The Philippine economy grew slower than expected (4.3 percent) in Q2 2023.
With the subpar expansion, reaching the growth target of more than six percent in 2023 will likely be a challenge.
In the third quarter, GDP expanded by 5.9 percent, above the previous quarter’s 4.3 percent.
The Philippine central bank’s monetary board has raised the basic policy rate to 6.5 percent on October 27 from 6.25 percent.
This is likely to raise mortgage rates imposed by banks and affect the overall appetite for residential units.
Asset classes that generate recurring income including retail and hotel are benefiting from a personal consumption-backed economic rebound. Developers should now take a closer look at various property segments and identify which sectors to focus on. Specific property sub sectors continue to outperform other subsegments.
Colliers believes that economic growth for the remainder of the year will likely be led by personal consumption and this should further prop up retail and hotel segments.
Greater office space take up will partly hinge on business expansions within and outside Metro Manila while residential demand will partly depend on remittances sent home by Filipinos working abroad as well as investors’ overall appetite for the upscale and luxury residential developments.
There are several opportunities in the market despite some persistent headwinds.
Colliers is still optimistic that property stakeholders will be able to enjoy a strong finish toward the end of 2023 as opportunities still remain for selected property segments.
Developers should be able to plan ahead to take advantage of the Philippine property sector’s growth for the long term. Property firms should be mindful of new economic policies and programs likely to be implemented by the government starting 2024 and closely observe how these will redefine the regulatory environment for Philippine property stakeholders.
Condominium leasing continues to recover across Metro Manila especially with the return of more expatriates. Local employees gradually returning to on-site work also contribute to improved leasing especially in major business districts including Makati CBD, Ortigas Center, and Fort Bonifacio.
Pre-selling demand has been recovering year-on-year, driven by the mid-income segment, but developers remain cautious of new launches especially given the substantial ready-for- occupancy (RFO) units and the elevated vacancies in the secondary market.
Colliers retains its earlier forecast that rents and prices will continue to improve for the remainder of 2023 but the substantial completion of new condominium units in 2024 will likely exert downward pressure on rents and prices next year.
Colliers has been seeing the expansion of resort or leisure-themed projects outside Metro Manila, and we project the launch of similar projects as property firms cater to a rising demand from a discerning and affluent market.
Colliers believes that to stoke the market, attractive and flexible payment terms and promos should continue to be offered by developers.
Green and sustainable features should also be integrated and highlighted as demand for these features rose at the height of the pandemic. This is also an opportune time for unit owners to upgrade and renovate to capture demand from returning expatriates.
Retail: Sustaining footfall as impact of revenge spending dissipates
The impact of revenge spending across the country is starting to dissipate so the challenge for mall operators and retailers now is to sustain footfall and consumer spending.
Colliers sees holiday-induced spending partly offsetting this projected slowdown. We are optimistic of sustained interest from retailers especially those interested to occupy brick-and-mortar mall space in prime locations across major business districts in Metro Manila. We are projecting a slight increase in vacancy starting 2024 due to substantial delivery of new mall space.
Colliers believes that mall operators and retailers should cash in on holiday spending across the country. Holiday marketing initiatives should be amplified while mall operators should use the festive season as an opportunity to reactivate activity centers and curate events to attract more mall goers and entice shoppers to spend more.
Developers with upcoming malls should carefully assess the retail mix that they will offer to consumers. While operators and retailers continue to welcome more customers in-store, both should work together in improving the omnichannel shopping experience of Filipino consumers.
Hotel: Priming the Philippines as a regional MICE hub
The reinvigorated hotel sector remains one of the most vibrant property segments in the country. Foreign arrivals are likely to breach the Tourism department’s target for 2023 while the domestic market continues to lift occupancies and daily rates.
The return of business travelers and in-person corporate events have also been propping up the demand for MICE facilities.
Colliers believes that the bolstered leisure sector will continue to expand given the record-high supply of new keys in 2023. Stakeholders should seize opportunities by building more meetings, incentives, conferences, exhibitions (MICE) facilities to maximize the return of in-person events; developing more homegrown hotel brands or acquiring foreign ones; and aligning programs and offerings with the Tourism department’s refreshed strategy.
