Increased saturation, the reduced availability of land and worsening traffic in Metro Manila has progressively led to the migration of the metropolis’ manufacturing into the south. The primary beneficiary and destination for these investments has been Calabarzon, or Region IV-A, comprising the highly urbanised provinces of Cavite, Laguna, Batangas, Rizal and Quezon. Calabarzon has positioned itself as the industrial belt for the country, hosting the highest concentration of manufacturing activity with automotive assemblers predominantly located in Laguna, semiconductors, high-tech industries and electronics in Cavite and Batangas, and garments manufacturers in Rizal. Rapid industrialisation has led it to become the second-largest contributing region to national GDP, at nearly 17.2%, Meanwhile it has simultaneously nurtured the development of a thriving small and medium-sized enterprise (SME) segment, ranking second only to Metro Manila in the number of small business establishments with 4709, or 13.7% of the total national number of businesses, based on the 2013 Survey of Philippine Business and Industry.
Economic growth in Calabarzon slowed in 2014 to 5.1% from a 6.7% growth rate in 2013, reflecting a slight deceleration in the industry and services sector, while agriculture posted a negative growth rate of 1.3%. Despite its high absorption capacity for investment in labour-intensive industries, the region still remains vulnerable to external shocks affecting the manufacturing and services sectors, in addition to serious climatological events that have negatively impacted agricultural productivity.
Reflecting its dominant position as a manufacturing site, during 2015 Calabarzon cornered 37.5% of total investment pledges and a bulk of the importation of capital machinery, according to the Philippine Statistics Authority (PSA). These foreign direct investment (FDI) commitments have continued to rise since the Philippines secured an investment grade rating in 2013, however, they do not represent actual financial inflows but pledges registered with the country’s investment promotion agencies.
As of January 2016, the unemployment rate in the region stood at 7.5%, higher than the national average of 5.8%. This is in part due to the region having been a major destination for Metro Manila’s informal settlers and a migrant influx from neighbouring regions seeking available job opportunities, leading the population growth rates across the region’s provinces to double that of the national average. Nonetheless, given the level of investment and labour intensive industries, Calabarzon has surpassed Metro Manila as the most successful in hiring job seekers and employment, having attained first place in the most hired-on-the-spot ranking for 2015, according to the Department of Labour and Employment, with 54,395, ahead of Metro Manila’s 37,415.
The lion’s share of industrial activity of the nation is centred in southern Luzon, primarily in the provinces of Cavite and Laguna, where a critical mass of industrial estates already exists and continues to attract international locators involved in light-to-medium industry and manufacturing operations. These industrial estates are accredited by the Philippine Economic Zone Authority (PEZA), which enables its companies to benefit from fiscal and non-fiscal incentives for their export oriented activities. In addition, Cavite Governor Jonvic Remulla told OBG, “provinces like Cavite do not have a very active organised labour movement, which makes it easier for locators to deal with locals while the province is engaged with the management of locators to ensure worker rights.” Nationwide, the growth rate in manufacturing in 2015 remained strong at 22.9%, having already expanded by almost half in 2014 according to the PSA. The most visible group to have driven demand for industrial estates over the past years has been Japanese investors, which already amount to approximately 1700 companies in the Philippines, seeking to diversify their regional manufacturing bases after the floods in Thailand, rising labour costs in China and political instability in Indonesia. Additionally, the inclusion of the Philippines in the EU’s Generalized Scheme of Preferences Plus tariff reduction programme has increased the attractiveness of the country as a manufacturing base for exports bound for Europe, particularly given that 6274 Philippine-made products will be charged zero duty.
