This article was published on December 29,2017 by Davao Edge. This article was a contribution of PRIME Philippines to the newspaper and the city of Davao City, providing insights on the real estate sector of the city.
A Good Year for Real Estate
Davao City experienced the spotlight in 2017, with increasing interest of private investors and top developers, along with other key events that furthered the view on Davao City as a stable, rising Central Business District (CBD). Large developers Ayala, Megaworld, and Cebu Landmasters already have developments in the pipeline, amounting to over 60 hectares of land. Most of the developments are township developments spanning from 1.9 to 25 hectares of land each. As main developers are already establishing their foothold in Davao City, interest from investors is growing: from small scale developers, to consultants, to businesses with real estate as a secondary function. Along with top developer presence, the year 2017 marked the prioritization of Mindanao infrastructure. The backbone of economic growth, infrastructure plans are set to contribute heavily to the future CBD of the south. Some of the upcoming infrastructure plans that are already in line for construction commencement are the Mindanao Railway Project, Davao City Coastal Road, Davao City Bypass Road, and the Davao-Samal Bridge Project.
Aside from the growing developments in Mindanao and Davao City, key events also took place that have been controversial in the light of many but can be a testament to the resiliency of Davao City. A major event that showed the city’s stability and resiliency was the declaration of martial law. A declaration made of need to suppress the growing ISIS threats, the action was seen unfavorable in the eyes of most investors outside of Davao City. While perception by investors outside the city turned unfavorable in their interest to invest in Davao City under martial law, investors who have experienced life within or are currently holding business in the city remain favorable in Davao City as a high potential city for business. Though security was increase, locals saw that aside from the said increase in security and stricter entry and exit to from the city, there was minimal difference of the situation before and during martial law, a testament of Davao City’s capacity to maintain peace and order even without the ISIS threat. Business activities at the time was “Business-As-Usual.” The declaration’s sole casualty for the real estate sector was the hotel sector, where occupancy rates took a direct impact, along with 78 cancelled events and a total of Php 20 million in unrealized revenues until June 6, 2017. This is mainly due to the limiting of local and foreign entrants and the initial fear of tourist attacks.
Another hurdle is the safety issues raised by the Civil Aviation Authority of the Philippines (CAAP) in terms of height restriction, which raised discussions on setting height restrictions within Davao City. Implementing height limitations is a double-edged sword in the case that investors are keen to build higher given great demands, but will be limited to doing so given the restriction. Higher developments return the investments faster, and limiting this is unfavorable for investors. On the other hand, implementing height restrictions show that the local government is taking things seriously in ensuring the safety of passengers in line with the CAAP issue and is taking a step towards taking an active hand in cultivating and maintaining a master plan.
Despite events and issues that affect real estate, the outlook for Davao City is still going strong with the continuous inflow of local and international investors.
High price per square meter pushes investors to enter joint ventures over purchasing of properties. Acquisition to focus on emerging areas in Davao City
With the rapid increase in asking prices for properties in Davao City in 2017, and in the face of great demand, properties in prime areas are now being considered for joint ventures by large-scale developers. The Bajada-Lanang area by itself has asking prices ranging from Php 50,000.00 to 100,000.00 per square meter, which local investors from Metro Manila find expensive in relation to Metro Manila prices. Joint ventures are now being explored by potential investors and landowners in Davao City. The hotel sector, more specifically, is in the phase of expansion as hotel developers are looking to enter the market. Following the initial hurdle of the declaration of martial law, tourism is starting to pick up, and the potential is large for hotel developers. Notable in Davao City is the entry of Dusit Thani under a joint venture with Torre Lorenzo Development Corporation to develop the city’s first five-star luxury hotel.
For 2018, with the current prices, investors are now looking at fringe areas of Davao City over the main strip of JP Laurel for purchasing properties. Property owners with land in fringe areas now have the opportunity of liquidating their properties to fund other business ventures. With the extension of acquisition and development of areas outside the main commercial strip of JP Laurel, those with property along JP Laurel must start considering utilizing their properties, either to sell at more acceptable rates, lease out the properties, look for joint ventures, or build on their own properties. Land values are not expected to rise as heavily during 2018 as compared to the 2015 to 2017 growth.
The rise of quality, graded, office buildings in Davao City
For 2017, the Davao City office sector was in the limelight, with both the supply pipeline and office space demand growing. Upcoming pipeline supply is expected at roughly 65,000 sqm worth of office space and current occupancy is at 86% on the average, with grade A office buildings currently averaging 81% occupancy. Graded office buildings that are ready for occupancy include Felcris Centrale, Alyvea, Cybergate Delta, and Davao Finance Center, which are developments situated at prime, accessible locations with building features ready to cater to BPO tenants. Over 82% of grade A and B office buildings are occupied by BPO tenants, a testament to the city’s highly skilled, English-proficient labor force. Demand from BPOs is still large at this rate, providing opportunity for land owners who are looking to develop office buildings to cater to BPO tenants. Competitive rental rates of the office developments in Davao City continue to give the city an advantage. With rental rates ranging from Php 400 to 630 pesos per square meter, overhead costs are cheaper as compared to cities such as Cebu, with rental rates ranging from Php 500 to 700 square meters, and the CBDs in Metro Manila, with rates reaching well above Php 1,000 per square meter.
For 2018, BPO demand is expected to continue, with overflows of online gaming identifying the potential of Davao City as a potential hub for online gaming companies. Aside from this, a few serviced office companies will enter the city, creating a competitive market for competition that is already established. These serviced offices will cater to smaller scale BPOs, professional services, and freelance workers. Metro Manila based offices are also looking to expand to Davao City, providing additional office demand, as they acknowledge the potential of the rising city. Office space demand will continue to thrive and will be matched by upcoming graded office buildings, setting Davao City as the central business district of Mindanao.
Davao City, Opportunities Abound
With job opportunities abundant and developers starting to maximize their properties, along with the synergy of the local government, developers, and the entry of key hotel locators, the rise of Davao City is imminent. As the development focus stretches farther outside Metro Manila, Davao City is priming and well-equipped to develop into one of the main CBDs of the Philippines.
PRIME Philippines is the leading professional real estate consultancy firm in the country, with 80% market dominance in Davao City, offering specialized services in property acquisition, commercial & industrial leasing, property management, and research & advisory.
PRIME Philippines has served more than 2,700 local and international clients. With a portfolio of Php15 Billion worth of real estate transactions, the company has served clients from over 10 countries, handling more than 80 projects across the Philippines.
Headquartered in Metro Manila, PRIME Philippines has expanded to Mindanao, through their office in Davao City. PRIME Philippines aims to be the catalyst for real estate growth in Mindanao.
To know more about PRIME and its services, visit www.primephilippines.com.