Property sector seen to stay in a slump in 2021

Metro Manila’s office, residential and shopping mall landlords must brace for further rise in vacancy rates and declining rental rates this year as the prolonged coronavirus (COVID-19) pandemic continues to limit economic activities.

The office and residential sectors are seen to start improving only in 2022, to be supported by the rollout of the COVID-19 vaccination program to the general population.

This is according to property consulting firm Colliers Philippines, which projected that vacancy rate for the residential property sector in the metropolis would hit a record-high of 17.2 percent by the end of this year. This is higher than the 8.4 percent vacancy rate during the Asian currency crisis. In the first quarter of 2021, vacancy rate hit 16.3 percent.

Vacancy rate at shopping malls is seen to rise to 16 percent this year, close to the record high of 19 percent seen in 2001. The rate last year stood at 12.5 percent and further rose to 14 percent in the first quarter of this year.

Pretermination of contracts

Office vacancy rate is projected to reach 12.5 percent this year from only 4.1 percent in the first quarter of 2020, when the pandemic was just unfolding, as existing tenants continue to rationalize office space by not renewing unused units and exercising pretermination option.

In the first quarter of this year, vacancy rate was at 11 percent, weighed down by the slow down in take-up of the once high-flying Philippine online gaming operators.

“While we have seen quarter on quarter improvements, clearly we are not out of the woods yet so payment terms and rental will have to be flexible,” Colliers managing director Richard Raymundo said in a briefing on Friday.

Prices softening, not crashing

Property prices are likewise softening, but not crashing as what was seen during the Asian crisis, Raymundo noted, adding that the major difference this time around was that interest rates were at record low across the globe, unlike during the Asian crisis when monetary policy was tightened to address sharp currency devaluations.

In the residential sector, Colliers associate director Joey Bondoc said the pandemic continued to hamper residential demand in both the presale and secondary markets. Colliers projects take-up to be driven by mid-income- to-luxury projects over the next 12 to 24 months.

In the first quarter of 2021, residential prices and rents declined further by 2.5 percent and 1.6 percent, respectively. Colliers expects further correction this year, albeit at a slower rate, after the significant drop recorded in 2020, when prices and rents decreased by 13.2 percent and 7.8 percent, respectively.

“Starting 2022, the pace of growth for prices and rents is expected to reach 1.5 percent and 1.7 percent, respectively, due to the government’s vaccine roll out and a rebound in office space absorption,” Bondoc said.

Prior to the pandemic, the average rise in prices reached 13.9 percent yearly from 2015 to 2019.

Due to the impact of COVID-19 on the leasing market, Colliers said tenants were putting housing requirements on hold. Given the current leasing market situation, selected landlords are now offering discounts of 20 to 25 percent, particularly in condominium developments with higher vacancies, including those in the Bay Area. Aside from discounts, some tenants have also started asking for additional concessions such as discounted maintenance fees. In the office sector, Colliers director Dom Fredrick Andaya reported that the industry had seen the highest transaction level in the first quarter of 2021 since the lockdown began last year. However, the resurgence in COVID-19 cases halted the rise.

“In our view, Metro Manila’s office market demand recovery hinges on the pace of the COVID-19 vaccination program. Increasing vaccinations should reduce the number of COVID cases and bolster confidence for companies to return to the office,” he said.

Office rents on average declined by 3.7 percent quarter on quarter in the first quarter. For the full year, Colliers sees office rents dropping by 15 percent before a slow recovery in 2022.

In the retail sector, Colliers projects shopping mall rents to decline by another 5 percent this 2021, more than its previous forecast of a 2 percent drop, but still a slight improvement from the 10 percent correction in 2020. It sees shopping mall rents slowly recovering by about 1 percent starting in 2023.