Economic recovery, supply pressure to impact PH real estate—JLL | Inquirer Business

Economic recovery, supply pressure to impact PH real estate—JLL

/ 05:05 AM May 30, 2023

JLL Philippines declares that there is some optimism in the real estate market this 2023, though economic headwinds are still present in the backdrop.

The country’s gross domestic product (GDP) registered a strong rebound to 7.6 percent in 2022 and is projected to further grow by 6 to 7 percent in 2023. Consequently, the easing inflation may also trigger a pause on interest rate hikes and give relief to the market, eventually helping in stimulating spending.

“We have moved past the pandemic, but it must be noted that there are varying degrees to recovery. Some sectors are performing better than others,” said Janlo de los Reyes, JLL Philippines head of research and strategic consulting.


He noted that the residential market is moving sideways, while hospitality is improving and on its way to pre-pandemic levels. The office market is on its way to recovery, but structural changes are impacting the performance of the sector. Supply pressure is meanwhile one of the key challenges that is seen to have notable impact on the performance of the market for the remaining quarters of 2023.


“We are anticipating a notable volume of supply to enter the market, potentially weighing down on the recovery of demand indicators across sectors,” de los Reyes said.

BPOs drive office leasing volumes

“Occupiers have gained their footing and settled postpandemic, and now have a clearer view on their short- to medium-term strategy in terms of office space requirements,” de los Reyes said.


Leasing volumes rose by 39 percent compared to last quarter, driven by activities from the business process outsourcing (BPO) segment, which accounted for 67.1 percent of total Metro Manila transactions recorded in the first quarter. Growing leasing activity is recorded in the other parts of the Metro which suggests, to some degree, decentralization among occupiers as they take advantage of high vacancies and lower rents.

We may see leasing volumes moderate in the subsequent quarters as the market normalizes. However, this may be tempered by remote work arrangements employed by select BPOs who have shifted from the Philippine Economic Zone Authority to Board of Investments.

Rightsizing or released spaces remained persistent, totaling to roughly 126,000 sqm in the first quarter of 2023. Release of spaces is observed in select Philippine offshore gaming operators (POGOs) and some BPOs who transferred their registration to the BOI.

Vacancy levels

Aside from rightsizing, new supply further elevated vacancy levels, settling at 17.9 percent in the first quarter. JLL anticipates continued increase in vacancy for the remainder of 2023, mainly due to a large volume of supply slated to be completed this year.

Headline rents continued to contract and settled at P1,043 per sqm per month, down by 0.7 percent compared to last quarter. We may see rentals for majority of the developments plateau for the remainder of the year, with the moderation of leasing volumes. New prime assets may bring up market rental average incrementally towards year-end.

Minimal expansion on residential vacancy

Vacancy rate expanded incrementally by 6.5 bps QOQ to 5.6 percent, driven by new units entering the leasing market. This influenced the softening of rents, owing to steeper competition and aging developments with a chunk of vacant units.

Rents are anticipated to record small upticks towards year-end due to the completion of new, higher-tiered developments, bringing up market average incrementally. Unit owners of long vacated units are expected to retain rents to buoy demand.

Meanwhile, the residential sale market cooled down, evidenced by the lower cumulative sales rate for both the RFO and the pre-selling markets. The slower performance is owed primarily to the midscale market which saw multiple cancelled units, bringing net take-up to a negative across completion status.

The upscale and luxury properties, however, saw positive take-up despite economic headwinds. JLL anticipates investment activities to remain challenged for the remainder of the year, primarily due to escalating interest rates which dampen buyer sentiments.

Hotels register pre-pandemic levels

Occupancy levels as of end March declined to 73.4 percent, as leisure demand waned after the holiday season. Nonetheless, hotel occupancy levels have already recovered, registering pre-pandemic levels, owing to solid domestic demand.

Sustained normalizing of the hospitality market can be observed in the remainder of the year as activities from both local and international tourists gain traction.

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Despite the moderating occupancy, room rates continued to inch up, growing by 2.1 percent QOQ to P7,519 per room per night as of Q1 2023. Hotel operators are gradually pushing rates and testing new thresholds amid a relatively stable demand. We may see room rates sustain its upward trajectory in the subsequent quarters of the year, eventually catching up to pre-pandemic levels.

TAGS: Business, economy, property, Real Estate

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