Leveraging convenience: Developers are increasingly establishing self-contained “townships”

Philippine developers are using shopping malls as flagships and anchors for large mixed-use developments called “townships”. The trend has been a major driver of the construction boom behind the recent acceleration of the country’s GDP growth.

OUT WITH THE OLD: The buzz in 2013 was around Bonifacio High Street in Metro Manila’s Fort Bonifacio district, a former military fort that the government tendered out to developers for conversion to civilian use. With plenty of space to spread out, the developers eschewed the usual multi-floor roofed box and opted instead for a long, outdoor walking mall where two to three levels of shops and restaurants line each side of a wide green space that’s dotted with palms and fountains and criss-crossed with walking paths.

Office and residential blocks and towers rise above on each side in a 240-ha township development called Bonifacio Global City. The development is a joint venture between Ayala Land, Evergreen Holdings and the governmental Bases Conversion Development Authority. Ayala Land also owns the “Market! Market!” shopping mall, a mid-market covered mall located at the north end of the Bonifacio High Street.

A few km south, still within the borders of the former Fort Bonifacio, Ayala’s rival Megaworld is building the Venice Piazza, a mall that fancifully imitates scenes from Venice, complete with Moorish-style windows, a San Marco-style tower, a Rialto-style bridge and a canal for gondolier rides. With an emphasis on dining, the Venice Piazza is also a marketing tool for Megaworld’s 50-ha McKinley Hill township development, which includes condominium towers named and styled after Venice and Tuscany. Megaworld also has two other projects in Fort Bonifacio: the Forbes Town Centre, a five-ha development that includes the Burgos Circle mall, and the Uptown Bonifacio township, a planned 15-ha development that will include the Uptown Place mall. Megaworld’s slogan, “Live - Work - Play”, emphasises the firm’s strategy of building integrated communities with residences, offices and leisure all in one location.

INTEREST FROM ALL SIDES: Across town, on a 67-ha parcel reclaimed from Manila Bay, is the Mall of Asia complex, where one of the country’s largest malls with more than 400,000 sq meters of gross floor area is neighboured by office towers, youth-oriented residential towers, a convention centre and an arena.

The complex is owned by SM Investment Corporation (SMIC), the Philippines’ largest mall operators and retailers. While Ayala Land and Megaworld became mall operators to support their real estate businesses, SMIC arrived at the same township model starting as a retailer and mall operator. Tim Daniels, SMIC’s investor relations officer, told OBG the company has made it standard policy when choosing sites for new malls to look for large plots of land with enough additional space for residential and office spaces, which the company usually holds for later development.

The office spaces at the Mall of Asia complex and all of the Fort Bonifacio projects cater primarily to the business process outsourcing (BPO) sector, one of the key drivers of recent growth in the Philippine economy. The labour-intensive sector hires large numbers of recent college graduates and pays them relatively well by Philippine standards. At the end of their shifts, which for night-shifters is early in the morning, they pour out of their offices, typically looking for places to eat, drink and hang out with each other. If a mall is in walking distance of their workplace, they’re very likely to go there.

For convenience’s sake, they might choose to live in a condominium in the same development. Such condominiums, promoted at sales points inside the malls, are typically youth-oriented studios and small one-bedrooms, often smaller than 30 sq metres. As Daniels explained, “The synergy between the different businesses drives lots of traffic, and land prices go up.”

OTHER SITES: Other township developments include Megaworld’s Eastwood City in southern Quezon City, which it launched in 1997 and then added the Eastwood Mall in 2009, and Megaworld’s Newport City, which combines BPO-oriented offices, youth-oriented condominiums and the Resorts World Manila casino resort on a site adjacent to Manila’s Ninoy Aquino airport. In central Quezon City, Ayala Land is developing the Vertis North township on a site adjacent to its existing TriNoma mall, which stands kitty-corner from SMIC’s giant 425,000-sq-metre SM City North Edsa mall.

