Philippine property sector in the time of COVID-19
This is the second part of my piece on the COVID-19’s impact on the Philippine property sector. Last week, I discussed this global health scare’s potential impact on the hotel and office sectors. For this week, let me discuss impact on the residential and retail segments.
Over the past few years, we have seen a healthy Metro Manila residential market. In the pre-selling segment, we saw an annual average of 41,000 units launched from 2016 to 2019 with a yearly average of about 50,000 units bought in the pre-selling market. In 2018, we saw a record high take-up in the Metro Manila pre-selling market of about 57,000 units. Even in the secondary market, which covers condominium units either for resale or lease, the demand has been pretty strong. This is the major reason why vacancy in the secondary market hovered between 10 percent and 12 percent during the period despite the substantial completion of new units, especially in the Bay Area.
Precarious environmentBut given the precarious global and domestic macroeconomic environments, we might see slower launches and pre-selling in the Metro Manila market in the next 12 months.
Based on various developers’ construction schedules as of the fourth quarter of 2019, Colliers Philippines sees the completion of about 14,000 units in key districts in Metro Manila this year. An estimated 79 percent, or about 11,000 units, will likely be in the Bay Area. These were already sold and developers were able to book these at their peak prices. The concern is on the secondary lease and re-sale market, especially in certain sub-markets where the demand has primarily been driven by Philippine offshore gaming operators (Pogos). If prices soften, developers are likely to stop launching.
In the event that the COVID-19 situation worsens, we project a drop in demand and slowdown in take-up in selected business districts in Metro Manila. Factoring in a slower demand from Chinese investors especially in business districts where demand is mainly Pogo-driven, Colliers sees Metro Manila vacancy in the secondary residential market rising to anywhere between 16 percent and 18 percent in 2020 from 11 percent in 2019.
How to respond
Colliers Philippines initially noted that the pent-up demand and a low interest rate environment should sustain residential demand, especially if business activities rebound by the second half of 2020. But overall, demand and prices could be challenged by the possibility of a longer-term disruption due to the COVID-19 pandemic and a possible increase in unemployment.
So how should residential developers and investors/end-users respond?
Developers should consider offering more flexible packages or terms to attract buyers. Now is the opportune time to think of and introduce creative lease models. This is particularly important for developers with a large number of ready-for-occupancy (RFO) units. They also need to highlight property management as it is crucial to the health and safety of the building. As a start, they should consider hiring globally-recognized property management companies.
Meanwhile, end-users and investors should now cash in on increased opportunities to negotiate better pricing for both pre-selling and secondary projects. Investors, young professionals, and early nesters should explore condominium units in sub-markets where there is still potential for capital value appreciation and where previous price increases were influenced by strong end-user demand.
The retail sector has also been facing a testy environment. Malls were closed indefinitely due to the pandemic.
Even before the closure, Colliers Philippines noted that luxury retail was likely to feel the immediate pinch due to the decline in tourist arrivals, especially those coming from China and South Korea—the Philippines’ two biggest markets. This, of course, has been exacerbated by the imposition of the enhanced community quarantine for the entire Luzon.
With the projected slowdown in economic activities (as the government is now projecting a 5.5 percent to 6.5 percent GDP growth from the initial estimate of 6.5 percent to 7.5 percent), domestic consumption is likely to weaken in the near term. Demand could be dependent on any alleviation measure or stimulus package that will be rolled out by the government to pump the Philippine economy. For now however, the major beneficiaries will likely be the retailers of essential items such as food, medicines and sanitation products. Online retailers including those with F&B deliveries and pharmacies should benefit during this period.
Colliers Philippines believes that for mall tenants, this is an opportunity to revisit their strategies and further explore the implementation of online-to-offline strategy. The clicks should complement the bricks. In our opinion, smaller tenants should maximize their tie up with online selling platforms of mall operators and target senior citizens who are starting to embrace online shopping. Mall operators and tenants should also start lining up marketing efforts to recapture demand after the COVID-19 crisis passes.
We believe that landlords should provide short-term rental relief measures (rent-free concessions) to support retailers. It’s good to note that a major mall operator has already implemented this. Once the malls reopen, they should ensure hygiene standards in the shopping malls through good ventilation and sterilization.
Meanwhile, how has COVID-19 affected other markets across Asia? I culled the following from the reports of my colleagues from various Colliers offices in the region, as stated in our latest report titled, “COVID-19: Impact on APAC Occupier Property Markets.”
In China, firms are already seeing a decline in business activity due to COVID-19. However, certain sectors such as online shopping, online education, pharmaceuticals and healthcare are little affected, or may even be achieving sales growth. Singapore has seen modest impact from COVID-19, although occupiers have introduced work-from-home and split operation arrangements. Colliers expects occupiers to take a long-term view of their focus on accelerated technology adoption, wellness certified buildings as well as flex-and-core strategy or split office locations. In Japan, the impact of COVID-19 has been limited so far, particularly in the office market. In the meantime, Tokyo and other cities across the country are experiencing low vacancy rates and increasing office rents.
Back to Philippine property, clearly there is some uncertainty. Colliers cautions that certain sectors may continue to be affected by the pandemic long after the other segments have started to recover.
The Inquirer Foundation supports our healthcare frontliners and is still accepting cash donations to be deposited at Banco de Oro (BDO) current account #007960018860 or donate through PayMaya using this link .
Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.