Philippines is one of the most populous countries in Southeast Asia and its economy just behind Thailand and Indonesia.
Increased manufacturing operations and an expanding service sector will help to further fuel the economy in the coming years.
Setting up a company is relatively easy by Southeast Asian standards, communication in English flawless, making it a top choice for foreign companies.
Everything from automakers, shipbuilders, and producers of electronics has chosen the Philippines for outsourcing and assembly activities.
Due to these changes, the industrial property market grows at a rapid speed. With that said, investing in industrial property requires that you have a well-rounded knowledge of the market beforehand.
Topics covered:
- Can foreigners buy industrial real estate in the Philippines?
- Investing in Industrial Real Estate Through a Company
- Philippine’s Industrial Real Estate Market
- Industrial Clusters in the Philippines
Can foreigners buy industrial real estate in the Philippines?
Philippines tops the list in our annual Asia Property Index thanks to generous visa regulations, low real estate taxes, high rental yields, and PwC’s general buying recommendations.
As mentioned, investing in commercial real estate like industrial properties is significantly more complex and regulated compared to the residential market.
Foreign individuals aren’t allowed to buy industrial properties, for example, but only strata-titled units like condominium units.
Yet, foreigners can own a maximum of 40% of the units in condominium projects and the rest have to be sold to locals.
Yet, individuals typically don’t invest in industrial real estate due to the large investment amounts required and the barriers to ownership.
Instead, the most common option is to buy real estate through companies, something that I focus on in our commercial property articles.
Investing in Industrial Real Estate Through a Company
There are two kinds of limited liability companies (LLC) available in the Philippines: Domestic Corporations (DC) and One Person Corporations (OPC).
The most common option when engaging in the industrial real estate market is to set up a Domestic Corporation. The company structure limits foreign ownership to 40% that can include individuals and corporations.
However, if you allocate a minimum of USD 200,000 as an initial investment, foreigners can fully own the business. A Domestic Corporation can be created either as a joint venture with a local partner, or a wholly-owned subsidiary of your foreign entity.
By pooling resources, expertise, and benefiting from the partnership with a local company, you have greater access to the local market and can build everything from industrial estates, townships, commercial projects, and land reclamation projects, for instance.
Everything from property developers to international beer companies like Heineken all uses joint ventures for such purposes.
Philippine’s Industrial Real Estate Market
Philippine’s has shown an impressive growth of around 6% to 6.5% annually, despite experiencing a dip during the Covid-pandemic. Below you can see the annual GDP changes:
- 2016: 6.9%
- 2017: 6.7%
- 2018: 6.3%
- 2019: 6.0%
- 2020: -7.30%
- 2021: 6.50%
With the increased relocation of manufacturing from China, countries like Vietnam, Indonesia, and the Philippines will see a lift in the coming years.
According to multinationals like the Swedish bearing manufacturer SKF, warehouses, urban storage facilities, and distribution centers become important and primarily due to online shopping.
Metro Manila accounts for around 38% of the eCommerce market, which is set to grow by 26% annually nationally.
We also see plans to introduce many ecozones with around 700,000 square meters approved in Batangas, General Santos City, and Davao during 2020, according to the Philippine Economic Zone Authority (PEZA). The zones comprise 9 IT Centers, 2 manufacturing zones, and 1 IT Park.
Worth mentioning is also that, data centers show long-term opportunities in the industrial sector.
Common Industries in the Philippines
Philippines is considered a newly industrialized economy and known for its service and agricultural sectors. The country is one of the biggest rice producers and where Luzon, Western Visayas, and Mindanao account for much of the output.
Coconuts, sugar, and pineapples are also exported in large numbers, and where Negros Islands, Mindanao, and Western Visayas are large producers.
Over the years, plenty of large-sized manufacturing companies have entered the Philippines to set up manufacturing and assembly operations for automotive parts and electronics.
Renowned brands including Toyota, Volvo Cars, and Honda are just a few examples of automakers that have a presence here. Aerospace companies like Airbus and Boeing, on the other hand, produce parts in Baguio, Cordillera Region.
Texas Instruments is another company with facilities in Baguio, a city that I will explain more about later in this article.
In addition to the above, mining, extraction, and outsourcing have become increasingly important to the economy. In fact, Philippines has some of the biggest gold, copper, nickel, palladium, and chromite deposits in the world.
