Metro Manila’s real estate market was not spared from the impact of the COVID-19 pandemic.
This was seen in the weaker performance of all property segments in the third quarter of the year.
Despite the challenging outlook, Jones Lang Lasalle (JLL) emphasized that there are still bright spots in the long term.
“Overall, it’s quite a mixed bag for the overall real estate market for Metro Manila. Definitely, there’s a lot of short term downside and also, some bright spots still in some sectors,” said JLL head of research and consultancy Janlo de los Reyes.
SUBDUED LEASING FOR OFFICE
Metro Manila’s office segment faced overall subdued leasing activity due to softening demand as average vacancy rates rose to 9.5 percent in the third quarter, mainly due to vacancy by some occupiers, particularly from the Philippine Offshore Gaming Operator (POGO) sector, moving out, data from JLL’s third-quarter Metro Manila Property Market Overview showed.
Indeed, Metro’s office spaces continue to be underutilized as work-from-home (WFH) setup remained the predominant work arrangement during the period.
It added that the offshoring and outsourcing (O&O) firms continued to drive the office space market.
“However, the slowdown in leasing activities from O&O firms was evident during the quarter as WFH setup remains the preferred work arrangement during community quarantine,” JLL said.
Thus, average rent in Metro Manila slipped to P1,154 per sqm per month, falling by 1.0 percent quarter on quarter.
Apart from weaker leasing activity, the overall pre-commitment rate of office spaces also fell slightly to 24.4 percent at the end of the third quarter as potential tenants continue to hold off leasing plans as they assess space requirements in the next normal.
“We have seen entry and expansion plans put on hold. There were lease contract pre-terminations, especially in the POGO sector, as well as downsizing of offices by BPO firms as they re-evaluate their real estate portfolio,” De los Reyes said.
In terms of new supply, new office stock reached 91,300 sqm in the third quarter, bringing year-to-date project completions to 371,200 sqm.
Despite the weak third-quarter performance as well as the exodus of some POGO firms in the country, JLL still sees a bright spot in the BPO sector.
This would continue to drive demand in the long term.
“Office demand from POGO firms may remain despite ongoing tax concerns and reports of exits. We anticipate that operators that will stay are those that are keen to expand their operations in the country and lead to stable office demand moving forward,” De los Reyes said.
WFH, ONLINE SCHOOLING DRIVES RESIDENTIAL RENTAL VACANCY
Similar to the office sector, the residential market also witnessed a rise in rental vacancy to 8.2 percent in the third quarter due to weak leasing activity. This, however, was 170 basis points lower than the previous quarter.
“The City of Manila posted the highest increase as the work-from-home set-up, and online schooling have affected lease activity from students and professionals,” JLL said.
It added that corporate housing for expatriate employees who were not reassigned and halfway homes for frontliners and BPO employees were the main demand drivers for the lease residential market.
Average rent continued to decline by 2.4 percent to P40,000 per month as more units became vacant, although a slight improvement compared to the double-digit dip recorded last quarter.
In terms of residential sales, JLL said the trajectory differs for ready-for-occupancy (RFO) and pre-selling projects.
“Take-up of recently completed projects showed improvement in the third quarter due to favorable payment terms and availability,” De los Reyes said.
“Pre-selling market, on the other hand, is facing weaker demand as buyers are more cautious of their long-term spending,” he added.
Data from JLL showed that the average RFO selling price marginally grew by 0.4 percent to P181,000 per sqm relative to the previous quarter, despite the recorded strong take-up.
In contrast, the average pre-selling price dipped further by 3.2 percent quarter on quarter to P198,600 per sqm as additional pipeline units remain unsold.
Unit turnovers increased in the third quarter, adding more than 7,000 units to the total existing supply.
JLL added that about 77 percent of the 2020 supply pipeline slipped to next year due to construction activity delays.
“Supply growth direction is seen going toward Pasay City with 19 percent of total future supply. Nevertheless, the end-2023 cumulative supply projection indicates that cities of Quezon, Makati, and Taguig will still dominate the ranking,” JLL said.
RETAIL STORE CLOSURES OUTPACE OPENINGS
The retail property market was also not spared from the impact of the pandemic in the third quarter, even with the gradual easing of community quarantines.
JLL reported that the average vacancy rate increased to 6.3 percent in the third quarter as store closures outpaced store openings.
Hotels register lower occupancy as quarantine measures ease
JLL reported that the average Metro Manila occupancy rate further declined to 16 percent in the third quarter as the region transitioned to General Community Quarantine status, allowing public transportation to resume operations.
Average room rate further declined two percent q-o-q, albeit at a slower pace compared to recent quarters.
Total existing supply stood at 40,700 rooms, with no additional completions recorded in the third quarter as construction remained affected by quarantine measures.
“Some newly constructed hotels started to open their F&B component, although guests are still not welcomed in the premises,” JLL said.
Most existing developments are located in the cities of Makati, Manila and Pasay, collectively housing about 61 percent of the total existing supply.
In contrast, the upcoming supply is heavily concentrated in the cities of Quezon, Paranaque, and Pasay as developers capitalize on the growing tourism and MICE markets in these areas.
BRIGHT SPOTS ON THE HORIZON
Despite these challenges and uncertainties in the short term, JLL remains optimistic and sees bright spots that will continue to facilitate the growth of Metro Manila’s real estate landscape.
Among these bright spots are the hub-and-club model, where occupiers will maintain a head office (club) for socializations such as client meetings and town halls and expand through satellite offices (hubs), which may be closer to where employees reside.
JLL also said it also anticipates that real estate investment trusts (REITs) will continue to attract investors in the medium- to long-term and allow the country to further develop capital investments.
The property consultancy also expects the current trends to continue in the long term, such as digitization as the norm of real estate players, the rise of smart cities and townships, and the emergence of alternative asset classes such as data centers and logistics.
Banner caption: Metro Manila’s office segment faces overall subdued leasing activity due to softening demand as average vacancy rates rose to 9.5 percent in the third quarter of 2020.