Solid finish for PH property sector in 2023 seen
(FILE PHOTO)
(First of two parts)
The Philippine economy grew faster than expected at 5.9 percent in the third quarter compared to 4.3 percent the previous quarter due to higher government spending. The 5.9 percent growth in the gross domestic product (GDP) smashed analysts’ expectations of a 4.3 and 4.9 percent growth in the July to September 2023 period. Analysts are projecting a more moderate growth for the remainder of the year. The government targets GDP to grow by 6 to 7 percent this year. The Philippines is projected to be one of the fastest growing economies in Southeast Asia.
To tame inflation, the Philippine central bank’s monetary board has raised the basic policy rate to 6.5 percent on Oct. 27 from 6.25 percent. This is likely to raise mortgage rates imposed by banks and affect the overall appetite for residential units.
Asset classes that generate recurring income including retail and hotel benefit from a personal consumption-backed economic rebound. Developers should now take a closer look at various property segments and identify which sectors to focus on. Specific property subsectors continue to outperform other subsegments.
Colliers believes that economic growth for the remainder of the year will likely be led by personal consumption which grew by 5 percent in the third quarter. This should further prop up retail and hotel segments. Greater office space take up will partly hinge on business expansions within and outside Metro Manila while residential demand will partly depend on remittances sent home by Filipinos working abroad as well as investors’ overall appetite for upscale and luxury residential developments.
There are several opportunities in the market despite some persistent headwinds. Colliers is still optimistic that property stakeholders will be able to enjoy a strong finish towards the end of 2023 as opportunities still remain for selected property segments. Developers should be able to plan ahead to take advantage of the Philippine property sector’s growth for the long term. Property firms should be mindful of new economic policies and programs likely to be implemented by the government starting 2024 and closely observe how these will redefine the regulatory environment for Philippine property stakeholders.
Residential: Developers bank on demand for resort-oriented properties
Condominium leasing continues to recover across Metro Manila especially with the return of more expatriates. Local employees gradually returning to on-site work also contribute to improved leasing especially in major business districts including Makati CBD, Ortigas Center, and Fort Bonifacio. Pre-selling demand has been recovering YOY driven by the mid-income segment, but developers remain cautious of new launches especially given the substantial ready-for-occupancy (RFO) units and the elevated vacancies in the secondary market.
Colliers retains its earlier forecast that rents and prices will continue to improve for the remainder of 2023 but the substantial completion of new condominium units in 2024 is likely to exert a downward pressure on rents and prices next year.
Colliers has been seeing the expansion of resort or leisure-themed projects outside Metro Manila, and we project the launch of similar projects as property firms cater to a rising demand from a discerning and affluent market. Colliers believes that to stoke the market, attractive and flexible payment terms and promos should continue to be offered by developers. Green and sustainable features should also be integrated and highlighted as demand for these features rose at the height of the pandemic. This is also an opportune time for unit owners to upgrade and renovate to capture demand from returning expatriates.
Retail: Sustaining footfall as impact of revenge spending dissipates
The impact of revenge spending across the country is starting to dissipate so the challenge for mall operators and retailers now is to sustain footfall and consumer spending. Colliers sees holiday-induced spending partly offsetting this projected slowdown. We are optimistic of sustained interest from retailers especially those interested to occupy brick-and-mortar mall space in prime locations across major business districts in Metro Manila. We are projecting a slight increase in vacancy starting 2024 due to substantial delivery of new mall space.
Colliers believes that mall operators and retailers should cash in on holiday spending across the country. (FILE PHOTO)
Colliers believes that mall operators and retailers should cash in on holiday spending across the country. Holiday marketing initiatives should be amplified while mall operators should use the festive season as an opportunity to reactivate activity centers and curate events to attract more mallgoers and entice shoppers to spend more. Developers with upcoming malls should carefully assess the retail mix that they will offer to consumers. While operators and retailers continue to welcome more customers in-store, both should work together to improve the omnichannel shopping experience of Filipino consumers.
Hotel: Priming the Philippines as a regional MICE hub
The reinvigorated hotel sector remains as one of the most vibrant property segments in the country. Foreign arrivals are likely to breach the Tourism department’s target for 2023 while the domestic market continues to lift occupancies and daily rates. The return of business travelers and in-person corporate events have also been propping up the demand for MICE facilities.
Colliers believes that the bolstered leisure sector will continue to expand given the record-high supply of new keys in 2023. Stakeholders should seize opportunities by building more meetings, incentives, conferences, exhibitions (MICE) facilities to maximize the return of in-person events; developing more homegrown hotel brands or acquiring foreign ones; and aligning programs and offerings with the Tourism department’s refreshed strategy.
Colliers has been seeing the expansion of resort or leisure-themed projects outside Metro Manila. (FILE PHOTO)
By the end of 2023, Colliers projects average occupancy in the capital region to reach 65 percent partly driven by holiday spending as well as year-end Meetings, Incentives, Conferences and Exhibitions (MICE) activities. Metro Manila occupancy is now near pre-Covid level. In 2019, average occupancy peaked at 70 percent, before plummeting to 20 percent in 2020 due to Covid disruptions arising from mobility restrictions.
In our view, the leisure sector is one property segment likely to benefit from the government’s push to improve transport infrastructure. The expansion and modernization of international and regional airports should support developers with hotel footprint across the country.
