebu Average Retail Vacancy (%) LOCATION

Metro Cebu

2H2013*

1H2014

2.46%

1.35%

Source: Colliers International Philippines Research

* revised and rebased

Apart from established developers, new players are participating in the retail market. In 1H 2014, three new retail projects are announced which is expected to bring in 25,000 sq m of retail space. CityMall Commercial Centers, Inc. formalized their entry in the Cebu retail market with the launch of CityMall Consolacion and CityMall Bacalso in Cebu City.

Also announcing their entry is Axis Uptown Clusters, Inc., with the groundbreaking of their first project, Axis Entertainment Avenue, located in the former Cebu Capital Commercial Complex. The project serves as a retail component for their mixed-used development named Vibo Place.

Despite the completion of Ayala Center Extension in December 2013, overall retail vacancy in Metro Cebu declined by 1.1% HoH to 1.4% in 1H 2014 as other malls experienced a significant decrease in vacancy. Park Mall and J Centre Mall, both located in Mandaue, posted a double-digit decline in vacancy as more retailers decided to expand their presence in Cebu and take advantage of the available spaces in the malls. With only 9,000 sq m of retail space expected to be delivered this year, Colliers expects retail vacancy to remain flat into the end of the year.

Metro Cebu Retail Stock Future Supply Stock (GLA Sq M) LOCATION

Metro Cebu

FY 2013*

2014

703,067

9,000

Source: Colliers International Philippines Research

4

Research & Forecast Report | 2Q 2014 | Cebu | Colliers International

2015

2016

312,100

90,829

TOTAL

1,114,996

* Cumulative as of period indicated, revised and rebased figures

485 offices in 63 countries on 6 continents United States: 146 Canada: 44 Latin America: 25 Asia Pacific: 186 EMEA: 84

Primary Author: Romeo Arahan Research Analyst | Philippines +63 2 888 9988 romeo.arahan@colliers.com Contributors: Julius Guevara | Director David A. Young | Managing Director

Colliers International | Philippines 10F Tower 2 RCBC Plaza Ayala Avenue cor.

Sen. Gil Puyat Avenue Makati City | Philippines TEL +63 2 888 9988

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Copyright Š 2013 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.