SM Mall of Asia, a sprawling complex that combines outdoor walking alleys with standard indoor multi-floor shopping, is one of Manila’s busiest malls. With four neighbouring office blocks that house BPO firms and SMIC’s corporate headquarters, its outdoor restaurants are buzzing with chatting 20-something office workers while strolling families inhabit the mall’s indoor spaces and business-like food shoppers stream in and out of the mall’s hypermarket.

Partly because of the BPO connection, Philippine malls tend to have a large number of restaurant and cafe offerings, which serve as lunch venues and as enticements to hang out at the mall outside work hours. Daniels said SM malls dedicate 20-25% of their space to food. Fort Bonifacio also attracts a mixed crowd, from some of Manila’s wealthiest shoppers at Bonifacio High Street and the nearby high-end SM Aura mall to a noisy and bustling mass-market crowd at “Market! Market!”, which combines mall stores with outdoor-market-style rows of stalls.

RAPID GROWTH: With multiple cranes in view every way one looks in Fort Bonifacio, retailers are expecting busier days ahead. The district will be completed in stages over the remainder of this decade and is expected to house the Philippines’ largest concentration of BPO businesses. Its multiple retail spaces are likely to develop into the country’s busiest shopping district.

Competition over the area’s expected future crowds has heightened the rivalry between SMIC and Ayala, the latter of which, together with Evergreen Holdings, bought a controlling stake in the Bonifacio Global City project in 2003 expecting to have exclusive control over the immediate neighbourhood. However, SMIC managed to later acquire a nearby plot from the local authorities, prompting a bitter court battle that failed to stop the SM Aura from opening in 2013.

Competition is fierce for the rare remaining land parcels in prime Metro Manila that are large enough for township projects. Ayala, in 2012, won a hotly contested tender for a 74-ha industrial park site in southern Taguig City, several km south of Fort Bonifacio. Ayala said it planned to convert the site to a mixed-use development and new business district. Ayala has named the development Arca South.

In October 2013, the administration of Metro Manila’s Pasay City announced it had received an unsolicited proposal from SMIC’s SM Land unit to invest P54.5bn ($1.3bn) to reclaim 300 ha of Manila Bay waterfront land adjacent to the Mall of Asia complex. When the Pasay administration added it was giving other companies a month to make counter-proposals, Ayala protested that the deadline was unreasonably early and a limitation to companies with experience in large reclamation projects was unreasonably restrictive.

That November, after the Pasay administration rejected Ayala’s complaints and refused to extend its deadline, the central government’s Philippine Reclamation Authority spoke up, pointing out that any reclamation project would ultimately require its approval and that the central government’s National Economic and Development Authority would also need to approve plans.

FOLLOWING BPO OUT OF MANILA: As the BPO industry is locating an increasing share of its workforce outside of Metro Manila, mall developers are now following where the BPO sector is leading with township developments. Ayala opened four malls outside the capital region in 2012 that are part of BPO-oriented township developments: in Olongapo City and Cavite in provincial Luzon, in Iloilo in the Visayas and in Cagayan de Oro in Mindanao. Megaworld’s planned first two malls outside Luzon, in Cebu and Iloilo, are both part of planned BPO-oriented township projects.

Furthermore, because BPO investors generally prefer to locate in facilities within zones designated for investment incentives by the Philippine Economic Zone Authority (PEZA), development of provincial malls is also increasingly tied to the PEZA granting its designation to a broader township project.

DRIVING COMMUNITY GROWTH: SMIC, meanwhile, included BPO office space directly within three of the malls that the company opened in 2012 – in General Santos and the Lanang district of Davao, both in Mindanao, and in Consolacion in the Visayas. Daniels explained: “In smaller cities, we can start with just a mall, with BPO space on the upper floor. It generally becomes very popular, and people start to locate near it, and the roads leading to it are improved. Then later we can add some office and residential space.”

SMIC has also been retrofitting BPO office spaces into the upper floors of older malls and applying for PEZA designation of its mall office spaces. As of May 2013 the company said it had more than 150,000 sq metres of BPO office space at 20 locations, more than half of which was directly within its malls. Eleven of SMIC’s provincial malls had BPO office space within them.