Overcoming an impasse: Property on expansion mode as economic growth surprises
Posting an 8.3 percent growth, the Philippines was the fastest growing economy in East Asia in the first quarter this year.
Colliers believes that this level of economic output sets the stage for accelerated GDP growth beyond 2022. The election of a new set of leaders, along with the continued implementation of pro-property reforms such as accelerated infrastructure construction should guide property firms with their expansion plans over the next three to six years.
In our view, developers should continue lining up projects in anticipation of improving investor appetite.
Office: Turning a corner
In the first quarter, Colliers recorded the completion of 306,100 sqm of new supply, up from the 114,300 sqm in the fourth quarter of 2021. Among the buildings completed in the first quarter were One Ayala Towers 1 & 2 in Makati CBD, DoubleDragon Tower, Four E-com Tower 3 and Iland Bay Plaza in the Bay Area, NEX 54 in Ortigas Fringe, and Savya Financial Center North in Arca South.
For this year, we project new supply to reach 821,900 sqm, up 30 percent from the 633,900 sqm completed in 2021.
Colliers also saw net take-up in the first quarter reaching 26,400 sqm, an improvement from the -130,100 sqm in the previous quarter. This is the first recorded positive net take-up after seven consecutive quarters of negative net absorption.
Office transactions in the capital region alone reached 146,100 sqm, up 30 percent year on year (YOY). Traditional and outsourcing firms took up space during the period. Most of the firms leased space in Fort Bonifacio, the Bay Area and Makati CBD.
In our opinion, the return-to-office (RTO) mandates should support the recovery of the office market. The improving COVID-19 situation and the passage of economic stimulus measures should boost office space take-up for the remainder of the year.
Residential: Leasing to pick up
Colliers recorded the delivery of 560 units in the first quarter, with the completion of Proscenium Residences in Rockwell Center. In 2022, we expect the completion of 10,500 units, up 20 percent YOY, with the Bay Area likely accounting for 57 percent of new supply. Meanwhile, pre-selling launches in Metro Manila reached 1,500 units in the first quarter, while take-up in the pre-selling market reached 3,100 units.
We also saw rents dropping by 0.2 percent QOQ in the first quarter, an improvement from the 1.6 percent decline in the same period a year ago, whereas prices in the secondary market rose by 1.2 percent QOQ.
In our view, the recovery in the residential leasing market will be driven by local employees starting to work on-site and the gradual return of expatriates. Residential demand should also be supported by an increase in office leasing and an improvement in general business confidence.
The return of traffic to pre-COVID-19 levels should also urge employees to rent a condominium unit or co-living facility near their offices. The Metropolitan Manila Development Authority (MMDA) recorded a daily average of 384,000 vehicles along Edsa in March 2022, close to the 405,000 daily average in 2019.
Retail: Fastest rebound in the property sector
Vacancy across malls in Metro Manila continued to increase, albeit at a slower pace. In 2022, we see vacancy reaching 16 percent, lower than our previous projection of 17 percent despite the estimated completion of 409,000 sqm. Among the malls due to be completed this year are Mitsukoshi Mall in Fort Bonifacio, Ayala Triangle Retail in Makati CBD and Parqal Mall in the Bay Area.
Colliers is optimistic that the de-escalation of the capital region to Alert Level 1 and improving vaccination rate should increase consumer traffic and confidence. Various operators have reported that consumer traffic in malls has reached about 63 percent of the pre-COVID-19 level.
Data from the Philippine Statistics Authority (PSA) showed that household spending grew by 10.1 percent in the first quarter, from a 4.8 percent contraction in the same period last year. Among the sub-segments which showed significant increase YOY include restaurants and hotels, transport, and food and non-alcoholic beverages.
We project retail rents to rise by 1 percent in 2022, from a cumulative 15 percent drop in 2020 and 2021. We expect the gradual pick up in retail space absorption to support our projected rebound in lease rates.
