Santos Knight Frank unveils next growth areas for Philippine Real Estate

As the office and residential sectors remain robust, Santos Knight Frank predicts that the next wave of expansion will come from sectors such as logistics, hospitality, retail and REITs.

The Philippines’ real estate industry continues to be a key driver of economic growth. As the office and residential sectors remain robust, Santos Knight Frank predicts that the next wave of expansion will come from sectors such as logistics, hospitality, retail and REITs.

REITs to unlock new capital for future developments.

Since the passing of Republic Act No. 9856 in 2009, the real estate market has been anticipating the realization of the Real Estate Investment Trust (REIT). A REIT is a publicly listed stock corporation that owns income-generating real estate assets, such as malls, offices and hotels. Envisioned to promote the development of the capital market, REITs are instruments to generate capital. REIT companies are also mandated by law to distribute 90% of their retained earnings as dividends, which benefit investors.

With the recent move by the Government to amend rules on REITs, developers have been increasingly looking at listing their income-generating assets as REIT companies.

Rick Santos, Chairman & CEO of Santos Knight Frank says: “REITs have the power to democratize the Philippine property market, allowing the individual investor on the street to invest in high-value real estate assets along with the big players.”

Santos adds: “We believe REITs will substantially boost the Philippines’ capital market. New capital for developers will enable expansion of the real estate sector not only in Metro Manila but also in the provinces.”

Generally, REITs have outperformed their non-REIT and overall domestic market over the past one to five years in major Asia Pacific markets, according to Knight Frank’s analysis of REITs in Singapore, Japan, Hong Kong and Australia from Thomson Reuters Datastream.

Santos Knight Frank estimates the prime and Grade A office market in Metro Manila’s four major central business districts (Bay Area, Makati, BGC and Ortigas) at PHP 1.02 trillion.

REITs are not only limited to office assets. With 4.3 million sqm (gross leasable area) in Manila’s retail, Santos Knight Frank expects developers to convert mall assets into REIT companies. Assets such as energy, infrastructure, transportation, hospitals, schools and tourism have also been converted into REITs in other countries.

Logistics: 626% growth in investments recorded in 2018

The logistics and industrial real estate sector has been going through a major transformation over the past few years driven by growing middle class, booming e-commerce market and the decentralization trend outside of Metro Manila. Amid challenges in infrastructure and connectivity, the sector has seen strong demand for last-mile delivery hubs, inner-city distribution centers, cold storage and warehouse facilities.

Investments into the transportation and storage industry grew by 626% to PHP 129.6 billion in 2018 from PHP 17.8 billion in 2017, according to the Philippines’ Bureau of Investments.

To increase efficiency and profitability, warehouse operators are adopting new technology such as the Automated Storage and Retrieval Systems (ASRS) and adding new services. In addition, developers are exploring the fringes of Manila and the regions for the next site of their industrial investments, capitalizing on rising demand in various hubs across the country.

Kash Salvador, Associate Director of Investment & Capital Markets at Santos Knight Frank says: “More warehouses are now needed outside Manila, including Visayas and Mindanao, to connect suppliers with customers. The scarce industrial land in Metro Manila, the drive towards decentralization and the huge demand in the e-commerce and traditional retail sectors offer huge opportunities for players in the logistics and real estate sector.