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High Demand for Office Space Fuels Philippine Construction Boom

Just like the country’s local output growth, or its GDP, the real-estate sector was projected to continue accelerating at a fast clip, as demand remains robust and supply, mostly from key cities around the country, was not likely to slow down.

This was bared by the research and consultancy firm Oxford Business Group (OBG), which, in an economic news update, said there was little indication that appetite will wane, despite mounting supply in Manila and Cebu.

The OBG assessment cited data from real-estate services provider KMC MAG Group, saying it is seeing record levels of investment on new property developments, as developers rush to meet demand.

“The demand, especially in office and commercial, is just tremendous,” it was noted. “End-user demand is so high, and investors are tapping that by building more real estate.” OBG said most of the demand for grade-A office space is prompted by the continuously expanding business-process outsourcing (BPO) sector, and the burgeoning financial and insurance sectors.

The favorable economic background, best indicated by steady and strong GDP outcomes, was also seen to provide greater momentum to the real-estate sector.

The continued surge in real-estate development pursuits was made possible by the ready availability of loans in the country, as banks remain awash with cash, according to OBG. However, the rising cost of construction materials, along with easing rental returns, are the near-term risks to the sector’s continued expansion and growth.

OBG said rental returns have already fallen in some high-density office districts in the capital, although overall office rents rose by an average of 7 percent last year, according to a February report released by property firm Colliers International.

The think tanks also said new stock has also increased office vacancy rates in some regions, such as Cebu.

“Rising demand has triggered increases in local materials prices, with the cost of a 40-kilogram bag of cement rising by P6 [$0.13] in February and P10 [$0.22] in April to reach to P227 [$5]. Prices for steel rebar, meanwhile, climbed by 20 percent between February and early April,” OBG also said.

Despite the strong growth, Bank of the Philippine Islands research officer
Nicholas Mapa told the BusinessMirror existing central bank regulations remaining in place should help dampen the likelihood of a property bubble forming in the sector.

“The BSP is readying it’s real-estate price index which will help us gauge if price gains are fast outstripping comprehensible actual value. We’ll be keenly waiting for that,” Mapa said. “Also, the BSP has unveiled macro prudential measures to ensure loan real- estate growth moves in step with portfolio growth. These and other macro measures to ensure a real-estate [price] bubble doesn’t form are in place, lowering the chances of a bubble,” he added.

by Bianca Cuaresma | Business Mirror | 

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