Factory space could boom in next 5 years – real estate expert

Chris Schnabel
Factory space could boom in next 5 years – real estate expert
Growth rates could double by 2021, but this hinges on whether the government can lower electricity and water costs, says the founder of Prime Philippines

MANILA, Philippines – The long dormant industrial side of the country’s real estate sector could finally be on the rise after years of lagging behind.

“For the next 5 years, we’re seeing a lot of interest in the industrial or manufacturing sector [for real estate], specifically from China, Taiwan, and Japan who are very, very eager to open up facilities in the Philippines,” said Jettson Yu, founder of real estate services firm Prime Philippines at a forum that featured the country’s leading developers and architects on Friday, July 29.

“What we should probably look out for the next 5 years is arrival of a lot of foreign manufacturing companies who will be setting up factories here,” he added.

Yu shared that he was invited by former president Fidel Ramos to join a business delegation last April, for a meeting with the Taiwan Chamber of Commerce in Taoyuan.

The 3-day visit gave him a good indication of the interest and commitment level of foreign firms.

“While meeting with them I was struck by the fact that they knew all about Davao and [Rodrigo] Duterte before he became president. They seemed to look forward to his presidency,” Yu said.

The Taiwanese, he added, said they would be more likely to invest in the Philippines if concerns about high electricity and water rates as well as corruption are addressed. 

Yu pointed out that one major Taiwanese investor was looking at over 1,000 hectares for one industrial facility alone while the rest of the firms which are interested in investing would translate into about 900 hectares of factory land.

“We’re already starting to see the beginning of this,” Yu said, adding that the country has already attracted major manufacturers in the past year.

These include motorcycle maker KTM, Japanese bicycle maker Shimano, and auto parts manufacturer ZAMA Group which recently opened a $44.69-million facility in Batangas.

The next real estate boom

“About 5 to 6 years ago, the real estate industry hit a condominium boom and right now we’ve pretty much hit the peak of it and it’s starting to slow. This residential boom was followed by an office boom which we are experiencing now,” Yu said.

“Industrial is set to be the next boom because as people see their purchasing power increase, retail companies that serve them are definitely going to need more storage facilities in the country, which is where logistics and manufacturing facilities come in,” he added.

Beyond increased purchasing power, Yu pointed out that the country is also in a sweet spot since 40 million people are of working age.

He added that based on the current infrastructure pipeline, a lot of projects are set to be completed between 2018 and 2021. Combining these projects and lower utility costs would drive more investments.

For the first quarter of 2016, industrial buildings came in 3rd among non-residential buildings with 442 approved projects or 11.3% of all non-residential buildings with an estimated value of P6.2 billion and floor area of 549,700 square meters, according to the Philippine Statistics Authority (PSA).

The category saw a modest 3.2% increase in value during the first quarter, although the number of building permits issued decreased slightly from 450 in Q1 in 2015 to 442 in 2016.

Still, the industrial category is dwarfed by commercial buildings which accounts for 59.4% of all non-residential buildings with a total of 2,326 permits issued for the same period.

Yu is optimistic that thriving local consumption will offset slumping global demand, predicting that industrial real estate will grow by 6%-7% this year and exponentially after that.

“It’s contingent on lowering energy and water costs but we already have everything else going for us, from a capable and cheap workforce, strategic location, and we’re the 3rd largest English-speaking country in the world so it’s a no-brainer. In the next 5 years that growth rate could double,” he said. – Rappler.com

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