Metro Manila–among the hottest real estate markets in Asia-Pacific only a few years back–has lost its luster mostly
due to restrictions on foreign participation alongside a generally more cautious sentiment on the region.
Based on the 2020 Urban Land Institute-PwC “Emerging Trends in Real Estate,” the Philippine capital region
ranked 17th out of 22 territories in Asia-Pacific in terms of investment prospects, with a “fair” score of 4.87 points.
In development prospects, Metro Manila ranked 11th place with a “fair” score of 5.08 points.
These rankings slightly improved from Metro Manila’s 19th place in both investment and development prospects in the 2019 survey.
For the 2020 outlook, Singapore topped the roster on investment prospects while HoChi Minh topped the city development prospects. In both categories, Hong Kong was the bottom- dweller amid the lingering political unrest on the island.
“Despite apparently healthy real estate markets, (Metro) Manila continues to languish near the foot of the investment sentiment tables this year, far removed from the third-place ranking in our 2017 survey. Ongoing
restrictions on foreign majority ownership of domestic real estate assets probably play a role in this, given that
office-sector vacancies remain low, rents are rising and capital values continue to grind upwards,” the ULI-PwC research said.
Over the last few years, the research pointed out that the main catalyst for the office sector in the metropolis had
been demand from Philippine offshore gaming operators (POGOs), an industry providing online gaming mostly
to gamblers in mainland mostly to gamblers in mainland China where gambling is illegal.
“Demand from POGOs represents almost 40 percent of new office takeup in the city. There have been complaints, both domestically and from the Chinese government, that the industry has come too far too fast, but it remains too important to cut loose at this point,” the research said.
The research also noted that the business process outsourcing (BPO) sector, the biggest office sector tenant, continued to grow, although at a slower pace.
The BPO sector has so far fended off threats arising from artificial intelligence–based solutions and has been buoyed by the offshoring of corporate in-house services such as human resources, finance and IT, the research said.
Meanwhile, survey sentiment toward development plays was significantly stronger this year for Metro Manila. To some extent, this reflects the reality across most emerging markets where stabilized assets are generally in short supply, the research said.
Another reason cited was that Manila offices were trading at cap rates that were probably hard for international investors to justify on a risk/return basis.
The appeal of development plays has also been boosted by the government’s “Build Build Build” infrastructure construction program, which is now on its third year, the research said. Among other things, this program is seen to open up satellite locations outside Metro Manila, a chronically overpopulated city center.
The research added that new tax policies might also encourage the translocation of BPO providers to these satellite locations.
Across the Asia-Pacific, the research said real estate continued to produce strong returns.
“But as the clock ticks down toward the end of the current cycle, caution is increasingly embedded into investor strategies.
This despite the fact that there is no clear consensus as to whether the market is near, at, or beyond its peak,” it said.