STABLE ENVIRONMENT, GRADUAL REBOUND

JOEY RADOVAN AND JANLO DE LOS REYES

The gradual re-opening of the economy bodes well for Philippine property. This could result in greater office and pre-selling condominium take-up over the next 12 months. Malls are starting to welcome more consumers and this should translate to improved retail space absorption and eventual recovery in rents.

Vaccination drive, economic rebound

In 2022, we see a more stable office leasing environment. We project a greater demand for healthy and sustainable buildings. Transactions outside of Metro Manila will likely continue.

Colliers believes that office leasing recovery will be anchored by ramped up inoculation and potential rebound in outsourcing demand following the recovery of major economies such as the United States.

Colliers expects the successful roll out of the vaccination program, economic rebound and re-absorption of office space to also bolster demand for both pre-selling and secondary residential markets. We believe that competitive mortgage rates and stable remittances from overseas Filipino workers (OFW) are likely to support residential sales growth.

A gradual rebound of rents and prices in the second half of 2022 is seen, with the easing of restrictions in Metro Manila potentially buoying demand in the secondary residential market.

Rents of retail spaces are also seen to recover slowly starting 2022 on the back of an improved vaccination program and a government-projected economic recovery, which should spur spending.

The easing of lockdowns has allowed the reopening of entertainment facilities such as arcades and cinemas. As consumer traffic remains below prepandemic levels, Colliers recommends that mall operators use vacant space for pop-up stores, for vaccination drives and for alternative dining options. Colliers meanwhile sees a slow recovery for the leisure sector especially with domestic and

international travel restrictions still in place and with new virus variants dampening consumer confidence.

In contrast, the industrial sector is seen to thrive beyond 2022 as we see recovery in both local and global demand—sustaining the growth of e-commerce, domestic manufacturing and the export sectors.

Headwinds and tailwinds

Factors that may affect property recovery include the emergence of new COVID-19 variants, which could urge the government to re-impose stricter lockdowns; travel restrictions which may affect the revival of the leisure segment; weakened

demand from Philippine offshore gaming operators (POGOs); and delayed completion of major infrastructure projects.

Potentially helping boost the sector is a higher than expected GDP growth. Credit rating firms, multilateral and government agencies are now projecting full-year GDP growth to reach between 4 and 5 percent, before a faster recovery in 2022.

Increase in OFW remittances should also support demand for affordable to mid-income residential units as well as retail spending starting in the fourth quarter of 2021.

Other tailwinds include vaccination rate improvement, rebound in consumer and business outlook, and competitive mortgage rates.

Moving forward

Based on our Q3 2021 Property Market Survey, 34 percent of the respondents said that at least half of their workforce are returning to their traditional offices starting 2022. This signifies that occupiers are considering a hybrid working model. Meanwhile, 31 percent answered that all their employees will work on-site in 2022.

In our view, any rebound in office leasing will be supported by the successful inoculation which should allow more employees to report back to their offices.

An earlier survey showed that 46 percent are likely to acquire a house and lot in provincial locations, 35 percent will buy or invest in a condominium in the fringes of CBDs, and 19 percent will opt for a beachfront property postpandemic.

Colliers has observed a growing preference among Filipino families for less dense locations within fringe areas which provide bigger living spaces. This trend is likely to redefine residential demand postpandemic.

The year 2022 should be a more positive year.

Indicators that the IT and business process outsourcing (BPO) community going ahead with expansion plans have gained traction owing to the view that there should be a more positive outlook given the progress on our vaccination program.

Once occupiers have completed their assessments on what kind of remote-work adaption they will progress with, office demand should stabilize in the long term.

There are opportunities for building owners to retrofit their buildings to make it more sustainable as the demand for more green buildings will continue. It just wont be focused on the asset traditional being “green”, it will also now have to be sustainable in terms of operations as well.

Robust outlook

The positive outlook on commercial real estate capital markets was boosted by real estate investment trust (REIT) launches this year.

Future opportunities to develop more office buildings and possibly industrial properties that may be folded into the listed REITS have become serious prospects to further speculate in starting new construction that will present income-producing buildings with quality tenants to these REITs.

There is no doubt that the outlook for the local real estate capital markets will be more robust as the pandemic situation improves next year.

Gradual recovery

Currently, we’re maintaining our view of a gradual real estate recovery between now and middle of 2022. This will be in tandem with the pace of economic rebound over the coming quarters and influenced by the policy landscape regarding work-from-home arrangements and the national elections.

The easing of restrictions during the holiday season is expected to impact the trajectory of market recovery, depending on government and private sector response.

We’ve already observed a shift in commercial and residential demand during the pandemic. Investors and developers have ramped up their capabilities under the logistics and industrial space, which may likely remain a fixture in portfolios moving forward.

We’ve seen demand for residential properties outside the capital region pick up, not only from local buyers but also from high net worth individuals from Metro Manila who are seeking to relocate to less dense areas.

Future landscape

The future of the built up environment remains unclear as office occupiers continue piloting hybrid and pure remote work arrangements that will eventually translate to the physical space.

A shorter recovery may see limited change from the status quo while a lengthy recovery may lead to greater transformation across sectors. Nonetheless, we expect the current market norms on safety and wellness to stay, while greater technology integration and focus on sustainability are some of the themes that will shape the future landscape.

We suspect that there will be eventual reversion to the norm but we anticipate increased consideration for these types of assets moving forward.