Investment opportunities to ease headwinds weighing down market recovery – JLL

Headwinds are seen to weigh down on market recovery, but there are several investment opportunities in the  real estate market. In JLL’s Metro Manila real estate overview for the third quarter of 2022, speakers present  an overview of the office, residential, hospitality, and retail sectors, and identify where to focus resources on the remaining months of 2022. 

(From L-R) Janlo de los Reyes, JLL Philippines’ Head of Research and Strategic Consulting; Joey Radovan, JLL Philippines’ Country Head; Paolo Antonio Azurin, CLSA’s Head of Philippine Investment Banking; and P. Ryan Isip, JLL Philippines’ Head of Capital Markets

IT-BPM continue to drive the office market 

IT-BPMs, particularly the financial (banking) sector, remained the top office demand driver in the third quarter  of 2022, accounting for 85.3% of closed transactions, while corporate occupiers made up 8.7%. Office pull outs also moderated, from 135,300 sqm last quarter to 93,400 sqm. The sustained recovery of leasing  volumes and deceleration of move-outs and lease terminations aided in the decline of vacancy levels which  ended at 17.3%, down by 45.9 bps quarter-on-quarter, amid new supply. 

“The future of work sways toward continued return to office, as we saw 62% of clients operate back to pre pandemic levels by the end of the third quarter of 2022,” said Janlo de los Reyes, Head of Research and  Strategic Consulting at JLL Philippines. 

Headline rents remained relatively stable and saw an incremental contraction of 0.1% quarter-on-quarter.  However, the gap between headline and transacted rents further narrowed, closing at 5.9% compared to  9.0% last quarter and a steep decline from 19.9% in the third quarter of last year, as landlords remained  optimistic of the improving leasing demand.  

Delayed store openings as retailers gear up for the holiday season 

In the retail sector, store closures slightly out-pacing store openings, delayed opening of upcoming brands,  and introduction of new supply (5,300 sqm increase in stock from last quarter) contributed to uptick in  vacancy levels. The food and beverage (F&B) category continued to lead both store openings and store  closures (in sqm) at 27.9% and 26.1%, respectively. Closing the top five categories for store openings are clothing and apparel, food and groceries, leisure, sports and fitness, while the remaining four categories for  store closures are footwear, leisure, clothing and apparel, and general retail. 

Retail rents continue gradual recovery, now averaging PHP 1,611 per sqm per month. Rents are anticipated  to sustain its upward trajectory towards year-end in time for the peak holiday season. 

Increase in sales take-up and prices 

The residential leasing market remained moved sideways and saw an incremental uptick in vacancy levels  during the third quarter, owing primarily to new stock. Meanwhile, rents remained stable compared to previous  quarters, although a dichotomy was recorded wherein rates commanded by midscale developments saw an  increase, while a slight contraction on upscale and luxury rentals was recorded.  

The sale market, on the other hand, saw an improvement where take-up grew relative to previous quarters for  both the ready-for-occupancy and pre-selling markets despite economic pressures which may weigh down on  investment sentiments. “Interesting note here is that the upscale and luxury segment performed better than  the midscale market in terms of quarter-on-quarter absorption growth rates. We may be seeing the early  effects of higher interest rate which may be more felt by the middle-class market,” says Karisse Garcia,  Manager for Research & Strategic Consulting at JLL Philippines. 

Prices continued to appreciate for both ready-for-occupancy and pre-selling as developers try to catch-up on  prices after delaying the usual price hikes during the peak of the pandemic. Flexible payment terms such as  lower down payment and stretched payment period were actively offered to lift some of the burden coming  from price hikes and higher interest rates from buyers, and in turn, fuel investment activities.

Steady demand from corporate and leisure guest pulled up occupancy levels 

Recovering demand lifts overall occupancy, rising from 77.1% from 61.8% last quarter, mainly driven by  demand coming from corporate bookings, leisure guests, and the re-emergence of the Meetings, Incentives,  Conferences and Exhibitions (MICE) market. Likewise, room rates continued to climb, now averaging PHP  6,865 per room per night, as hotel operators gear up towards the holiday season. 

Closing his presentation, de los Reyes advised market cautiousness against headwinds. “On a  macroeconomic scale, we see three major headwinds: inflation, higher interest rates, and a weaker peso dollar exchange rate. In real estate, these headwinds may translate to higher cost of investment, higher  capital and operating expense, and possibly curbed spending.”

Closing the event, Joey Radovan, JLL Philippines’ Country Head, said “there is no better time to invest than now. It’s just a matter of finding the investment and resources. With that, JLL is here to help you.”

ADVT

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