Introduction Patrick Kasingsing and Gabrielle de la Cruz
Interview Gabrielle de la Cruz
Images NEO and Raymond Rufino
The year that was
Merriam-Webster’s “gaslighting,” Messi’s ‘crowning’ at the FIFA World Cup, the rise (and imminent fall?) of Musk-era Twitter, the monumental departures of Queen E and Pélé, and the continuing turbulence in Ukraine and Iran… 2022 sure was a memorable ride, for better or worse.
On local shores, 2022 hosted a significant election, one whose outcome is still the subject of myriad Facebook groups, heated debates, and countless memes. It also broke records for dollar-to-peso exchange rates and the price of the humble onion, and paved the way for the return of concerts, exhibits, and other public gatherings (along with the pre-pandemic traffic situation, unfortunately).
It is in the spirit of tenacious optimism that we at Kanto look back at 2022, parsing through the past year’s opportunities and challenges to find lessons and insights that can help arm us for the year ahead.
Welcome to Kanto’s first Year End Special or YES 2023—a collection of conversations with creative professionals who help us unpack a year’s worth of lessons and insights, along with their forecasts and wishlists for the year ahead.
A conversation with NEO CEO, Raymond Rufino
After our conversation with urban planner Joel Luna on planning more livable cities, we now focus the lens on specific developments within the urban fabric, in this case, office buildings. For YES 2023, we had a virtual sit-down with NEO CEO Raymund Rufino, who provided a general overview of local real estate conditions and his two cents on where the Philippines currently is in terms of sustainable building. NEO is the largest owner, developer, and manager of Green Net Zero office buildings in Southeast Asia. They are known for the seven certified Green office buildings that primarily have become landmarks in Bonifacio Global City (BGC), all holding a WELL Health-Safety Rating for Facilities and Operational Management, an Advanced Certification and a Zero Carbon Certification from EDGE, and an Advancing Net Zero Energy Philippines 5-Star Certification.
Good day, Raymond! How are you? How has your 2022 been?
Hi Gabrielle. I’d like to start by saying thank you for inviting me and NEO to be part of your year-ender special. We hope you and the Kanto team are doing well.
My 2022 started as a very challenging year. When the pandemic happened in 2020, it became really difficult for the real estate sector, including us in the office leasing industry. It was only in the middle of 2022 that we were able to fill up some of our spaces, but until now we still have vacancies. Overall, I would say that our business has done well. We were fortunately able to sign new tenants and forge new partnerships.
You talked about having vacancies in your office buildings. Is this a direct result of the ongoing pandemic? Now that the restrictions and economy are gradually easing to near pre-COVID levels, how would you describe the situation for developers in BGC?
The reality is that many of our small to medium tenants at NEO were adversely affected by the pandemic and had to let go of their leased spaces. This was for different reasons. Some had to move, some resorted to remote work, and some even had to close down their businesses. Tenants who adapted the hybrid setup also decided to downsize. When it was time for them to renew, they decided to renew with smaller cuts of space, leading to more vacancies.
Our leasing team is working hard to try to find new tenants. It’s a work in progress. I think that would be the case for all the office building owners in BGC, we’re pretty much in the same boat.
I see. Considering this, would you say that BGC is still one of the go-to locations for business and commercial developments?
In my opinion, BGC is probably still the most exciting market. We feel that the energy of the community and the interest of the market in BGC are both still very strong. Those have been the major drivers for the demand in office spaces, so we’re hoping that energy and interest continue.
The advantage of this market interest is that it leads to business opportunities in BGC. What would you say are its disadvantages? What happens now that people are flocking to the area?
Traffic, for sure. Whenever you have a lot of growth, that comes with a lot of traffic too. But I think it all boils down to how BGC will progress. I believe that with its vibrancy and its energy, it can remain to be one of the most exciting places to be.
We’ve talked about the progress of BGC, let’s talk larger scale this time. What are your observations concerning the progress and speed of real estate development in the Philippines this 2022?
It’s not an easy time for the real estate sector. Developers and owners have challenges such as increasing interest rates, inflation, and higher costs. All of these, along with the pandemic, are affecting demand.
