Maybank Philippines expects business activities to boom in the Manila Bay area in Pasay City, with expansive real estate projects by the SM Group.

Maybank’s report last Sunday said the projects on the 60-hectare reclaimed land, dubbed as the First Island, include malls, offices and residences which are seen to spur economic activities in the area.

The bank’s analysts said likely high profits await investors as data show land values in the Manila Bay Area have risen eightfold since 2009 and 2021 when reclamation there started.

“We currently value the reclamation project as land bank at a 60 percent discount, implying upside risk to earnings and valuation from future presales of horizontal lots and development of leasing assets,” the Maybank report said.

Reclamation projects

The Pasay City government allows reclamation projects to cover 360 hectares, of which 169 hectares are set aside for roads, open spaces, residences and commercial use.

“Aside from malls and offices, there are also 10 other reclamation projects along the Manila Bay for mixed-use development, which should help unlock long-term economic value in the area,” the report said.

Property consultancy firm Colliers Philippines sees office occupancy rate increasing this year, mostly driven by business outsourcing firms.

It expects companies this year to occupy 228,000 square meters, from 10,300 square meters last year.

Demand for office space was tempered during the pandemic when Philippine offshore gaming operators left the country, leading to a six percent drop in their share in office occupancy in Metro Manila from pre-pandemic peak of 11 percent.

Up to 20 percent

However, with the influx of pre-selling office buildings, Colliers analysts say the total office vacancy rate this year will be up to 20 percent, following the 19 percent last year.

Given these growth factors, investors will likely benefit from betting on SM Prime Holdings.

“We forecast SMPH to deliver earnings growth of 19 percent in 2023 and 9 percent in 2024, driven by contributions from the Philippine malls segment and margin expansion,” Maybank analysts said.

SMPH is the largest mall developer in the country with 82 malls, and the second biggest for residential development in terms of revenue.