Last but not least, the area around Cebu is the country’s most important for shipbuilding activities and the country is one of the biggest shipbuilders globally.
Industrial Clusters in the Philippines
Being the home to around 110 million people and hundreds of multinationals, you can find an abundance of interesting investment locations in the Philippines.
Of course, locations bring different benefits depending on your industry. Below I have made a general summary of some of the most interesting cities and urban areas where you should consider investing in industrial real estate.
1. Metro Manila
Metro Manila is one of the biggest metropolitan areas in the world, comprising 16 cities and 1 municipality. The metropolitan area has a population of more than 24 million people and accumulates a significant amount of foreign direct investments.
The area is considered saturated compared to many other emerging cities in the Philippines but is worth having a look at if you plan to invest in industrial properties.
According to the department of trade and industry, electronic goods, chemicals, textiles, food, beverages, and tobacco products.
2. Davao City
Davao is the biggest city in terms of land area and referred to as the Durian Capital of the Philippines. It has a long reputation of being a hub for the production of various products and services and is considered a highly urbanized city.
Davao is primarily known for its agricultural products and exports with many coffee, banana, pineapple, and coconut plantations. It’s also a large exporter of mangoes, pomelos, papayas, mangosteens, and cacao.
3. Balanga
Balaga is a small city with around 100,000 people, but benefits from its strategic location and just opposite Manila on the other side of Manila Bay.
Examples of companies that have offices here include Accenture, Procter & Gamble, Thomson Reuters, Nokia, and Shell.
4. Cebu
Cebu is one of the biggest cities in the Philippines and a popular destination for tourists. With around 200 islands, it’s known for being safer and cleaner than many cities in Metro Manila.
As mentioned, Cebu is mostly famous for its shipbuilding industry. However, other industries are quickly catching up, including electronics and heavy industries.
Examples of companies that operate in Cebu include J.P. Morgan, Shell, and Accenture.
5. Baguio
Baguio is, the same as Davao, classified as a Highly-Urbanized City (UHC) and attracts many foreign multinationals in the automotive and electronics industries.
With a population of around 550,000 people, Baguio has many different cultures and peoples that attracts plenty of businesses and investments. The city is considered one of the best to invest in industrial properties in the Philippines.
Examples of companies located here include Texas Instruments, Shell, and Toyota.
6. New Clark City
New Clark City is a new planned community located in the Clark Special Economic Zone. It’s in the Tarlac province and the towns of Bamban and Capas. The city will host up to 1.2 million people and be a “clean city” that is green and resilient, according to the government.
The completion is set to 2022 and it will be an agro-industrial business corridor, being strategically located with proximity to Manila.
Industrial Parks
There are more than 400 economic zones in the Philippines and 12 were launched as late as June 2020. Examples of economic zones and industrial parks that are important to the domestic economy include:
- Aurora Pacific Economic Zone and Freeport
- Authority of the Freeport Area of Bataan
- Baguio City Economic Zone
- Cagayan Special Economic Zone
- Calamba Premiere International Park
- Carmelray Industrial Park 1
- Carmelray Industrial Park 2
- Cavite Economic Zone
- Clark Freeport and Special Economic Zone
- First Philippine Industrial Park
- Freeport Area of Bataan
- Hacienda Luisita
- Kananga Special Economic Zone
- Light Industry and Science Park
- Silangan Industrial Park
- Subic Special Economic and Freeport Zone
- Tablas Economic Zone
- Zamboanga City Special Economic Zone
The zones serve different purposes depending on their location and the main industries they focus on. For more information, I recommend you to check the local government websites.
The Build! Build! Build! Program
The Build! Build! Build! (BBB) program is part of DuterteNomics, which is set to accelerate the development of industries and infrastructure in the Philippines.
The BBB program will primarily focus on reducing poverty, reduce congestion in Metro Manila, and encourage economic growth nationally.
There are more than 100 infrastructure projects planned under the program and 9,845 kilometers of roads, 2,709 bridges, 4,536 flood control projects, 82 evacuation centers, and 71,803 classrooms have been completed as part of it.
That’s it for this article. I hope you found it useful and interesting and I recommend you to read my other articles related to buying real estate in the Philippines.