Despite being the second smallest among the Calabarzon provinces, Cavite is densely industrialised, currently hosting 12 industrial estates and economic zones while a further two are undergoing development, the Cavite Technopark in Naic: a 118-ha industrial park developed by Laguna Technopark, a joint venture between Ayala Land and Mitsubishi Corporation; and SunTrust Ecotown in Tanza, a 200-ha mixed-used industrial estate developed by Megaworld. The neighbouring province of Laguna has had a long history of industrialisation, traditionally hosting the bulk of automotive manufacturing activity in the country and some of the oldest industrial estates, with eight industrial parks concentrated predominantly in the cities of Calamba, Santa Rosa and Cabuyao. Although a later entrant into the industrial park development arena, Batangas currently has nine operating manufacturing-oriented industrial estates, with First Philippine Industrial Park, a joint venture between First Philippine Holdings and Sumitomo Corporation, having expanded its 350-ha park in Santo Tomas to 450 ha, in addition to currently developing a 62.5 ha-property located at the First Philtown Industrial Park in Tanuan. Additionally, the Light Industry & Science Park IV, an estate being developed by the Science Park of the Philippines in Malvar will add 250 ha of mixed used industrial land to the province.
Moving forward, a growing concern for developers is the decline in available space, particularly in Cavite and Laguna, where the residential market is accelerating. These large-scale projects, which command better returns for developers when compared to industrial estates, are being prioritised. According to Colliers International’s Philippines Research and Forecast Report, in the fourth quarter of 2015 new manufacturing zones registered with PEZA barely changed from the beginning of 2015, growing only by 0.43% in stock, with only two new economic zones registered in Cavite and Batangas. The increase in stock resulted in a slight increase in vacancy to 10.9% in the areas of Laguna, Batangas and Cavite. Nevertheless, the revival of the industrial sector continues at a steady pace with land leasehold rates increasing by almost 8% during the same quarter.
In tandem with industrial and employment growth, Calabarzon has become a primary destination for real estate investment, with most developers aggressively expanding their portfolios across the region despite a slowdown in the residential condominium market in Metro Manila. The provinces of Laguna, Cavite and Rizal are immediate neighbours to the metropolis and among the most populous provinces in the country, with each surpassing 2m citizens. Due to improved connectivity and cheaper real estate options, all three provinces have been popular residential areas for Metro Manila’s millions of workers. Additionally, given high rates of industrialisation of the southern corridor, employment has multiplied and higher-income households have created robust demand for affordable housing and leasing.
Calabarzon has the country’s second largest gross regional product at P1.64trn ($36.4bn) and most large developers are engaged in property projects spanning several hundred ha to capitalise on the potential of southern Mega Manila, with several projects undergoing development, including Ayala Land’s 700-ha Vermosa mixed-used project in Cavite, a 1500-ha commercial business district by Vista Land across Laguna and Cavite, the 1400-ha Lancaster City affordable housing project by Pro-Friends in Cavite and a 1000-plus-ha mixed-used Twin Peaks project by Megaworld in the Tagaytay-Batangas corridor.
The advent of mixed-used projects across Calabarzon have also aimed to accommodate the need for commercial and office space, especially as business process outsourcing firms aim to decentralise into tier-2 cities, with sites like Santa Rosa in Laguna already recognised as 81st in the latest list of “Top 100 Outsourcing Destinations” by the strategic research firm Tholons, and a growing population generates demand for health care entities, leisure facilities and educational institutions. Nuvali by Ayala Land was a pioneering project aiming to push decentralisation by developing housing outside of the metropolis, with the project currently comprising 2290 ha and having included the development of commercial spaces and social infrastructure, further enhancing the viability of Calabarzon as a residential site. Aside from the residential market, robust demand for leisure projects exists, particularly in Tagaytay City in Cavite and the towns of Nasugbu and Calatagan in Batangas, where vacation houses and beachfront condos within master-planned communities are common.
