MANILA/TOKYO -- With the novel coronavirus pandemic accelerating office demand in the Philippines instead of shrinking it, Ayala Corp. has set itself up for new commercial developments with the aid of foreign investors.
Ayala-backed AREIT became the first-ever real estate investment trust to list in the Philippines on Aug. 13, after the administration eased regulations on these trusts in January. The country passed a law in 2009 to allow REITs, but none were set up because of onerous regulations. Now, however, REITs are expected to bring a new wave of cash into the Philippine real estate market, since it allows foreigners, who are mostly banned from owning land in the country, to indirectly invest into properties.
"Today, we are pleased to be part of the historic launching of REIT in the country," said Fernando Zobel de Ayala, chairman of the group's property arm, Ayala Land. "Ayala Land was preparing for this as early as 2008."
Ayala Land raised $13.6 billion pesos ($280 million) through AREIT's initial public offering, which drew institutional investors at home and abroad as well as roughly 3,300 retail investors. It maintains a 51% stake, while foreign players hold about 16%.
AREIT's portfolio includes three properties in Makati, the financial and business hub of the capital region. Their office spaces are designed to host call centers and other outsourced businesses, which need reliable internet connection and the ability to operate 24 hours a day. One of them, completed in 2008, was one of the first buildings in the country of its kind.
Ayala appears to be doubling down on these types of offices. A fourth building, located in the central city of Cebu, will be incorporated into its REIT soon.
Despite the coronavirus pandemic squeezing the market for office spaces in Japan and elsewhere, Makati-based Leechiu Property Consultants expects demand for office space in the Philippines to reach up to 800,000 sq. meters by the end of the year from the current 482,000 sq. meters.
The tech and business process management sectors "remain to be the fundamental catalyst" for office demand, according to Leechiu.
The pandemic has pushed businesses around the world to downsize in-house operations and outsource more tasks, which in turn has bolstered demand for call centers and similar operations in the Philippines. Working from home could be difficult for many in the country, due to its weak telecommunications infrastructure. U.S.-based customer service company Alorica and Singapore's Everise announced in June that they would hire 4,000 and 2,000 more staffers, respectively, in the Philippines.
Founded in 1834 under Spanish colonial rule, Ayala Corp. grew into one of the Philippines' leading conglomerates through postwar development projects in Makati and other urban centers. Its revenue grew 3% in 2019 to 264.9 billion pesos.
"REITs will enable capital recycling to further promote developments in the country," said AREIT Chairman Jose Jalandoni.
But the rise of REIT gives up-and-comers easier access to funds as well, making it harder for Ayala to stay ahead. Double Dragon Properties announced in July that it will seek to raise 17 billion pesos through an REIT IPO in October, and plans to launch a similar-sized trust every year through 2025.
REITs are already powering development projects in other Southeast Asian markets.
In Singapore, where the market cap for REITs totaled $72 billion in mid-August, according to QUICK-FactSet, Ascott Residence Trust is redeveloping a 13,000 sq. meter lot into a commercial complex with de facto parent CapitaLand. Thailand, whose REIT market cap totaled about $9 billion, has seen trusts specializing in a variety of developments from warehouses to industrial parks to data centers. Malaysia also has a REIT market worth about $9 billion.