Colliers International Philippines organized a webinar on April 29 to present updates on the Philippine property market. Close to 500 stakeholders from the property sector dialed in. Our data-supported insights and recommendations on office, residential and retail sectors were discussed, followed by an interactive Q&A.
There’s so much concern about the office market these days. Are we going back to normal after the enhanced community quarantine (ECQ)? Will we see the traditional office set up thriving despite social distancing measures? Or will there be a new demand driver in the market? Will occupiers’ preferences shift in the next few months and how will this affect the absorption of traditional office space? Will the demand for flexible workspaces and data centers grow following the implementation of split office operations and work-from-home arrangements?
Office vacancy
Colliers sees higher office vacancy in 2020 due to a slowdown in leasing activities following the adverse impacts of the pandemic and lockdown in Luzon. Economic analysts are looking at a slower economic expansion in 2020—some even projecting a contraction. This is likely to affect office space take up across Metro Manila.
While we want to see a faster recovery in 2021, most economists already ruled out the possibility of achieving a V-shaped growth. As I mentioned in my previous article, an interesting point of discussion has been the projected pace of growth after the pandemic. Unfortunately, most forecasts now point to a slower growth trajectory or a U-shaped one.
These economic growth estimates play an important role in projecting the Metro Manila office vacancy for 2020.
Colliers saw vacancy even declining to 4.1 percent in the first quarter of 2020 from 4.3 percent in the last quarter of 2019. This can be attributed to the lower supply recorded in the first three months of the year at about 93,200 sqm as against a net takeup of 116,100 sqm.We believe that we are likely to see the full effect of the ECQ and the pandemic for the remainder of 2020. Hence, we expect vacancy to start rising in the second quarter. Our office vacancy forecast for 2020 range from 5.5 to 7 percent.
Data from Colliers showed that a mix of traditional, flexible workspace operators and outsourcing tenants took up space from January to March 2020. This is an interesting feature of the Metro Manila office market: demand is coming from three major segments namely outsourcing, offshore gaming and traditional occupiers. Other demand drivers could fill the void left by one sector.
The problem is that this pandemic has been affecting all demand drivers, making it more difficult to project recovery in terms of space absorption. Note that it took outsourcing firms around six to nine months after the global financial crisis before they started occupying new space.
Infrastructure as a game changer?
Another interesting point raised during the Q&A was the need for firms to consider locating outside Metro Manila as part of their business continuity plans. In expanding outside the capital region, one key consideration is the availability of quality infrastructure.
Incidentally, among the topics raised during our webinar was the continued implementation of the infrastructure projects despite the COVID-19 pandemic.
In our opinion, this infrastructure spending to be led by the government and the private players will play a crucial role not just in keeping the Philippine economy afloat but also in stoking the property sector. A more aggressive cooperation with private developers and contractors should ensure steady implementation of these projects as the government is now focused on providing relief to the most vulnerable segments of the population.
As I mentioned in our previous reports, the infrastructure projects due to be completed from 2022 to 2025 will help dictate developer strategies.
The delivery of key infrastructure projects nationwide has provided access to properties that could be redeveloped into mixed commercial, residential, and industrial estates. These projects also helped the government bring economic opportunities in areas outside the country’s capital and should help prop up land and property values across the country. Also important to note is that aside from low interest rates and mortgage rates, these toll roads, railways, and airports are likely to support the expansion of business activities once the pandemic wanes and as the market shifts gears for an accelerated growth. These projects also play an important role in helping the national government fulfill its Balik Probinsya or decentralization program.
What’s next for condominiums and malls?
Among the common concerns on other property markets such as residential include the softening of demand and rents; slower launches and take-up; price and rent correction; and the price segment that is most vulnerable to price correction. How do developers intend to sell or lease out their completed units amidst uncertainties in the market?
For mall operators and retailers, how will they respond to social distancing post-lockdown? How should retailers capture the greater demand for home deliveries? Which segments are likely to thrive during this pandemic and which are likely to be affected by softer household consumption?
How should developers and investors re-calibrate? Will they innovate? Or just evaporate?
(To be continued.)