Amid economic headwinds, ‘fundamental market drivers’ to buoy PH real estate

JLL Philippines held its first 2023 real estate market overview, “A Brighter Way in Real Estate: Microcities and Integrated Township”, where it presented a recap of the industry landscape in 2022 and an outlook for 2023.

It also zoomed in on the cross-sectoral impact of microcities amid the challenging global economic conditions impacting the local market.

“The new year gives us another opportunity to better leverage JLL’s global experience and adopt those learnings in our local market and create positive impact amid challenging global economic conditions,” said JLL Philippines country head Joey Radovan.

“We are happy to start the year not just with an update on the office, hospitality, retail and residential sectors, but also inviting an expert panel of speakers that brings their views on how cities are being impacted by changes in technology, sustainable design and waste management, among other broad themes and align with our commercial real estate expertise,” he added.

Office leasing volumes surpass 2021 levels

Gross leasing volumes in Metro Manila reached 669,000 sqm in 2022, up 67 percent than the 401,000 sqm recorded in 2021. In Metro Cebu, leasing activities were sustained at 43,664 sqm in the fourth quarter despite headwinds.

As of the fourth quarter of 2022, corporates (51.5 percent) outpaced offshoring and outsourcing (O&O) demand (44.8 percent) in Metro Manila, with media and banking accounting for most of corporate occupiers. In Metro Cebu, however, O&O continued to lead transactions (87 percent), followed by flexible workspace (13 percent).

Rents in Metro Manila also remained soft, and the gap between headline and transacted rents continue to narrow, closing at 4.3 percent in the fourth quarter, from 5.9 percent in the third quarter of 2022.

Holiday surge drove retail store openings

The retail sector saw more store openings than closings in the last quarter of 2022, with move-ins from several foreign brands. The food and beverage (F&B) retail category continued to lead both move-ins and move-outs. Vacancy levels meanwhile declined despite new supply, and rents rose as leasing activities accelerate.

Minimal expansion on residential vacancy

In the residential rector, there is minimal expansion on residential vacancy for both midscale and upscale segments. Price hikes continued for both midscale and upscale segments, although less steep than previous levels.

Seasonal demand lifted hotel occupancy

There is a significant activity in the hospitality sector as international tourists exceeded the 2022 target of expected arrivals. The fourth quarter of 2022 saw 88.3 percent occupancy of hotels in Metro Manila, higher than the previous quarter’s 77.1 percent.

Leisure-oriented hotels registered high occupancy due to holiday demand. Room rates continued to increase (P7,362 per room per night) as demand recovers, albeit still lower than pre-pandemic levels (P9,100 per room per night).

Economic headwinds

Challenging economic conditions are expected to subdue performance and activities in the real estate market. Current statistics show increasing interest rates, increasing inflation rate, and weaker peso to dollar value affecting the economy.

However, there are fundamental market drivers buoying the real estate industry.

“The sustained growth of IT-BPM, improving return-to-office, and the recovery of tourism are seen as ‘floaters’ through rough currents,” said Janlo de los Reyes, JLL Philippines head of Research and Strategic Consulting.