However, because we’re resilient as an industry, I think many have been able to navigate and manage these difficulties. I would say that the industry is generally okay, but we’ll have to be conscious of the inflationary pressures and interest hikes as we head to 2023.
Would you say that inflation was the biggest challenge for your industry in 2022? What challenges do you foresee the real estate industry will need to weather in 2023?
This 2022, I would say that supply chain and inflation were the biggest challenges. My family and I are working on a data center and supply chain was very difficult. Securing equipment, parts, and other building and construction materials was very challenging. We even experienced a lot of delays in terms of order deliveries. I believe that this is the same for other people in our industry.
Inflation is a big hindrance as well. No matter how early you plan your budget, once inflation comes, all of your budgetary estimates will have to be adjusted. Everything is also just so expensive nowadays, so I think it could pretty much remain a problem for the coming year.
Along with inflation, I also see interest rates as a major factor for real estate in 2023. Being in real estate means that you always have to have financing or leverage because it’s all capital-intensive.
When interest rates go up, the real estate industry is directly affected. The rates have already started to climb this year and if that continues in 2023, there will be a lot of pressure for owners and developers. The sad part is that these two are also connected because as inflation goes up, they will also try to increase interest rates to dampen demand.
We need to watch out for these two and prepare ourselves for the coming year. I guess the only choice we have and the only thing we can actually do is work with these, be creative, and be strategic in terms of managing all these differing factors.
What steps has NEO taken to mitigate the direct effects of inflation and interest rates?
Luckily, we do not have any construction going on. The data center I mentioned is a family project and is not under NEO. Most of our management of costs at NEO are for operations. We are also lucky to have a very good purchasing team in place and we are also trying to explore leveraging technologies and platforms to further improve our efficiency in procurement and sourcing our needs.
In terms of interest rates, there’s really not much we can do. It’s basically a given in the market. The one thing we do is work well with our banking partners. We also work well with supply partners who can give us good deals and good pricing.
Can you tell us a bit more about the data center you and your family are building?
This will be a large data center for the Philippines that will be located in Laguna Technopark, Biñan, Laguna. We are building something that the market has never seen by trying to achieve never before seen levels of sustainability and performance. The energy efficiency and water efficiency of this data center are positioned to be better than anything ever built in the Philippines. Our partners, DigitalEdge, said that this is going to be one of the best performing in the Asia Pacific, which is remarkable considering that we’re in a tropical country.
Sounds really promising! I believe a lot of businesses will be eager for that and can stand to benefit from its completion. Did you embark on other major sustainability projects in 2022? What would you consider to be an outstanding sustainability project this past year, be it from NEO or another developer?
The biggest sustainability project we have at the moment is our first-ever sustainability report. It’s one big accomplishment that I am personally most proud of for NEO this 2022. We are a private company, and we are not obliged to come up with this, but our deep passion and commitment to sustainability led us to do so. We felt that it was important for us to really come out and talk about what our commitments are, what we did to fulfill those commitments, and openly and transparently share how we perform as a company and across our buildings.
What also makes me proud is that this report really challenged us to look at many aspects of our business. We were able to examine which material areas we really need to collect data on and look at the different green building and sustainability frameworks that we need to follow.
In terms of my favorite project, I’m very biased, but I would say that it’s the data center. This project is the most exciting to me thus far. It is one that is very near and dear to my heart given all that it stands for.
NEO’s unwavering commitment to sustainability really is inspiring. Talking about this report feels nostalgic, as the last interview I had with you was for the Emerging Trends in Real Estate Asia Pacific 2020 report of ULI Philippines. May I ask when you will be launching NEO’s sustainability report? What are some of the contents we can expect?
I’m glad that you remember that interview. That report was also remarkable as it happened months before COVID hit the country and a lot has changed since then.
Our sustainability report is actually ready. We are hoping to launch it this January. It’s around 40 to 50 pages, which we know could be quite a long read so we tried to make it as comprehensive as possible. We also added pictures and graphics to make it more appealing. Basically, this report encapsulates all our activities, strategies, and programs toward sustainability. It will reflect all the efforts that NEO has been working towards since we started.
