Higher cement costs nip at heels of construction industry

Manila, Philippines—Despite the impressive net take-up of the property sector in the fourth quarter of 2018, developers are antsy about the probable sustained tariff on cement that may impact on the net cost of construction elsewhere in the Philippines, global real estate services firm KMC Savills revealed this week.

“This and few more issues may affect the cost of construction in the country. But we believe that developers and consumers, both, have the capacity to absorb the net price hike,” said company managing director Michael McCullough.

Higher cement costs nip at heels of construction industry

He added that the Philippines need to import as much cement as it can to provide support to the P700 to P800 billion capital expenditure of the country’s top ten construction companies for 2019 alone, on top of public spending for infrastructure under the Build, Build, Build program.

It is estimated that construction cost may increase by 6 percent if the P8.15 percent tariff surge on imported cement will continue indefinitely.

Robust sector

Based on the company’s office supply forecast office supply will be tight this 2019, as demand by the business process outsourcing companies will put pressure to developers especially in the Bay Area and within the Makati central business district.

An estimated 746,000 sqm of new gross leasable area (GLA) was introduced in the Greater Manila Area while net take-up surged to 701,100 sqm in 2018.

Budding districts Alabang and Bay Area had an excellent year with signs of strong growth backed by the presence of the Philippine Offshore Gaming and Outsourcing (POGO) sector.

Vacancies in Alabang are becoming tighter, as it further dropped to only 1.4 percent of the stock while Bay Area’s vacancy rate marginally increased to 0.6 percent as net take-up exceeded new supply at 163,500 sqm.

Rental rates in both districts showed hefty year-on-year (YoY) growth, with 5.3 percent for Alabang and 10.9 percent, the highest for the quarter, for the Bay Area.

Makati CBD’s vacancy rate remained solid at 3 percent despite the completion of the NEX Tower and a slower net absorption of 19,500 sq m.

The premier business district has been under tight conditions since 2016, causing an upsurge in rental rates averaging to P1,104.0 per sq m/ month.

Mixed results

Additional supply from the Asian Century Center and a similarly slower net-take up drove the amount of unoccupied spaces in Bonifacio Global City (BGC) higher to 5 percent but did not affect rents that grew 5 percent year-on-year to in P972.8 per sqm/month in 2018.2

Market conditions in Ortigas Center improved as it saw a decrease in vacancies at 2 percent after net absorption rebounded at 51,700 sqm while Quezon City experienced a spike in vacancies reaching 16.4 percent due to the completion of Cyberpark Tower Two and Centris Cyberpod Five.

Overall average rent in Metro Manila has accelerated further hitting 5 percent year-on-year in 2018 with Makati CBD commanding the highest rental rate with another possible surge in rent as contract expirations are expected to drive higher bids.

“We expect mixed results in 2019 as we see the different submarkets undergo through varied conditions affecting vacancies, absorption, and rental growth. Overall Metro Manila rental rates might accelerate, specifically for the Makati, Alabang, and Ortigas Center submarkets due to rising demand despite the latter’s pipeline of 206,000 sq m GLA completions for next year,” said company research manager Fred Rara.

Topics: KMC Savills , cement , construction industry
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