Start strong, finish stronger
Colliers recommends that developers and stakeholders maximize opportunities from public and private sectors’ initiatives to attract more do- mestic and foreign travelers.
(Conclusion)
As mentioned in last week’s column, rebound still varies across submarkets, but Colliers is optimistic that sustained macroeconomic growth as well as implementation of sound economic policies are likely to support the sector’s faster pace of recovery beyond 2024. Here are some of the trends and recommendations for the hotel, industrial and office segments.
HOTEL
More MICE facilities
Corporations, business groups, and even families have been holding more in-person events over the past year especially after the government relaxed restrictions on face-to-face meetings and dropped mask mandates.
Hotel developers and operators should thus assess the future demand for meetings, incentives, conferences, and exhibitions (MICE) facilities given the segment’s potential for a strong rebound. This should also be aligned with the government’s thrust of modernizing existing and building new airports across the country. The Department of Tourism (DOT) is also priming the Philippines as a major MICE destination in Asia, which should enable the country to corner major global MICE events while boosting tourist arrivals and spending.
Koreans are back, dominating arrivals
Data from the DOT showed that foreign arrivals in the first 10 months of 2023 reached 4.4 million, higher than the 2.65 million arrivals recorded in 2022.
The top source markets—namely South Korea, United States, Japan, China and Australia—accounted for 58 percent of arrivals. By end 2023, the DOT expects international visitors to reach 4.8 million, still far from the record high 8.3 million arrivals in 2019 but 220 percent higher than the paltry 1.5 million in 2020.
Improving infra to benefit hotels
Colliers recommends that developers and stakeholders maximize opportunities from public and private sectors’ initiatives to attract more domestic and foreign travelers. The DOT’s push to boost domestic tourism and the recovery in foreign arrivals should stoke demand in the country’s leisure sector and lift hotel occupancies and daily rates.
The leisure sector should also benefit from the development and improvement of infrastructure projects such as airports and roads. These public projects should provide opportunities for developers to build more hotels and MICE facilities in emerging tourist spots across the country.
INDUSTRIAL
Expansion of industrial parks
Colliers sees the completion of about 560 hectares of industrial space in southern and central Luzon from 2023 to 2025. We believe that the expansion of industrial spaces is a plus especially for foreign firms that are planning to open facilities in the Philippines. In our view, this is particularly important for the foreign manufacturers that the Marcos administration is luring to establish operations in the Philippines.
EV as a sunshine industry
Colliers recommends that developers explore sunrise industries such as electric vehicles (EVs), a new priority of the Philippine government. We are seeing sustained interest from EV firms looking for industrial space. Ayala Group, for example, recently partnered with US-based Zero Motorcycles for the production of EVs at the Laguna Technopark, while Australia-based EV battery manufacturer STBatallion is expanding in Filinvest Innovation Park-New Clark City (FIP-NCC) in Tarlac for its lithium-ion battery facility.
During his trip to China in January, President Marcos invited EV manufacturers to invest in the Philippines. Demand for EVs should be supported by President Marcos’ issuance of an executive order removing tariffs on EVs and their parts.
US CHIPS Act to chip in to industrial take-up
Greater inflow of semiconductor investments is likely to influence industrial space absorption in northern and southern Luzon. Data from the Philippine Statistics Authority showed that in 2022, semiconductors accounted for $35 billion (P2 trillion) of the country’s total electronics exports of $46 billion (P2.5 trillion).
In our view, the implementation of the US CHIPS and Science Act of 2022, which intends to enhance America’s research and semiconductor manufacturing, will likely entice more semiconductor firms to expand in the country. American semiconductor company Texas Instruments Inc. (TI) is considering investing up to $1 billion (P57 billion) for the expansion of its facilities in Clark, Pampanga and Baguio City.
Rising interest from Japanese
The Philippines is receiving renewed interest from Japanese manufacturers. The government earlier reported that more than $10 billion (P570 billion) worth of investment pledges were generated during President Marcos’ visit to Japan.
The Philippine Economic Zone Authority (Peza) disclosed that Japanese investors remain keen on investing in the country, citing the continuous expansion of existing Japanese locators particularly in the sectors of chemicals, automotive and automotive parts, computer and optical products, and transport and logistics. Among them would be NIDEC in Subic Bay Freeport, and Kurabe Industrial in LIMA Estate in Batangas.
Integration of township components
Industrial parks that are located in masterplanned communities or which feature township components like residential and commercial developments are seen to remain attractive. Among the industrial parks located within integrated communities include AboitizLand’s LIMA Estate, Pueblo de Oro’s Light Industry and Science Park IV in The Townscapes Malvar in Batangas, and Filinvest Land’s Filinvest Innovation Park in Ciudad de Calamba in Laguna.
OFFICE
Flight-to-quality, sustainability to dominate leasing strategy
Based on Colliers’ third quarter 2023 data, several companies implemented flight-to-quality/cost strategies. Among these are traditional and outsourcing firms that took up spaces in Fort Bonifacio, Makati central business district (CBD), and Ortigas Center. These firms took advantage of a market that remains tenant-leaning and maximized the opportunity to lease new, high quality office spaces in major business districts at lower rents.
Given the prevailing market conditions, opportunities remain for tenants to implement flight-to-quality strategies at a lower cost due to decreased rents brought about by the pandemic. In our view, now is an opportune time to secure space in locations with substantial supply. Given the current stock of vacant spaces and new office towers to be completed in the next 12 months, we encourage tenants to consider office spaces in Fort Bonifacio and Ortigas CBD.
Colliers also encourages occupiers to review their real estate strategies ahead of lease expiry to take advantage of high vacancy in the market, especially with our still elevated office vacancy forecast for 2023 and 2024.
Sustained demand for offices outside NCR
In the first nine months of 2023, Colliers recorded 149,500 sqm of provincial transactions, up from the 145,000 sqm a year ago. Colliers recommends that developers complete delivery schedules of their projects as we have observed increasing inquiries from outsourcing firms especially in Iloilo, Bacolod, Bulacan, and Laguna.
Meanwhile, we also encourage developers to be on the lookout for potential demand in key cities such as Iligan, Dagupan, Urdaneta, Malolos, General Santos, Tarlac, Cabanatuan and Puerto Princesa as these locations are touted as high potential areas for transformation into “digital cities” by 2025 according to the IT and Business Process Association of the Philippines (IBPAP). Colliers continues to receive leasing queries for these locations.
Rents could soften in locations with above-average vacancy
In the third quarter 2023, average office lease rates in Metro Manila dropped by 0.5 percent quarter on quarter. While some business districts (i.e. Fort Bonifacio and Makati CBD) continue to see a recovery in rents, other submarkets with significant amount of available spaces such as the Bay Area and Alabang (vacancies of 36.5 percent and 29 percent as of Q3 2023, respectively) are likely to experience further decline in rents. In 2023, we project rents to drop by another 2 percent, after declining by 37 percent from 2020 to 2022.
Greater focus on tenants’ ESG and DEI goals
With the heightened importance of sustainability and inclusivity in the workplace, landlords must align with their tenants’ environmental, social and governance (ESG) and diversity, equity and inclusion (DEI) objectives.
Colliers encourages landlords to be more proactive in implementing and promoting ESG and DEI elements within building amenities and common areas. This can be in the form of green features and certifications, landscaping, renovation of shared facilities, and landlord-initiated events that support the wellness and productivity of employees.
