In my column in March, I mentioned that certain property sectors may likely recover ahead of other segments. One of these is the logistics sector, which has remained the most active amid the pandemic and lockdowns imposed across the Philippines.
With the imposition of a community quarantine starting mid-March, people were forced to stay and work at home, while malls and other retail establishments had to temporarily close. During this period, Metro Manila has seen a growing demand for online shopping, deliveries and consequently, warehouses. In our opinion, the demand for these services and facilities is likely to grow in the near to medium term as retailers across Metro Manila realize the need to shift from offline to online.
But even with the current easing of the lockdown in the capital region and nearby cities, consumers are still likely to limit their expenditures to the essentials such as groceries, medicines, and food and beverages (F&B) and continue to prefer deliveries.
Colliers Philippines however believes that despite the reduced mobility, observance of physical distancing and aversion towards the use of physical currency, there are opportunities that mall operators and retailers in Metro Manila can still tap—in particular, the greater demand for e-commerce, which should be supported by a robust logistics system including modern warehouses.
In our opinion, retailers in the Philippines are in a rush to blur the boundaries between online and brick-and-mortar shops. Mall operators and retailers are likely to adopt hybrid services such as “click and collect” that allow consumers to customize their shopping experience. In our view, fulfilling this thriving demand will require a more versatile logistics infrastructure.
Demand driver for warehouses
Demand for industrial warehouses is expected to rise over the next 12 to 36 months due primarily to the growing demand for e-commerce and deliveries. Colliers believes that manufacturers of essential items such as food, medical, and other household products are likely to lead industrial land and warehouse take up in 2020 and 2021. This should offset the subdued space absorption from electronics manufacturers due to the global economic slowdown.
But even prior to the COVID-19 outbreak, foreign companies have already been taking an interest in the country’s logistics sector. Data from the Philippine Statistics Authority (PSA) showed that foreign investment pledges for transportation and storage alone reached P10.9 billion, accounting for about 37 percent of the total commitments registered in the first quarter of 2020. This was amid the 36 percent drop in pledges registered with the Philippines’ investment promotion agencies to P29.4 billion during the same period. We attribute this to a weak global demand that started with the United States-China trade war and has since been exacerbated by the pandemic.
In our opinion, 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. More modern warehouses are likely to be needed as manufacturing investments pledged in the past six to 12 months translate into space requirements.
Incentives for manufacturers of essential items
Colliers also encourages manufacturers of essential needs to look at the government’s long term plans. Earlier, the Department of Trade and Industry announced it would likely focus on domestic manufacturing of food and healthcare supplies. The agency is also luring more manufacturers of electronics with higher design components and features. In our opinion, locators in industrial parks should look at the incentives that the government may provide and factor these into their expansion plans amid the pandemic.
Vacant retail spaces as micro-warehouses
Colliers sees Metro Manila retail vacancy rising from 9.8 percent in 2019 to 12 percent in 2020. In our opinion, the physical and social distancing measures in public places as well as tempered spending on non-essential items are likely to result in subdued retail space absorption. Hence, mall operators should be proactive in looking for alternative uses for vacated mall spaces. Developers should explore the viability of converting the vacant spaces into warehouses to support the rising demand for e-commerce and deliveries within Metro Manila.
Hub and spoke, flex and core
Colliers further sees retailers moving inventories closer to residential communities and business districts. Hence, we see a rise in the number of micro-warehouses that are strategically located near transportation networks and integrated communities in the capital region. This trend should also support last-mile deliveries and minimize the cost of fulfilling these. Warehouses in Metro Manila and in the North and South Luzon industrial parks should also be more open to “co-warehousing” approaches.
Colliers Philippines believes that despite the global economic downturn and market uncertainties, logistics stands out as a property segment of relative stability and opportunity. We encourage property developers to be more aggressive in responding to emerging trends and in future-proofing their assets.