Luzon’s Industrial Sector Holds Promise

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In 2018, the Philippine economy grew by 6.2%. One of the main drivers for this growth is the industrial sector, which accounts for 34.1% of the country’s gross domestic product (GDP). 

Luzon continues to account for the largest share of the country’s GDP, with NCR at 36%, CALABARZON at 17% and Central Luzon at 9.8%. In NCR, the industrial sector accounted for 17% of the region’s economy in 2018 as reported by the Philippine Statistics Authority, with manufacturing comprising two-thirds of the industry sector. Other areas in Luzon have also seen growth – Ilocos region’s industry sector expanded by 11.9%, Central Luzon grew by 7.6%, CALABARZON by 7.9%, MIMAROPA by 11.2%, and Bicol region by 14.2 % in 2018.

The industrial sector of the Philippines comprises three major facets, namely manufacturing, construction and foreign trade and exports. Over the years, the industrial sector has made a sustained contribution to the GDP, despite lower labor and operational costs. About 16% of the Philippine labor force is employed in this sector.

Foreign Investments Boost Luzon’s Industrial Sector

As reported by Colliers International, the Philippine industrial sector is driven mainly by the influx of Chinese manufacturers, developers tapping demand for warehouses and new industrial supply in the north of Manila in Q2 2019. Amidst fiscal uncertainty, the industrial sector showed stable occupancy, particularly the industrial demand in Cavite, Laguna and Batangas. 

To support the industrial sector, the Philippine government continues its efforts to attract foreign direct investments by improving the infrastructure landscape. In fact, according to Collier International, Japanese and Chinese companies have committed to expand industrial operations in the region. The completion of the 45-kilometer Cavite-Laguna Expressway (CalaEx) is expected to pave the way for more investment opportunities from international firms.

This year, the Philippines has secured a total of $1.24 billion in investment pledges from Japan, with most of these investments happening in Luzon. Mitsubishi Corporation, for instance, is expected to collaborate with a Filipino real estate company in a housing venture worth $76 million. Sumitomo Wiring Systems will also invest $46 million in a manufacturing facility that will provide 13,000 jobs in the automotive industry.

Meanwhile, the approved foreign investments have remarkably spiked to Php 46 billion in Q1 2019, from only Php 14.2 billion in Q1 2018. It is important to note that 76% of these pledged foreign investments in Q1 2019 belong to the manufacturing industry, while 5% are for real estate activities. 

The increase in foreign investments has sprung up from the aftermath of the U.S.-China trade war. Foreign investment inflows from China have drastically increased this decade, from US$800,000 in 2011 to US$199 million in 2018.

Industrial Sector in Southern, Central Luzon

According to Colliers International, vacancy rates in the manufacturing facet of Cavite, Laguna and Batangas dropped in H1 2019. From 6.6% in H1 2018 and 6.0% in the H2 2018, vacancy rates in Cavite decreased to 5.7%. In Laguna, the vacancy rate declined to 4.3% from 4.9% in H1 2018 and 4.5% in H2 2018. Batangas’ vacancy rate in manufacturing also dwindled to 6.5% from 8.0% in H1 2018 and 7.0% in H2 2018.

The industrial lease rates in manufacturing are also seeing rapid growth in the areas of Cavite, Laguna and Batangas.  Land leasehold has increased to 80 sq.m. per month in H1 2019, from 75 sq.m per month and 78 sq.m. per month in H1 and H2 of 2018, respectively. Colliers International also noted that warehouse leases have a faster growth rate than land leasehold. Real estate developers are taking advantage of this growth by constructing more modern warehouses.

The industrial sector in Luzon continues to hold promise of rapid growth. Industrial supply in Central and Southern Luzon is expected to grow with the upcoming expansion activities. 

Central Luzon is gaining momentum as one of the most industrialized areas in the Philippines outside Metro Manila, with 48.5% of its GDP accounting for the industrial sector. Clark, Pampanga is fast becoming a hub for industrial opportunities. Industrial parks and development corporations will be concentrated in Metro Clark with the construction of Sino-Philippine Industrial Park, Filinvest Logistics and Industrial Park, Alviera Industrial Park, and Unity Realty and Development Corporation.

The CALABA region (Cavite-Laguna-Batangas) will also see expansion through the construction of Cavite Light Park Phase 2, First Philippine Industrial Park III, New-First Industrial Township (FIT) and EDAMPI Industrial Park.

Manufacturing firms have caused the industrial sector in Central and Southern Luzon to become robust. In Metro Clark, major firms include Luenthai, Savencia, Universal Robina, Monde Nissin and Gardenia. In CALABA region, Polymer & Colours, Inc., Murata Manufacturing, Ibiden Philippines, Dyson, and New Kinpo Group are among the major industry players.

Incoming manufacturing occupiers in North-Central Luzon are firms involved in the packaging, food and beverage, and warehouse industries. In CALABA region, business operators of semiconductors, electronics and warehouses are expected to penetrate the industrial sector.

Maintaining the Luzon Industrial Sector’s Growth

Colliers International also reported that the growth of the industrial sector in Luzon will be driven by improving infrastructure, alternative industrial hubs, the Philippines’ trade deals with Asian and European countries, and sustained growth of manufacturing sub-sectors. The completion of the NLEX-SLEX Connector Road in 2021 will also shorten the distance of industrial parks to the south of Manila.

To maintain the growth of Luzon’s industrial sector, Colliers International recommends building more modernized warehouses and industrial space within townships. The government should also monitor committed investments, assess investment pledges from China, and align new industrial parks and warehouses with private-public partnerships.

The industrial sector is one of the foundations for long-term employment, innovation and value-added generation, which directly affects the country’s economy and GDP. Proper economic and political measures will sustain the growth of the industrial sector in Luzon and secure the economy of the region.

Check out Lamudi’s The Outlook E-magazine for more articles about trends to watch in the industry. For more details about The Outlook 2020: Philippine Buyers’ Choice Property Awards, visit lamudi.com.ph/outlook2020

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