We knew our property sector was in an unsustainable situation. It was in a bubble dependent on POGOs and speculative money of the elite. They knew they were on borrowed time, but the cash flowing in was too good to ignore… bahala na.
They also kept on building malls. No one asked the question: how many malls do we really need? COVID gave us the answer. Not as many as we now have.
Today, the reaction of netizens on Twitter and Facebook to the sad news about our property sector is one of glee. “It’s about time the Filipinos get some wins,” one netizen posted.
Indeed, real people will benefit from lower rents and lower condo unit prices. More than that, developers may start having more social responsibility and start serving the real need of people for affordable housing that has been unattended for too long.
The exodus of online casinos from Manila has been blamed for emptying residential towers, pulling rents lower. The managing director of property broker KMC Savills was quoted by Bloomberg as saying “next year could be worse,” as they are seeing “entire residential towers emptied out.”
Colliers, another property consultant, noted the worsening problem of mall owners.
“Consumer demand is unlikely to recover for the remainder of 2020. The fourth quarter is traditionally a strong period for retail spending in the Philippines, but slower remittance inflows from overseas Filipinos, rising unemployment, decreased disbursement of employees’ holiday bonuses, and a generally bleak consumer sentiment based on the central bank’s latest survey indicate that retail spending is likely to languish by the end of 2020, which may even persist into H1 2021.”
Given a bleak retail landscape, Colliers projects a 10 percent decline in rents in 2020. This is deeper than the 7.3 percent drop in 2009, during the Global Financial Crisis (GFC). “We see average rents declining by another two percent in 2021 before a slow rebound (+one percent) starting 2022.”
Colliers sees more retail outlets in malls closing in the next six to 12 months as retailers maximize online platforms and rationalize brick and mortar space occupied. A number of footwear and clothing brands have closed their physical mall space, Colliers reports, as they fully migrate to online selling.
Colliers reports that based on their mall scan across Metro Manila, non-essential retailers like footwear and clothing stores, cinemas, fitness gyms, and family entertainment centers have borne the brunt of social and physical distancing protocols, while essential retailers such as supermarkets, pharmacies, and home improvement shops experienced little to no decline in sales.
What to do with vacant mall space? Colliers recommends that “landlords seeing rising vacancies in their malls should explore the viability of converting these vacant spaces into flexible workspaces. This is crucial given that malls are near residential communities and this arrangement should significantly reduce employees’ commuting time.”
This is in line with the other recommendation of Colliers for landlords to expand their options by offering available office space in non-core locations where tenants can avail themselves of rents about 20 to 30 percent cheaper than major business districts.
“This is important especially for companies planning to implement a hub-and-spoke model wherein occupiers reduce the reliance of a single headquarters location for a more dispersed occupancy strategy.
“This also enables firms to reduce real estate costs by shrinking headquarter location and occupying smaller hubs across Metro Manila. Typically, these would be in lower cost locations and would allow companies to access talent in alternative locations. Colliers believes that this arrangement improves work-life balance of employees and reduces living expenses.”
KMC also saw “massive losses” in the office market as the pandemic shut many businesses. Metro Manila’s occupancy deteriorated for the second consecutive quarter and the incoming pipeline will continue to add pressure, KMC’s report said.
As for the residential sector, Colliers reports that “the percentage of households that plan on buying properties in the next 12 months also plummeted to a record-low 3.3 percent…” People are worried about sudden unemployment and reduced incomes. As more businesses close, that will likely contribute to a gloomy sentiment in the residential market.
They noted a slowdown in demand from foreign employees, causing rents to drop by 7.7 percent this year before a slow recovery starting H2 2021.
“Colliers Philippines has observed that several expatriates have pre-terminated leasing contracts as they cannot go back to the Philippines due to global travel bans. Some foreign teachers had to stay in their home countries as international schools have implemented online learning.”
Are the COVID-induced changes permanent?
The thought is probably too gloomy for the industry, but yes, some of the changes will likely be permanent.
Work from home or work location hubs closer to home will likely be here for good. Even in the US, major tech companies are contemplating making WFH permanent, or at least offer it as a choice for employees.
Online shopping will also continue to make current brick and mortar malls less relevant to shoppers. You can see that happening now in many US cities. Even the big department stores as anchor tenants are closing shops.
Mall owners will be challenged to repurpose vacant mall spaces. I have read of some US malls converted to churches, community hospitals, mini warehouses, and even apartment complexes and homeless shelters. A former Sears at a mall in Idaho had been repurposed as a public school.
It might be different here because the malls have served as public plazas and entertainment centers pre-COVID. We will know if malls can recover past roles once we exit the pandemic and big screen movie houses are back in business.
Maybe, smaller sized malls that can have tenants offering grooming services, medical and dental clinics, and of course, restaurants will remain viable. Social distancing habits may become so much a part of us that we will think twice before going to a mall to shop.
On the whole, bursting the unsustainable property bubble may hopefully make big business focus on what we really need. POGOs come and go, but the housing needs of most Filipinos cry out for attention. —BOO CHANCO
