Metro Manila hotels continue to see rising occupancies and rates due to the exponential rise in demand for MICE facilities. (HTTPS://WWW.FACEBOOK.COM/ITSASEANSKYLINES)
The Philippines continues to outpace its neighbors in economic expansion. Colliers believes that this optimism will extend to other sectors, including property development.
The much-awaited interest rate cut from the Bangko Sentral ng Pilipinas is seen to further boost the country’s economic growth. In our view, an interest rate cut will have substantial impact on key segments like office, residential, retail, hotel, and industrial. With consumer sentiment improving and unemployment rate declining, the Philippine economy and property market are poised for a strong rebound.
Philippine economy grows 6.3 percent
The Philippine economy expanded by 6.3 percent in Q2 2024, faster than the 5.8 percent in Q1 2024 and the 4.3 percent recorded a year ago. The latest figure is also higher than analysts’ initial projection of a 6 percent growth in. This brings the Philippines’ H1 2024 GDP growth at 6.1 percent, which remains to be one of the fastest in Southeast Asia.
Construction and government spending recorded stellar growths of 16.1 percent and 10.7 percent in Q2 2024, respectively, while household spending rose by 4.6 percent, slower than the 5.5 percent posted a year ago due to elevated inflation.
July inflation fastest in 9 months
Inflation in July 2024 reached 4.4 percent, the fastest since October 2023 and the first time it breached the higher end of the BSP’s target range of between 2 percent and 4 percent. Average inflation as of the end July reached 3.7 percent, lower than the 6.8 percent posted a year ago. The BSP said inflation is expected to slow down starting August due largely to lower import tariffs on rice.
Meanwhile, BSP Governor Eli Remolona said during the Aug. 15 Monetary Board meeting that a policy rate cut is now “a little bit less likely” as July inflation was slightly worse than expected. However, a weaker-than-expected GDP growth in Q2 2024 and a projected lower inflation for the remainder of the year will likely compel BSP to cut policy rates. The BSP earlier signaled a 25-basis point cut starting August this year.
Office market sans POGO
President Marcos’ recent pronouncement banning Philippine offshore gaming operators (POGOs) will likely impact Metro Manila’s office market.
Colliers sees this regulation likely elevating office market vacancy to 22.2 percent, higher than our initial forecast of 19.1 percent. Space surrenders from POGOs and non-renewal of pre-pandemic leases are expected to outpace demand, which will result in a negative net take-up by yearend. This will pose a challenge for property developers with high exposure to POGOs.
The effect of the POGO ban will only be temporary and may not have a lasting effect on office demand activity as traditional firms and IT and business process management (BPM) companies continue to take up space. While demand from government agencies is not sustainable for the long haul, recent deals have been instrumental in partly filling the void left by POGOs.
Appetite for horizontal is unequivocal
The Metro Manila pre-selling condominium market continues to see challenges. We are likely to post record low launches and take-up given the pre-selling figures as of H1 2024. The capital region continues to record a lengthened remaining inventory life, worsened by elevated mortgage rates, high prices of construction materials, and surging land values in major business districts.
What’s encouraging is that we continue to see the shift to suburbia with developers and investors looking for properties to develop and acquire in major growth areas including Central Luzon, Southern Luzon, Western Visayas, Central Visayas, and Davao Region.
Hospitality on bullish trajectory
The Philippine tourism sector continues to recover, with growing local and foreign tourists positively influencing hotel occupancies across major destinations in the Philippines. Metro Manila hotels continue to see rising occupancies and rates due to brisk take-up from businessmen as well as exponential rise in demand for meetings, incentives, conferences, and exhibitions (MICE) facilities.
Given rising demand from business+leisure (bleisure) guests, we encourage hotel operators to offer attractive and flexible packages especially to long-staying guests. Hotel operators should also explore the viability of expanding their MICE facilities given the sub-segment’s encouraging rebound post-pandemic.
For feedback, please email joey.bondoc@colliers.com