While the economy grew slower than expected at 4.3 percent in Q2 2023, the Philippines once again recorded one of the fastest pace of GDP growth in Southeast Asia.
Colliers believes that economic growth for the remainder of the year will likely be led by personal consumption and this should further prop up retail and hotel segments. New office and residential launches are also likely to be hinged on consumer and business sentiment, macroeconomic growth, as well as resolution of local and geopolitical headwinds over the next 12 months.
Colliers is looking at the investment pledges approved during the first year of President Marcos and which projects are likely to materialize. In our view, these actual foreign investments are seen to drive the demand for industrial spaces and warehouses. Hence, we see the industrial sector becoming a major pillar of Philippine economy and property’s growth.
Developers should now take a closer look at these property segments and identify which sectors to focus on.
Residential rents and prices up
Colliers recorded the completion of only one project in Q2 2023 namely Alveo Land’s Park Triangle Residences in Fort Bonifacio.
For this year, we expect the completion of 4,920 units before picking up in 2024, during which we see the delivery of 9,620 units—the highest new supply since 2019. By end 2024, Metro Manila’s condominium stock is projected to reach 165,700 units, with the Bay Area likely overtaking Fort Bonifacio as the biggest residential hub in the capital region in terms of condominium supply.
In our view, the slower condominium completion, coupled by the improvement in residential leasing, will partly ease vacancy in 2023. We have seen returning expatriates in the country driving take-up in the secondary residential market particularly in Makati central business district (CBD), Rockwell Center, Ortigas Center, and Fort Bonifacio.
By end 2023, we forecast vacancy to drop to 17 percent from 17.6 percent in 2022 and this should positively influence residential rents and prices.
Meanwhile, Colliers recorded the sale of about 15,200 condominium units in the Metro Manila pre-selling market in H1 2023, up 52 percent year on year (YOY). Take-up was primarily driven by lower to upper mid-income projects (P3.2 million to P12 million) particularly in Pasig City, Bay Area, the Alabang-Las Piñas corridor, and Camanava (Caloocan-Malabon-Navotas-Valenzuela).
We see the improving business and consumer sentiment, continued inflow of remittances from overseas Filipino workers (OFWs), as well as stabilizing interest rates likely supporting pre-selling residential demand. Interest rate is stable at 6.25 percent as of June 2023 and the Bangko Sentral ng Pilipinas (BSP) is considering to cut interest rates if inflation returns within the target range of between 2 percent and 4 percent by Q4 2023.
Office deals hold firm
By end 2023, we expect new supply to reach 668,400 sqm. We project the Ortigas CBD, Fort Bonifacio and Quezon City to cover more than half of the new supply. From 2023 to 2025, we expect the annual delivery of 492,400 sqm of new office space. This is half of the nearly 1 million sqm delivered yearly from 2017 to 2019, a period wherein completion and demand were positively influenced by the Philippine offshore gaming operators (Pogo).
Office transactions in the capital region as of H1 2023 reached 306,000 sqm, down 9 percent from the 324,000 sqm recorded a year ago. Among the notable deals recorded in the first six months of the year include spaces taken up by Telus and 24/7 InTouch in Quezon City; IGT Solutions in Alabang; and Transparent BPO and Department of Transportation (DOTr) in San Juan City.
Vacancy as of the end Q2 2023 reached 18.4 percent. By end 2023, we expect vacancy to reach 21.2 percent. While vacated spaces across Metro Manila have been declining, some occupants continue to rationalize office space due to a mix of non-renewals, pre-terminations, and rightsizing.
As of H1 2023, net take-up stood at 122,700 sqm. Colliers revises its net take-up projection to 220,000 sqm in 2023 from our previous estimate of 116,400 sqm at the start of the year.
Average Metro Manila office rents were stable in Q2 2023. We have observed that submarkets with sustained take-up saw a recovery in rents. However, business districts with substantial supply coming online in H2 2023 as well as those with double-digit vacancies are likely to see further decline in rents. By end 2023, we project rents to drop by another 5 percent after correcting by 8 percent in 2022.
Revenge travel persists, drives hotel sector
Data from the Department of Tourism (DOT) show that international visitors reached 2.7 million as of H1 2023, up 232 percent from the 814,141 arrivals in H1 2022. This year, the DOT expects tourist arrivals to reach 4.8 million.
Meanwhile, average hotel occupancy in the capital region reached 61 percent as of end H1 2023. Colliers expects hotel occupancy to breach 65 percent by yearend partly due to holiday spending as well as the holding of more Meetings, Incentives, Conferences and Exhibitions (MICE) activities.
In H1 2023, Colliers recorded the delivery of nearly 800 rooms following the completion of Brittany Hotel in Fort Bonifacio, Westin Manila in Ortigas CBD and The Suites at Torre Lorenzo and lyf Malate in Manila. By end 2023, we expect the completion of 5,300 new rooms, a record-high in Metro Manila. Among the hotels likely to be completed in H2 2023 include Lansons Place Manila, Red Planet The Fort, Hotel 101 The Fort and Grand Westside Hotel. The Bay Area and Fort Bonifacio are likely to cover about 60 percent of the new supply this year.
In H1 2023, average daily rates (ADRs) grew by 5.2 percent. Five-star hotels continue to record the fastest growth in ADRs, indicative of the return of business travelers and in-person MICE events.
Colliers retains its forecast of a 6 percent ADR growth in 2023. We believe that growth in ADRs in 2023 is likely to be tempered by the substantial number of hotel rooms due for completion in H2 2023.