Philippine Auto-Hub Ambitions Lure Ayala, Megaworld to Factories

Philippine developers are expanding into industrial estates as the government moves to make the nation a car-manufacturing hub have sparked interest from Japanese automakers.

“We haven’t seen this kind of interest from Japanese companies since the mid-1990s,” said Rick Santos, chairman of CBRE Group Inc. in Manila. “The industrial sector gets a boost from robust foreign demand.”

That is attracting builders such as Ayala Land Inc. and Megaworld Corp., which are now developing industrial properties to diversify their portfolios, recognizing the increasing demand for industrial space, said Antton Nordberg, head of research at KMC MAG Group Inc., Savills Plc’s Manila associate.

President Benigno Aquino met business groups in Japan this month, after policy makers on May 29 approved tax incentives for automakers to support production of new car models in the country. These are meant to help stimulate an economy growing at its weakest pace in three years.

“Japanese manufacturers are closely looking at setting up shop in the Philippines,” said Carmelo Bautista, president of GT Capital Holdings Inc., the Philippine partner of Toyota Motors Corp.

Japanese companies including Toshiba Corp. and Seiko Epson Corp., enticed by cheaper labor and real estate costs, have also expressed interest to expand operations in the Philippines.

The average annual rent in Philippine industrial estates is as much as $5 per square meter, compared with China’s $7, according to data from CBRE.

Japanese, Chinese

Ayala Land, the country’s largest builder by revenue, has at least 100 companies in its 244-hectare manufacturing hub south of Manila, company Vice President Rowena Tomeldan said.

Commercial space in Megaworld’s first industrial estate, unveiled last year, is sold out, while half of the industrial lots in the 350-hectare area south of Manila have been sold, the company said in an e-mail reply to questions. Tenants are mostly Japanese and Chinese manufacturers.

About 14 Japanese companies agreed last year to locate in an industrial estate partly-owned by Tokyo-based trading house Sumitomo Corp. and partner First Philippine Holdings Corp., the Manila-based company said in its annual report.

The Philippines wants a larger share of Japanese companies leaving China. After his visit to Japan, Aquino said that 11 Japanese companies signed letters of intent to invest or expand operations in the country.

Land Banking

CBRE estimates industrial rent in the next two years will rise at a slower pace than the country’s inflation rate -- forecast at 2.5 percent next year -- as developers keep prices low to attract more locators.

“Right now, it’s a price war,” said Jan Custodio, head of CBRE’s global research and consultancy in Manila.

Philippine industrial parks sit on former U.S. bases and rice fields that have been turned economic zones north and south of the capital.

Ayala Land expects all plots at a 31-hectare industrial estate north of Manila to be “fully sold out within the second quarter” after it was unveiled in January, Tomeldan said.

First Philippine may expand its industrial park to 2,000 hectares from the current 450 hectares, the Philippine Star reported on May 26, citing President Elpidio Ibanez. It will invest more than 1 billion pesos ($22 million) to expand, according to its annual report.

Despite cheaper labor and property costs, logistics costs are high in the Philippines, KMC MAG’s Nordberg said.

Investing in industrial estates in the also is complicated by manufacturing logjams and poor infrastructure.

Vista Land & Lifescapes Inc. President Paolo Villar said the company doesn’t plan to expand in the sector because while manufacturing is improving, it’s still hampered by expensive power costs.

Still, “industrial property provides a good diversification opportunity by presenting diversified tenant, credit profiles, geography and industries to maximize returns,” Jones Lang’s Cordero said.