There’s no doubt that the Philippines is a rising property investment destination in the region. Foreign developers have expressed interest in investing in the country and some Japanese firms have already partnered with Philippine developers for the development of massive horizontal projects. The Philippines is gradually recovering from the debilitating effects of the pandemic and this economic rebound is buoyed by the country’s young demographics. We continue to be one of the prime spots for outsourcing operations while improving infrastructure networks and industrial segments are likely to support the Philippines’ long-run economic growth prospects. This piece takes a deep dive into the factors that we see sustaining the Philippine property’s luster over the medium to long term.
One of Southeast Asia’s fastest-growing economies
The Philippine economy grew by 5.7% in Q1 2024, faster than the 5.5% in Q4 2023 but slower than the 6.4% recorded a year ago. The latest print is lower than analysts’ expectations of a 5.9% growth for the quarter. The Philippines remains the fastest-growing economy in Southeast Asia.
The country continues to benefit from strong personal consumption and stable inflows from Filipinos working abroad. Household consumption, which accounted for 75% of the country’s economy in Q1 2024, posted a growth of 4.6%, the slowest in 14 years (excluding pandemic years). Personal consumption continues to be weighed down by high inflation and interest rates.
Despite this, we still see formidable forecasts for the Philippine economy. The challenge is how to make economic growth more inclusive to make sure that more Filipinos benefit from the expansion of the country’s economic output.
Demographic sweet spot
The Philippines enjoys having a demographic sweet spot, i.e. having a greater fraction of the population working and actively contributing to the economy. This also ensures that the country remains attractive to outsourcing firms (major occupiers of office space) and that there’s either a budding or dominant demand driver for the country’s residential and retail sectors, respectively.
The Philippines’ average age is 25. This young and mobile workforce continues to actively contribute to the country’s dynamic economy. With rising purchasing power and disposable incomes, foreign retailers continue to consider the Philippines as their next investment destination, opening brick-and-mortar retail shops in busy commercial districts. Even Philippine-based developers are actively targeting the country’s young workforce and continue to promote the live-work-play-shop lifestyle to the country’s young employees.
Improving infrastructure backbone
The Marcos administration has allotted PHP1.47 trillion (USD25.2 billion) for infrastructure spending in 2024, higher than the PHP1.2 trillion (USD20.6 billion) spent in 2023. Total infrastructure spending in 2023 was equivalent to 5.8% of the country’s Gross Domestic Product (GDP), higher than the spending average of about 2.3% from 2001 to 2016 or during the Arroyo and Aquino administrations. The government has committed to spend about 5%-6% of its GDP on infrastructure from 2024 to 2025. The National Economic Development Authority (NEDA), under the Build-Better-More (BBM) program has also identified 185 Infrastructure Flagship Projects (IFPs) valued at PHP9.1 trillion (USD156 billion). As of the end of 2023, 74 IFPs are already being implemented, 83 are undergoing project preparation, 30 have been approved for implementation and 10 are awaiting government approval.
Colliers believes that it’s the real estate sector that will hugely benefit from increasing infrastructure allocation as the government fulfills its promise to ‘build, better, more.’
Expanding BPO sector
The Metro Manila office vacancy continued to avert the 20% level vacancy amid new supply and space surrenders from non-renewals and rightsizing of notable occupiers. Net office take-up during the first quarter of 2024 tripled compared to the same period in 2023.
As Colliers previously highlighted, traditional and outsourcing occupiers remain to be stable demand drivers in the capital region. As of the end of Q1 2024, office deals closed across Metro Manila reached 240,100 sq metres (2.6 million sq feet), up 88% from the 128,400 sq metres (1.4 million sq feet) recorded a year ago. Traditional firms accounted for nearly half (44%) of the total transactions followed by outsourcing companies (33%) and POGOs (23%). More than half of the deals were expansions and new setups.
Meanwhile, office hubs outside Metro Manila posted better YoY performance in terms of transactions as outsourcing firms continue to set up shop and expand their physical office space. Provincial transactions leaped by 81% to 51,700 sq metres (556,500 sq feet) from only 28,500 sq metres in Q1 2023. (306,700 sq feet) a year ago. Cebu accounted for 35% of total provincial transactions followed by Pampanga (17%) Davao (15%), Iloilo (13%), and Bacolod (12%). Among the notable transactions recorded outside of Metro Manila for Q1 2024 were deals from Foundever, Optum, Telus, KMC Solutions, and Everise.
The Philippines continues to be an attractive site for outsourcing destinations. But challenges persist. These include upskilling the current outsourcing workforce to enable them to handle higher-value outsourcing jobs such as health information management, software engineering, legal transcription, etc. The Philippines needs to sustain its competitive edge in the global outsourcing scene as the sector is already one of the major dollar revenue generators of the Philippine economy.
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(To be continued)
