Residential, office markets to drive property sector growth amid infrastructure, sustainability challenges

December 2015

3 min read
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“The best way to evaluate the performance of the Philippines’ property sector is by the number of tower cranes that you can see left and right along the streets of the capital, and even in the rest of the country’s islands,” notes Rajan Komarasu, Group Director of Concepcion Building and Industrial Solutions (BIS) under publicly listed Concepcion Industrial Corporation (CIC), acknowledging the Philippines’ strong economic growth that has fueled the robust development of the property sector.

According to the National Economic and Development Authority, the dramatic change in the property sector over the last 20 years is mainly driven by rapid urbanization, the rise of the residential sector caused by demand from a burgeoning middle class, and the thriving services sector. Numbers from the National Statistical Coordination Board show that the amount of floor space released for construction in 2014 grew by 22 percent or 25 million square meters compared to the previous year. The first half of 2015 also shows that this value grew 11 percent or 13 million square meters year-on-year.

“Construction projects increased and are ongoing across the residential, office, commercial, and manufacturing sectors,” adds Komarasu. In the first half of 2015, floor spaces slated for construction into offices grew by 72 percent, which translates to an additional 1.6 million square meters of office spaces completed by 2018 to 2020.

“Demands are coming from various industries, but what we’ve been seeing is how the IT-BPO sector exhibits the highest demand for more office space,” Komarasu notes. He adds that construction in the manufacturing segment also climbed by 37 percent in the first half of 2015, or about 1.6 million square meters of new industrial floor space.

“This growth across all verticals is happening in Luzon, Visayas, and Mindanao, which have collectively shown a 5 percent increase in the first half of 2015 compared to last year,” Komarasu adds. Based on the projects of Concepcion BIS, high-rise residential buildings occupy the biggest share of the floor space up for construction in 2014, followed by offices, then industry or manufacturing verticals. “As of September 2015, we are working on a pipeline of projects up to 2020 that amounts to almost 10 billion pesos.”

When it comes to the approaching regional economic integration, Komarasu is optimistic that it will open up the Philippine property industry to foreign entities that will further amplify the demand for office spaces as well as labor resources. “In addition to the higher demand in the labor market, the ASEAN integration could also help in knowledge and talent sharing, where talent from outside could help upgrade the existing talent here, and vice versa,” he points out.

Concepcion BIS, the commercial arm of CIC, provides building solutions—from heating, ventilation, and air-conditioning (HVAC) to escalators and elevators—to consultancy for engineers, architects, developers, and building managers. The group also assists throughout the construction process by providing their expertise in design guidance and project management.

Collaboration with construction influencers

“Developers tend to be ambitious in completing a building project in two to three years, but in reality, this doesn’t happen,” says Komarasu about the average duration of big construction projects, with some major projects delayed for one to two years because architects, consultants, contractors, and the labor workforce are swarmed with too many projects.

“Common delays can be avoided if the designs are correctly done. This is where our expertise in project management comes in, where we work closely with the client’s project management team to supervise the design and construction stages, and monitor that construction is done properly. This helps our customers save time and money.”

“We collaborate with the main influencers in the property sector—architects, developers, and consultants—and see how our inputs can optimize their designs, and they really see the value that this relationship creates,” Komarasu adds.

Challenges to doing business in the Philippines

The stable growth of the manufacturing sector is seen to increase demand in the industrial space, as more foreign manufacturers invest in the country, particularly those in the automotive sector.

“The Philippines has one of the most competitive labor costs in the region, but what truly makes this country stand out is the quality of the Filipino workforce,” shares Komarasu, a Singaporean who has been living in the Philippines for almost seven years now. “They are very easy to train, very friendly, and speak very good English, and this makes it easy for foreign businesses to set up shop here.” He adds how he admires the government’s efforts of playing its part in providing incentives to foreign businesses, but admits that more can be done, especially by investing more in infrastructure improvement.

The high cost of electricity remains to be a potential deterrent to foreign investors. A report released in 2013 ranked Manila with the third highest electricity prices in Asia-Pacific, coming after Sydney and Tokyo. “Realistically, that won’t go away easily without action from the government. Another way of addressing this concern is through opting for more energy-efficient technologies,” admits Komarasu.

True cost of energy-efficiency

“As a manufacturer, we are constantly bringing in energy-efficient products with our research and development facilities present globally to enable everyone to play their part in caring for the environment,” says Komarasu. Concepcion BIS houses air-conditioning brands Carrier, Toshiba, and Midea, and elevator and escalator brand Otis. “On the other hand, developers, architects, and consultants play an important role of looking for these solutions and how to adopt them in their buildings.”

“However, the general awareness of ‘going green’ in the Philippines is still low,” Komarasu laments. Another challenge is the perceived cost of going green. “The first-time cost is what would usually discourage some building owners from investing in energy-efficient technologies, but what they don’t realize is that choosing a cheaper inefficient product would mean paying higher operating expenses, when in fact, going for energy-efficient products allows faster payback,” shares Komarasu. Inverter air-conditioners, for example, are more expensive than non-inverter air-conditioners, but can significantly reduce the electricity bill because of their variable refrigerant flow capability.

With the Philippines as one of Southeast Asia’s fastest growing economies whose property sector is showing no signs of slowing down, Komarasu is hopeful that the next few years will show a more promising future for the country’s property sector. “Concepcion BIS intends to support this growth by continuing to provide end-to-end solutions, at the same time encouraging more influencers to invest in energy-efficient, environment-friendly building technologies that will drive the country’s property sector further upwards.”

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