Philippines Real Estate Industry Update Quarter 4 2010

Executive Summary
The Philippines Real Estate report examines the Commercial Office, Retail, Industrial and Construction
segments in the context of a sector on the up. After a year of outperformance in 2011 and a strong start up
until H112, the outlook for the remainder of 2012 remains relatively rosy, although macroeconomic
headwinds remain on the horizon.
With a focus on the principal cities of Manila, Makati City and Cebu City, the report covers the rental
market performance in terms of rates and yields over the past 18 months and examines how best to
maximise returns in the commercial real estate market, while minimising investment risk and exploring
the impact of the government led growth on a market soon to be characterised by Public-Private
Partnership (PPP) construction.
A recent pledge by the Philippine government to boost infrastructure spending throughout the remainder
of 2012, as well as to improve monetary conditions suggest that a sustained uptick in construction activity
is on the cards in the short- to medium term. This will surely have positive repercussions for the industry,
in the form of increased demand and most importantly a spur in supply. What is more, BMI believes that
2012 could well be the year the much-touted PPP scheme takes off. There are as many as 13
infrastructure projects in the initial phase of the PPP programme, which are all set to complete their
tendering process before the end of 2012. These projects would require time to reach financial closure, as
well as complete land acquisition and equipment procurement procedures.
BMI cautions, however, that there may be a bump in the roadmap towards ongoing growth in the sector.
And that bump comes in the form of the present macroeconomic backdrop. Given the government's
continued inability to promote growth-positive initiatives, we continue to see the Philippine economy
growing well below potential over the medium term.

Key Points
- The Philippines is one of the fastest-urbanising countries in East Asia. With an English-speaking
and relatively low-cost workforce, it is ideally placed to participate in high-demand services
such as business process outsourcing.
- Many residents of cities in the Philippines continue to experience poverty, environmental
degradation and live in slums or other inadequate housing arrangements. Economic development
has created rural-to-urban migration.
- Construction: The blistering increase in public construction investment in the first quarter of
2012 supports our view that conducive monetary conditions and robust government spending
would bring real growth to the Philippine construction sector. Therefore, we are maintaining our
forecasts for the sector, with real growth expected to reach 6.7% in 2012. Beyond 2012, we
remain relatively positive towards the sector due to the government's growing ability to boost
infrastructure spending as well as pertinent progress made with the government's PPP
Programme and key private sector projects.
- Following stronger-than-expected Q112 growth of 6.4% year-on-year, we have upgraded the
Philippines' full-year GDP growth forecast from 3.9% to 4.2%. That said, we still expect the
economy to slow in the second half of the year as poor external conditions clash with a relatively
healthy domestic economy.