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Colliers Review

Road to property recovery

/ 11:31 AM December 18, 2021

Bangko Sentral ng Plipinas (BSP) governor Benjamin Diokno expects the real estate market to recover next year.

In a statement, Diokno said “the real estate and construction sub-sectors have started to recover in the second quarter amid the gradual easing of restrictions on mobility and economic activity after contracting throughout 2020 and the first quarter of 2021. The BSP anticipates that activity in the real estate market will recover in line with rebound in overall economic growth in 2022.”

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Optimistic outlook

Colliers Philippines’ projection of a property recovery in 2022 is in line with the central bank’s optimistic outlook. During our Q3 2021 briefing on Oct. 29, we mentioned that we are seeing green shoots of recovery in the property market and that demand is likely to start recovering in 2022 especially for office, residential and retail segments.

In our view, the property sector’s rebound is likely to be fueled by improving vaccination, growing remittances from overseas Filipino workers (OFW), competitive mortgage rates and an economy that is likely to expand in 2022 after contracting in 2021.

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Flight-for-quality opportunities

Colliers sees a potential rebound in office space absorption in 2022, partly influenced by a more optimistic business sentiment in the next 12 months. The BSP’s Business Expectations Survey (BES) in the third quarter noted that the availability of more vaccines, easing of lockdowns, and improving economic conditions are likely to support an improvement in business activities.

Colliers believes that office leasing recovery will hinge on ramped up COVID-19 vaccination which should enable more employees to report back to their workplaces. In our view, the recovery of major economies such as the United States could play a role in sustaining demand from outsourcing firms beyond 2021.

With competitive lease rates across Metro Manila, Colliers expects more firms to move to core locations or major business districts. This trend should result in the rebound in office space absorption starting 2022.

Optimism to raise demand

Based on the Q3 2021 Consumer Expectations Survey (CES) and BSP’s BES, the overall consumer and business expectation outlook in Metro Manila continued to drop to −15.1percent and −7.9 percent, respectively. However, we see optimism in the fourth quarter with the improvement of consumer and business outlook to 7.1 percent and 33 percent, respectively. This should spill over to residential demand in 2022.

Stable OFW remittances and competitive mortgage rates should also help in boosting residential demand. OFW remittances reached 20.4 billion from January to August 2021, reflecting a 5.7 percent year-on-year growth. BSP is projecting remittances to grow by 6 percent this year from an initial forecast of 4 percent.

Meanwhile, average bank mortgage rates remain competitive at 7.2 percent as of the third quarter.

In our view, demand in both the pre-selling and secondary markets is likely to pick up on the back of an economic rebound, increase in vaccinations and further easing of mobility restrictions across the country. This confidence should also result in improved office space absorption in Metro Manila by the latter half of 2022, which should signal the gradual recovery of condominium rents and prices during the period.

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Revenge shopping, dining

Colliers also believes that the absorption of retail space is likely to hinge on business and consumers’ optimism.

In 2021, retail rents dropped by 5 percent from a 10 percent decline in 2020. However, we expect mall rents to recover slowly starting 2022 on the back of an improved vaccination program and a government-projected economic recovery, which should spur spending.

This quarter, the confidence to visit physical stores is driven by the easing of quarantine restrictions, increase in money sent home by OFWs, and rise in consumer confidence and purchasing power on the back of the disbursement of employees’ holiday bonuses.

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