The state of real estate
Conducting webinars is now part of the new normal. On April 8, the Philippine Daily Inquirer conducted a webinar entitled “The State of Real Estate”. I had a great time sharing the platform with Prof. Enrique Soriano, Inquirer Property Section editor Tek Samaniego and Icon Executive Search managing director Patt Soyao.
It was also an opportunity to present the preliminary findings of Colliers Philippines on the impact of the pandemic on the Philippine property landscape. At Colliers, we do not just report what we see on the ground—we also provide data-supported insights and recommendations.
An interesting discussion even after the Inquirer webinar is the pace of recovery that we will see after 2020. The government’s economic departments as well as multilateral agencies and credit rating firms are one in saying that the economy will significantly slow down in 2020. But projections on the pace of rebound after 12 months differ. The common question is, will it be a V-shaped or a U-shaped recovery?
The National Economic and Development Authority (Neda) is looking at negative 0.6 percent to 4.3 percent growth in 2020 due to the COVID-19 pandemic. The Finance department is looking at a “zero to possibly negative 0.8 percent” economic growth. Meanwhile, the Asian Development Bank is projecting a 2 percent GDP growth this year, slower than its initial 6.2 percent forecast, but a faster one in 2021 at 6.5 percent.
Testy 2020 for residential
Another interesting point during the webinar was the pace of deceleration and acceleration of residential prices during the last two major economic debacles—the Asian financial crisis in 1998 to 1999 and the global financial crisis (GFC) from 2008 to 2009.
Historical data from Colliers Philippines showed that residential condominium prices fell by 14 percent in 1998, and by 9 percent in 1999 before accelerating by 24 percent in 2000. The decline was softer during the GFC when prices dropped by 2 percent before rising by 2 percent in 2010.
Colliers sees residential demand in Metro Manila softening in 2020 due to the adverse impact of the COVID-19 pandemic. If the virus is contained in the first half, we may see market sentiment improving starting the third quarter and a recovery in demand and supply in 2021. Among the major concerns for the residential sector are unemployment, business and consumer confidence, and OFW remittance inflows. On the supply side, the work stoppage due to enhanced community quarantine (ECQ) will delay project completions.
As mentioned during the webinar, now is the right time for developers to touch base with their clients. In our opinion, proactive developers are likely to stand out when the pandemic wanes, similar to those who stood out after the Asian and global financial crises. For developers, they should still highlight their property management measures, preparedness and sanitation measures to avoid viral infection and transmission.
We encourage developers with substantial supply of ready-for-occupancy (RFO) units to explore more creative leasing schemes. In our opinion, developers should explore leasing out condominiums as shared units for business process outsourcing (BPO) employees, as living in dorms near their workplaces has become an integral part of companies’ business continuity plans. This should complement our projected rise in co-working facilities as we cope with the new norm.
Developers with township projects should also highlight the convenience of being in an integrated community. Will it be easier for unit owners to buy their essentials? Does the integrated community have a clinic? Given the new normal we are seeing now and the social distancing measures being strictly implemented, these are going to be among the primary concerns of unit owners moving forward.
Office: Coping with the new normal
Colliers sees higher office vacancy in 2020 due to a slowdown in leasing activities following the pandemic and lockdown in Luzon. Economic analysts are expecting a recovery in 2021 and this should support expansion of business activities and leasing deals.
Another topic I raised for the office segment was that the government’s directive to implement alternative work schemes should encourage occupiers to accelerate the adoption of modern technology. In our opinion, firms should effectively communicate cloud computing strategies to their employees to minimize disruptions from the abrupt switch to remote working. Tenants should also consider implementing a flex-and-core strategy or a mix of traditional and flexible workspaces. With some occupiers wary of closing long-term deals, we see the viability of leasing out a seat or two in a co-working space.
Also, the pandemic highlights the need for businesses to revisit their business continuity plans. Aside from adopting modern technology and implementing a flex-and-core strategy, tenants should also scout for viable alternative sites outside Metro Manila or Luzon to diversify operations and mitigate work stoppage. Tenants may consider Cebu, Iloilo, Bacolod, and Davao.
From the bitter experience of the Asian financial crisis, Philippine developers learned the necessity to turn off the supply tap quickly. This was demonstrated after the global financial crisis during which supply dropped to about 203,000 sqm in 2010 from 478,000 sqm in 2008 and 541,800 sqm in 2009.
Even with a less diversified office market in 2010, the Metro Manila office sector turned around quickly post-crisis, posting a 5.6 percent vacancy in 2010 from 8.6 percent in 2009, the highest recorded since the global economic meltdown.
More brick-to-click strategies
Malls felt the immediate pinch from the government’s imposition of an ECQ in Luzon and social distancing measures due to the COVID-19 pandemic. The ECQ forced malls to close with only the stores supplying essential items such as groceries, medicines and food for delivery being exempted.
Colliers believes that social distancing will likely be part of the new normal even if the government lifts the ECQ on May 1. Hence, a significant number of retail shops are still likely to be closed by then. But these brick-and-mortar retailers may tap the demand by expanding their online presence. Retailers may create their own e-commerce sites, utilize existing sites of major mall operators, or use popular social media platforms such as Facebook and Instagram.
In our opinion, the recovery of the property sector in 2021 hinges on the pace of expansion of Philippine and global economies.
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