Workers at a under construction site in the Makati district of Manila, the Philippines. (Photographer: Veejay Villafranca/Bloomberg)

Manila Gridlock Spurs Dormitory Demand to Keep Workers Close

(Bloomberg) -- Ayala Land Inc., which built Manila’s financial district, is expanding into workers’ dormitories as developers target people fed up with battling some of the world’s worst traffic.

The company is investing 3 billion pesos ($58 million) building five dormitories on four sites in the Makati and Taguig business districts, comprising 1,500 units that can house as many as 6,000 people, President Bobby Dy said in an interview. The first dormitory will be ready next year, and has received interest from firms wanting to lease entire floors to keep workers close, he said.

Manila Gridlock Spurs Dormitory Demand to Keep Workers Close

“It caters to a segment of the market who would want to stay close to their place of work to improve their productivity and their quality of life,” Dy said. “There’s really a need for this kind of product if you look at the commute times in the last couple of years.”

Metro Manila was voted the world’s worst city to drive in, according to Waze Inc.’s 2015 driver satisfaction index and congestion costs the economy about 2.4 billion pesos a day. President Rodrigo Duterte’s administration is embarking on a $170 billion infrastructure program that will include adding 1,900 kilometers of railway in a bid to ease traffic gridlock.

Manila Gridlock Spurs Dormitory Demand to Keep Workers Close

The move into dormitories could also help Ayala Land meet its target to get half of revenue from recurring earnings by 2020. The builder is leaning on its track record of developing high-end properties to compete with SM Investments Corp., which has already moved into developing dormitories.

Ayala Land will likely look to build dormitories in other cities where the company has estates, Dy said.

“The first mover in dormitories will capture the biggest share of a growing and promising market,” said Rachelle Cruz, analyst at AP Securities Inc. “It’s a new strategic area for property companies seeking recurring income.”

Dormitory Venture

SM Investments, owned by billionaire Henry Sy, has bought a majority stake in Philippine Urban Living Solutions Inc., which in 2016 opened its largest dormitory project called MyTown New York with 653 beds. The dormitory builder, whose initial shareholders include Franklin Templeton Investments, is expected to have 12 dormitories operating in the next 12 months, up from three now.

Dormitory-style accommodation, or so-called co-living, is also taking off in other Asian cities such as Hong Kong, where stratospheric housing costs are pricing young people out of the property market.

“Dormitories could generate the same return as an office building,” said Jan Paul Custodio, senior director at property consultant Santos Knight Frank. “It’s like a budget hotel with year-round occupancy and charging by the head.”

Manila Gridlock Spurs Dormitory Demand to Keep Workers Close

Ayala is on track to more than double its mall space to 3 million square meters by 2020, from 1.2 million at the end of 2013, Dy said in the interview. Office space is on target to triple to 1.5 million square meters and hotel rooms to 6,000, he said.

Shares of Ayala Land have risen 34 percent this year, outpacing the 21 percent gain in the Philippines’ benchmark stock index.

This year, the company has also ventured into serviced offices or co-working spaces for freelancers and startup ventures to help boost recurring earnings.

“As the Philippines enters a demographic sweet spot, there will be increased urbanization,” Dy said. “There’s going to be more workers and that will continue to make cities attractive. The demand for this kind of product will not disappear even with an improvement in infrastructure.”

©2017 Bloomberg L.P.