You started advocating for green buildings as early as 2007. How has the real estate industry embraced sustainability since then? What developments have you seen through the years?
The real estate industry continues to grow in terms of sustainability. We’ve seen a lot of momentum since 2007. Sustainability was almost nowhere on the agenda for most owners and developers back then. Now, thankfully, because of the way things have progressed in terms of both the awareness and demand of users, customers, developers, and owners, sustainability has become part of design and construction criteria and even operational parameters. It’s really starting to become a major factor. A lot of companies are also showing a stronger commitment to sustainability.
I would say that while the momentum is good, we still have a long way to go. In my opinion, the industry is still behind in terms of the level of commitment we need to make.
At NEO, what we’re trying to do is provide leadership in making commitments and delivering on those commitments in order for us to demonstrate to our fellow industry partners and colleagues that green buildings are possible. I think a lot of people in our industry are still afraid of making that big commitment to go Net Zero, so we at NEO just want to demonstrate that achievements and goals just need strong plans, strong commitment, and a strong team.
Would you say the pandemic paved the way for a larger interest in green buildings? How did COVID affect sustainability in the real estate sector?
People really became more conscious and sensitive to health and well-being due to the pandemic. I think that’s one of the things that helped our advocacy for green building because better health and well-being are some of the major things that green buildings provide. People are now starting to realize that the benefits of green building go far beyond marketing position, business, and the environment.
We always say that green buildings are good for the people who live, work, and play in them.
People who will come into your space such as customers or guests are likely to be healthier and more well as compared to those who will step into a non-green building. The only thing you have to do as a developer is demonstrate the benefits properly so that the importance of green buildings will resonate with your users and hopefully attract a larger market.
Apart from the rise of sustainability, was there anything in your industry that the pandemic pushed into existence?
Digital transformation was definitely a trend that grew further during the pandemic. Businesses were forced to adapt technology and digital strategies in order for them to perform and operate well during the crisis. It really forced companies and industry players to look carefully at how technology can advance our businesses—how it can make our buildings safer, improve the user experience, and help organizations become more efficient. It was one of the things that helped us stay and be more resilient and effective as an industry. I believe this is a trend that will continue and grow moving forward.
What real estate trends are you hoping to see in 2023? What are your hopes for the industry in the coming year?
NEO is one of the leading real estate companies committed to Net Zero. We believe that decarbonization is one of the greatest challenges of our time. 40% of greenhouse gas emissions come from the real estate and construction sector.
My big hope is that developers, managers, and owners can also establish ambitious Net Zero goals so we can move towards decarbonization. If we’re not able to move toward this, we’re really going to hit that no-return point in terms of the global rise in temperatures. It will affect our children and our children’s children. Let’s stop talking and talking and making all these presentations. Let us make specific commitments and take concrete actions towards becoming Net Zero and start decarbonizing the industry.
Your commitment to sustainability really shows as you spend a lot of your time working towards your goals and encouraging others to do the same. Were you able to have some downtime this year? What personal goals have you set for 2023?
Honestly, I wasn’t able to have that much downtime this year. I was able to take a few trips, so I am thankful I got to somehow travel.
I want 2023 to be a year of focus. I believe I’ve spread myself quite thinly this year by trying to do so many things and saying yes to too many things. My personal hope is that I find a bit more balance by really looking at and being more selective about where I spend my time, energy, and effort.
Glad to hear that you are planning to take more breaks this year! What other realizations did 2022 bring? What was the biggest lesson you are taking with you into the new year?
Recently, one of my friends randomly asked me at a Christmas party, “What are you most grateful for this year?” I told her that what I am most grateful for this 2022 is that I really found my faith in God again.
When I was young, I had a very strong relationship with God and I was a lot more spiritual. Maybe the growing up and getting caught up in a few things was where I lost track. For a few years, I felt like there was a part of my life that was empty or missing, but rediscovering my faith this 2022 just made things more beautiful.
I believe that holding on to this faith will help me continue to see the silver lining in things, be more positive and creative, and hopefully help me deliver more impact.