Bright spots, opportunities for property sector’s journey to recovery

It may be difficult to look past the bleak conditions.

As the COVID-19 pandemic and the ensuing stringent lockdowns slid the Philippines into a recession, caused a sharp drop in the second quarter GDP to 16.5-percent (said to be the steepest slump since 1981), triggered massive layoffs and permanent business closures, and had brought many key industries to their knees, some quarters are now forecasting an economic contraction of as much as 6.8 percent this year, a deeper recession than the government’s projection of 4.4 to 6.6 percent. No one could have predicted that this health crisis would wreak such havoc of this magnitude on people’s lives and economies.

Amid lingering uncertainties, both the public and private sectors are now being challenged to reimagine an economy in a post-pandemic era, come up with innovative solutions, as well as take bold steps to rebuild and recover from the slump. Some industries, however, are fortunate to have a silver lining—bright spots that could open up new opportunities for recovery and growth.

In Philippine real estate for instance, a number of industry developments had led to such opportunities that property developers, mall owners and hotel operators may tap to give their respective businesses a much needed shot in the arm.

Demand for essentials

Developers of industrial space may capitalize on the surging demand for essential items including food, beverages, medical and other household products. How so? Although there is an expected muted space absorption by electronics and semiconductor companies due to the global crisis, manufacturers of essential items are likely to expand and lead industrial space take up in 2020 and 2021, Colliers International Philippines said in its latest report.

Colliers thus urges developers to modernize warehouses, adding that “increased investments in modern warehouses are likely to benefit industrial parks in the CALABA (Cavite-Laguna-Batangas) and Pampanga-Bataan corridors especially those that house manufacturers of essential items including food and medical devices and supplies. In our opinion, more modern warehouses are likely to be needed as manufacturing investments pledged in the past six to 12 months translate into space requirements.”

E-commerce, deliveries

Modernizing warehouses and industrial spaces will also enable developers to capture the growing demand for e-commerce and logistics requirements. E-commerce adoption in the Philippines has been hastened primarily by the stringent lockdowns imposed by the government starting mid-March as most people, who were either forced to stay at home, eventually turned to online shops to procure their essentials.

JLL Philippines’ latest research showed that the logistics industry is poised to grow by 160,000 sqm annually in the next 10 years, driven mostly by e-commerce firms and third-party logistics requiring high-specification warehouses. As of end March, the country’s existing logistics stock stood at 1.7 million sqm, with about 424,000 sqm scheduled for completion through 2021.

Colliers added that as e-commerce and deliveries continue to thrive, warehouse lease rates may also grow by 4.8 percent annually from 2021 to 2022, faster than the 4.6 percent yearly growth that it projected for land leasehold.

Repurposed facilities

The hotel sector is one of the worst hit by the pandemic due to travel bans and restrictions imposed globally. But while occupancy rates have dwindled to record lows, hotel operators still have a number of options to optimize their spaces and services.

“Colliers believes that hotel operators should be more agile given the anemic demand brought about by the pandemic and the global economic crunch. In our opinion, some hotel operators should consider other leasing models and repurpose their facilities into co-living facilities and flexible workspaces. These schemes, however, should comply with the government-mandated physical distancing measures,” Colliers said in its latest report.

Some of the biggest hotel operators in the country have in fact started to pivot to co-living and flexible workspace, while opening up their dining outlets for deliveries of both prepared dishes and food kits, which would allow buyers to cook hotel food in the comfort of their homes.

REIT timing

The commencement of the REIT market in the country was said to be well-timed and a much-needed development, according to JLL Philippines. REIT refers to a company that owns and manages income-generating assets or real estate like apartments, offices, malls, warehouses, and hotels.

“We believe REITs are one of the country’s future bright spots and will play an important role in jumpstarting the economy from the adverse effects of the pandemic and will promote growth in the real estate sector. This will provide a cheap funding source for developers, raising fresh capital for finance future projects, which in turn will ramp up construction activities and employment,” said Janlo de los Reyes, JLL Philippines head of research and consultancy.

So while the short-term prospects for Philippine REITs may be weighed down by weaker than expected economic and real estate performance, JLL said the medium- to long-term outlook suggests a huge potential to transform the real estate landscape.

Mixed use communities

Never has the concept of townships, estates or integrated communities been as important as they are today as the recent pandemic highlighted the need for accessibility and proximity to essential shops, key institutions and other establishments. The rising demand for this concept is by all means a low hanging fruit for developers who have been creating such projects even prior to the COVID-19 outbreak.

“Colliers recommends that developers highlight projects that are within integrated communities. In our opinion, the pandemic has further emphasized the need to be in an integrated community where unit owners can easily access essential goods and services. We encourage developers to highlight the integrated features of their residential projects as this is likely to be among the major considerations of unit owners post-lockdown and COVID-19 pandemic. Developers should continue to highlight the sanitation and property management procedures implemented within their projects,” Colliers explained.