Market stabilized, gained momentum despite headwinds in Q1 2022

The decline in COVID-19 positive cases and forecasted economic growth this year contributed to the improving outlook towards the end of the first quarter of 2022. While supply pressure will weigh down on recovery, greater optimism, the opening of borders and the increasing return to office can provide legs for market momentum, according to JLL Philippines.

Office

Janlo de los Reyes, head of research and strategic consulting of JLL Philippines, reported that in the office sector, there is a rebound in leasing volumes to 132,385 sqm in the first quarter of 2022 from 75,713 sqm in the fourth quarter of 2021, as occupiers push through with their planned entry and expansion.

The IT and business process outsourcing (IT-BPO) companies continue to drive leasing activity, while rental market remains stable.

Retail, residential, hospitality

There is a significant slowdown in retail activity, with store openings dropping by 94 percent compared to the previous quarter. Top categories (based on store size in sqm) for move-ins include food and beverage, toys, and general retail, while move-outs include clothing and apparel, food and beverage, and footwear.

In the residential sector, there is a dichotomy between lease and sale markets. The increasing RTO continues to drive vacancies lower, as people are moving back from the province to stay in units near their workplaces. Unit prices continue to increase for both midscale and luxury segments, but favorable payment terms for midscale ready-for-occupancy (RFO) units drive sales take-up.

Meanwhile, sustained leisure and pent-up business travel buoy occupancy in the hospitality sector. Leisure hotels registered higher occupancy than mixed-use and quarantine hotels.

Room rates are now 5.8 percent higher than the previous quarter, but still below pre-pandemic levels. The luxury room segment has the highest lift, now averaging P14,277 per room per night, which is close to the segment’s pre-pandemic rate of P15,269 per room per night.

Logistics

In this segment, an annual rental growth of 2.1 percent was recorded in the Asia Pacific Region, and 3 percent for Southeast Asia alone. Across all markets, modern stock is the focus of occupiers as they try to modernize their portfolios.

“E-commerce and logistics companies remain key sources of demand in Southeast Asia,” said Charlie McNaught, JLL Philippines director for logistics. “To improve their efficiency, supply chain networks remain a key focus. A lot of occupiers shift from a just-in-time supply chain model to a just-in-case.”

This reportedly leads to more and larger warehouse requirements. In the Philippines, the logistics sector is seen to be driven by emerging trends that include ESG focus, larger requirements, growth in prime stock, multi-story developments, and grade A logistics parks.

Data centers

Data center growth in the Philippines has been consistent and encouraging, according to Chris Street, JLL APAC head of data centres.

“In the Philippines, there’s a significant domestic market which is fantastic for long-term growth and stability of digital infrastructure,” Street said.

He pointed out that it’s important to look at the different business models including for retail, wholesale, and mixed. For example, retail, which operates on two- to three-year contract terms, is either managed by service operators (telecommunications firms) or you’ll see interconnection. Wholesale or hyperscale sites meanwhile operate on longer, around five- to 10-year contract terms.