Infrastructure & Connectivity
Whereas most regions around the country are constrained by inadequate infrastructure, Calabarzon’s proximity to Metro Manila and a growth in the region’s importance as an industrial core has generated significant attention in the form of infrastructure spending. Funding from the 2016 General Appropriations Act, Bottom-up Budgeting (BuB) funds destined for Calabarzon amount to more than P2.15bn ($47.7m) for the implementation of 1473 projects, of which P750m ($167m) have been tagged for big-ticket projects in the region. This amount surpassed the BuB allocation of P1.79bn ($39.74m) for the region in 2015. The five largest projects in Calabarzon will consist in the Salintubig water supply project, a national programme aiming to deliver potable water across the country. In Batangas and Quezon, road construction projects in the municipalities of Mabini and Tingloy in Batangas and Lucban in Quezon aim to improve the delivery of social services, strengthen disaster preparedness mechanisms and improve connectivity across the region through construction of roads.
The flagship public-private partnership (PPP) programme of President Benino Aquino III’s administration has also generated a direct impact in the growth potential of Calabarzon as a natural extension to Metro Manila by targeting the construction of road and train systems towards the region. The existing road arteries connecting Metro Manila to the Southern corridor are the South Luzon Expressway (SLEX), which crosses across the provinces of Cavite, Laguna and Batangas, the Southern Tagalog Arterial Road (STAR Tollway), which extends SLEX from Saint Tomas to Batangas City, and the Manila-Cavite Expressway (CAVITEX), which connects the southern area of Metro Manila, namely the cities of Parañaque and Las Piñas, with Cavite. The first PPP project successfully awarded in 2011 was the Muntinlupa-Cavite Expressway, a 4-km toll road undertaken by Ayala Corporation and completed in 2015 which connects the SLEX with Bacoor City in Cavite. The road is expected to cut travel time from Metro Manila to Cavite to 45 minutes and de-congest existing traffic in the southern part of the metropolis. In addition, the P55.5bn ($1.23bn) Cavite-Laguna Expressway (CALAX) project was successfully awarded to Metro Pacific Investments Corporation in 2015, signalling the beginning of construction of a 47-km toll way connecting CAVITEX in Kawit, Cavite with the SLEX-Mamplasan Interchange in Biñan, Laguna, significantly easing traffic and improving connectivity across southern Luzon.
To complement road connectivity, the P65bn ($1.44bn) Light Rail Transit extension project on Line 1 (LRT-1) was awarded to the Light Rail Manila Consortium, a partnership between Metro Pacific Investment Corporation, Ayala Corporation and Macquarie Infrastructure Holdings, and will extend the train network from Pasay City to Bacoor in Cavite.
A proposed further extension, dubbed the LRT-6 project, would further extend the transit system from Bacoor all the way to Dasmariñas City. In the pipeline is a smaller train system project that is not under the PPP programme and has been rescheduled for bidding in mid-2016, the LRT-2 extension, which aims to extend train connectivity to the densely populated areas of Rizal in the east, all the way to Antipolo City.
The more ambitious PPP project expected to be bided out in the first half of 2016 is the P123.8bn ($2.75bn) Laguna Lakeshore Expressway Dike, the largest toll road under the PPP programme, which will run from Taguig in Metro Manila through the towns of Calamba to the Los Baños-Bay boundary in Laguna. The project includes a 47-km, six-lane expressway with a 45-km flood control dike that will ease the regional traffic flow and also mitigate flooding in the western coastal communities along Laguna Lake, in addition to the reclamation of 700 ha of land for mixed-used and commercial development.
Industrial competitiveness in Calabarzon is reinforced by its hosting of the second most important international seaport in Luzon, the Port of Batangas and the Batangas Container Terminal, both of which are operated by Asian Terminals, a subsidiary of DP World, the former handling up to 3m passengers, roll-on roll-off transport, bulk and break-bulk cargo yearly, and the latter and having a annual throughput capacity in excess of 300,000 twenty-foot equivalent units. The port creates a direct link between Calabarzon and regional hubs like Hong Kong, Singapore, Taiwan, Japan, Indonesia and other global markets through increased activity of international shippers.
With increasing port congestion in Manila, the Port of Batangas has proven to play a vital role in serving as the primary entry point of goods coming from the southern part of the country. As a result, revenues at the Batangas Container Terminal and Port of Batangas climbed 57.5% and 15.9% respectively in 2015.
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