By Joey Radovan, JLL Philippines
BY THE TIME this article is published, I would have clocked in a full 26 years in the corporate real estate industry. I started the same time that talks began on the redevelopment of Fort Bonifacio and Makati City was clearly the top central business district with few capable of competing on sheer scale, Ortigas Center being the closest. I remember in the late 90s that annual office space take-up didn’t even crack 100,000 square meters (sq.m.) in most years. Prior to the pandemic, that number topped 500,000 sq.m. Of course, this was primarily due to the growth of the IT-BPO Industry. Many cities flourished because of the demand generated by this specific industry. Many employees have moved up the socioeconomic ladder by working in this industry. The growth of this sector was also a by-product of the last two global market downturns, which our country eventually benefited from.
Even with the adoption of work-from-home schemes, office space demand from corporate tenants will be strong in the long term. Office work will always be part of the business equation and is not going away. I have been in three market downturns, including this pandemic, and each one taught me key lessons after experiencing the various challenges faced by the real estate industry. I do believe we are at the tail end of this pandemic. With a new President and leadership team in charge, we have a clear runway of at least six years to continue the growth trajectory of the commercial real estate industry — assuming the public and private sectors can come together. The first job is to identify the cities we need to support for job creation.
Let’s use the Eastwood City development in Quezon City as a case study. Who would have thought that Fortune 500 companies could be persuaded to leave the comforts of the Makati business district? Four elements made it happen for Eastwood: 1. The cost of real estate 2. Fiscal incentives 3. Access to labor and 4. Market timing. You need very mature corporate tenants to pre-commit and sign a lease after looking only at a master plan and renderings, which can only happen if there is trust in the developer. I believe this project was the catalyst for the real estate industry to flourish while supporting the IT-BPO industry. This playbook has been used for more than two decades and it still generally works, given the right value-proposition.
But what has changed today? For one, most companies are now focused on sustainability, which even city governments need to get behind given the impact of the real estate sector on our environment; solutions are required for reducing direct and indirect carbon emissions from both real estate and construction over the entire project life cycle. Beyond constructing these projects, developers also need to pay closer attention to how these projects consume energy, produce waste and place demands on public and private transportation, all of which generate carbon emissions. Suddenly, corporate social responsibility with a focus on the environment is in play. Some say sustainability is a long game that costs money, and I agree. But it does not have to be that way, if we can bring these real estate projects to greenfield and developing cities, and not just focus on Metro Manila and other popular provinces. If we bring these new developments to new cities where there is labor, or at least the potential to develop a workforce, whether for the IT-BPO industry or for new industries, then that can solve a lot of sustainability issues. These workers wouldn’t need to leave their cities or undertake long commutes. They don’t have to pay high rents or buy expensive apartments. They may well be able to walk to work and not use cars or public transport.
This concept I first learned of from a book called Walkable City by Jeff Speck. But his idea involves converting an existing, bustling metropolis by improving its walkability. My main takeaway was that it might be easier to do this in a greenfield site or in provincial communities that can still grow and experience “suburbanization.” In effect, we could try urbanizing the suburbs. There are already communities that fit this description, where potential workers live.
Employing people where they live can help minimize migration to the cities, thus easing population pressures in the key urban centers. Metro Manila’s population is projected to approach 17 million by 2030. The density of its cities will further increase. Contrast this with locating in provinces, where the real estate cost will be cheaper. Wages will also be competitive compared to developed central business districts. I hope both national and local governments understand that this is where fiscal incentives need to be offered, because these corporations still need to minimize the risk they face by locating in growth provinces.
There is nothing new in what I am saying — we need to keep identifying new cities and support them in terms of design, master planning, infrastructure planning, public transport, fiscal incentives, project financing and sustainability strategies. These are all challenges for developers, occupiers/businesses, foreign investors and our government.
There are other cities around the world that we should draw inspiration from, like Oslo, Cape Town, San Francisco, Vancouver, Portland, Stockholm and others that are on the path to sustainability. Our cities are the “supply” side of the equation. We as a country, need to focus on the “demand” side. The next chapter of our story — ideally when the next bull run for real estate comes — can only be written if we find a new pillar that can rival the success of the IT-BPO industry!, which created millions of jobs and supported the long-term growth of the real estate industry.
Joey Radovan is country head of JLL Philippines.