By the end of 2023, Colliers projects average occupancy in the capital region to reach 65 percent partly driven by holiday spending as well as year-end Meetings, Incentives, Conferences and Exhibitions (MICE) activities. Metro Manila occupancy is now near pre-covid level.
In 2019, average occupancy peaked at 70 percent, before plummeting to 20 percent in 2020 due to covid disruptions arising from mobility restrictions.
In our view, the leisure sector is one property segment likely to benefit from the government’s push to improve transport infrastructure. The expansion and modernization of international and regional airports should support developers with hotel footprint across the country.
Industrial: New manufacturing locators to benefit industrial sector
The Philippines recorded record-high investment pledges in H1 2023. This is a positive for the Philippine industrial sector as these projects are likely to take up industrial space and warehouses in the next 12 to 24 months. Industrial parks in central and southern Luzon continue to entice investors and the continued expansion of developers’ industrial footprint should further boost the Philippines’ competitiveness as a manufacturing hub in Asia.
Colliers is cognizant of the government’s efforts to entice more investors. In our view, there should be a strong public-private partnership in attracting more foreign investments. Developers should assess the requirements of potential industrial locators and remain aggressive in offering concessions to raise industrial space absorption within their facilities. Industrial parks should also feature township components including residential and commercial developments. In our view, masterplanned communities that offer industrial spaces and warehouses will remain attractive given the pavement of roads, cheaper utility costs, as well as customization of warehouses and related facilities.
Meanwhile, we see Central Luzon rising as a viable alternative industrial location. Among the firms that recently announced expansion in the region include Shera Building Solutions in Teco Industrial Park in Pampanga, Envirotech in Clark Freeport Zone and StBattalion in New Clark City in Capas, Tarlac.
In our view, the modernization of the Clark International Airport and the completion of the proposed Subic-Clark Cargo Railway will likely support the expansion of industrial activities in Central Luzon. Definitely for industrial activities there is nowhere to go but up – north. Colliers believes that the expansion of industrial spaces in central and southern Luzon is a plus especially for manufacturers that are planning to open facilities in the Philippines.
This is particularly important for the foreign manufacturers that the Marcos administration is luring to open plants in the country.
Office: Flight-to-quality and sustainability dominates occupants’ leasing strategy
Metro Manila recorded a marginal rise in office vacancy due to the completion of new office buildings and spike in vacated spaces in Q3 2023. Colliers continues to record deals from traditional and outsourcing firms implementing a mix of flight to quality and flight to cost measures. For the first nine months of the year, office transactions outside Metro Manila recorded flattish growth, with Cebu, Pampanga, and Laguna cornering bulk of closed transactions. Going forward, we see greater opportunities for expansion in key areas outside Metro Manila as occupants maximize the second and their tier cities’ skilled talent pool and improving infrastructure network.
Colliers encourages occupiers to continue complementing their workplace strategies with flexible workspace options. Landlords should remain active in offering high quality buildings at a discount to enable tenants to implement flight-to-quality measures.
Landlords should also continue implementing innovative programs to further support their tenants’ return-to-office (RTO) initiatives.
Based on Colliers’ Q3 2023 data, several companies implemented flight to quality/cost strategies. Among these are traditional and outsourcing firms that took up spaces in Fort Bonifacio, Makati CBD, and Ortigas CBD. These firms took advantage of a market that remains tenant-leaning and maximized the opportunity to lease new, high quality office spaces in major business districts at lower rents.
Colliers believes that given the prevailing market conditions, opportunities remain for tenants to implement flight-to-quality strategies at a lower cost due to decreased rents brought about by the pandemic. In our view, now is an opportune time to secure space in locations with substantial supply of new and quality office spaces. Given the current stock of vacant spaces and new office towers to be completed in the next 12 months, we encourage tenants to consider office spaces in Fort Bonifacio and Ortigas CBD. Occupiers may also consider flexible workspaces in their flight-to-value strategy. Colliers encourages occupiers to review their real estate strategies ahead of lease expiry to take advantage of high vacancy in the market, especially with our still elevated forecast for 2023 and 2024.
In our view, sustainable and green buildings will remain attractive especially among major multinational and outsourcing firms. These office towers will account for an estimated 56 percent of new office buildings from 2023 to 2025, further expanding the options of tenants across Metro Manila.
(To be continued)