Edgar Injap Sia II, CEO and Chairman, DoubleDragon Properties: Interview

Edgar Injap Sia II, CEO and Chairman, DoubleDragon Properties

Interview: Edgar Injap Sia II

How do you see the supply and demand ratio evolving in the commercial, office and residential property markets over the coming years?

EDGAR INJAP SIA: It is important to focus on four areas. The first is renting out office space to companies. The second is community development – building small community malls in third-tier cities. The third area is hospitality, especially hotels in promising regions, as we strongly believe that the tourism sector has yet to reach its true potential. Lastly, industrial leasing has huge growth potential, as the logistics and consumer sectors are set to grow rapidly in the coming decade. Furthermore, it is entirely possible that foreign investors will be the next key driver of the residential market: policies may change, making this even more attractive moving forward.

Considering the decentralisation agenda, which second- and third-tier cities offer the best opportunities for property development?

SIA: The Philippines has around 140 cities, the majority of which are third-tier cities. Cagayan de Oro, Iloilo, Bacolod and Davao are examples of second-tier cities, and Metro Manila is a first-tier one. The benefits of economic decentralisation are evidenced in our drive to build community malls in third-tier cities, as the shift from traditional to modern retail continues. Bringing modern retail to these third-tier cities is not only good business, but also helps develop these cities and makes them more attractive to the youth who would otherwise migrate to first- or second-tier cities in search of employment or improved lifestyles.

As the country evolves from developing to developed status, it moves from fragmented and traditional industry to formalised industry. One of the best examples of this is the fast food segment: there are at least 3000 restaurant chain outlets across the country. In the 1990s there were only two local fast food brands present in the provinces. However, in the late 1990s and early 2000s various large fast food chains started to expand outside of Metro Manila, where they had been present for several decades. We are using this model for the expansion of modern retail. It is just a matter of time until all the elements.

How is digitalisation affecting retail and leisure developments, and how can brick-and-mortar shopping centres adapt to e-commerce?

SIA: By the mid-2020s the high-value items currently sold in department stores will be primarily sold through e-commerce. For each item bought, department stores take 33% as a fixed mark-up with the resident concessionaire. If concessionaires sell these items online, they will only lose 12% of their profit. Therefore, e-commerce is more appealing to concessionaires, as there is currently a 20-30% profit deficiency in comparison to brick-and-mortar retail. Unless the brick-and-mortar market accepts a 12% fixed mark-up, which would be practically impossible, e-commerce will inevitably replace most physical Another example that illustrates this point is online hotel websites – they only make 7% from bookings, in comparison to the 25% fixed mark-up on bookings that travel agencies received in the mid-2000s. The significant gap in fixed mark-up percentages has practically ended the travel agency segment. Big-ticket items and tourism flows may sustain the brick-and-mortar malls, particularly because they can be promoted to tourists. However, stores catering to locals may cease to exist with the potential exception of supermarkets, as their margins are only 8-9%. Community malls, or small malls, which will be built in the aforementioned third-tier areas, will see around 70% of tenants coming from the food and beverage industry rather than retail. We believe community malls will remain relevant over the long term.

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The Report: Philippines 2018

Construction & Real Estate chapter from The Report: Philippines 2018

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