Analyst: Property glut ‘being felt’ in Cebu

Developers urged to do proper market research first

A glut in property developments is “being felt” in Cebu, especially in the residential segment, an industry analyst said.

Julius Guevara, director and head of research at real estate company Colliers International Philippines, noted that the number of first-time developers in Cebu has increased as affluent Cebuanos with idle properties decide to venture into condominium development, mostly for residential use.

He also said the big industry players have been launching several projects.

“There has been a run-up of developments not just from the national players, but from established local developers as well,” he said during a forum here on the real estate industry.

Guevara said a glut can be a “bad thing” in the short term, but there are ways to mitigate the risks.

He said developers should also look into other real estate developments aside from residential, like office, retail, hotel and specialty use developments like hospitals.

Office space development might also be challenging in the near future, as the number of office-use projects is also increasing, he added. Demand for office space is still high, though, because of the thriving business process outsourcing (BPO) sector.

Hotels and resorts will have “no problems,” although Guevara also noted an excess of hotels located within the city.

Retail developments should be all right, although the success of a project depends on the location, he said.

ADVICE
Guevara said smart developers know how to mitigate difficulties, through strategies like pre-selling.

“They don’t put in that much money into the development immediately, so if there’s a slowdown, the risk is controlled,” he said.

He advised small and first-time developers to do proper market research and know what would sell to what market, and to “be more careful in gauging developments.”

Guevara also said small developers have to address the issue of not having an expansive sales and marketing team compared to larger developers, who have the benefit of having huge in-house marketing teams as well as international sales teams who are able to reach out to the foreign and overseas Filipino workers (OFW) markets easier.

He further advised all developers not to go into high-end development just because it is the “highest price” or most attractive. Developers should identify the property’s “highest and best use,” taking into consideration the developments close to it.

MORE UNITS
As of last year, Guevara said an additional 12,000 residential units have been placed on the market in Cebu. Up to 5,200 more units are expected to be completed by 2018.

Because of the new inventory, vacancy rates will be around 20 percent.

“If you’re an investor, it may be difficult to lease out because of the competition. This is one thing to watch out for,” Guevara said. This will, however, be gradually absorbed by the market in the coming years, he added.

In the office segment, the total leasable space jumped 44 percent to more than 900,000 square meters in 2015 from  640,000 sq.m. in 2014.

“The ones (office space developments) that are really performing are the ones in the central business districts. If you’re a BPO (building developer) and construct outside the traditional CBDs, you might have a hard time leasing out,” he said.

He said the Cebu Business Park and Cebu IT Park still command the highest rates, but some newer CBDs are already catching up, like Mactan Newtown in Lapu-Lapu City.

RENTAL
Rental rates in Cebu and Manila are still relatively low compared to those in more developed areas like Hong Kong, where rental charges average $104 per square meter compared to $12 per sq.m.  in Cebu and $22 per sq.m. in Manila.

Guevara also noted that Cebu has seen a resurgence in “condominium-ized office spaces,” which was common in the ‘90s but dropped in development later on.

“The Cebu market quickly took to this. The projects address traditional market demand aside from BPOs,” he said.

In the retail segment, Guevara said vacancy rates are minimal at around 1.6 percent despite the large supply in 2012.

However, he also said that there may be some risks to this in the near future considering SM Prime Holdings, Inc. and Filinvest Land, Inc. are building additional 400,000 sq.m. of retail space at the South Road Properties.

In 2015, around 312,000 sq.m. will be opened while another 94,000 sq.m. will be available in 2016.

A lot of hotel developments are also expected to pop up in the coming years as tourist arrivals increase with the upgrading of the Mactan Cebu International Airport.

To sustain existing and future projects, Guevara said the city and provincial governments must work together to “add more infrastructure projects to Cebu,” such as roads and flood control.

The worsening traffic congestion should also be addressed, he added.

He also said schools should also be influenced to provide and attract students in the STEM (science, technology, engineering and mathematics) fields for higher skill level positions.

“The sustainability of manpower is an issue. There is not enough manpower to sustain the level of growth that is being projected,” Guevara said.

Stricter land use and zoning should also be implemented. Lastly, he suggested that outward growth into less developed areas in the provinces be encouraged.

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