The real estate sector in the Philippines continued to be robust in the first half of 2017, with strong demand for residential, office and retail properties.
In Metro Manila’s condominium market, the real estate consultancy firm Colliers International Philippines noted in a report that take-up reached more than 23,000 units in the first half of 2017, an 18% increase from same period last year.
“The growing demand for affordable and mid-income projects has seen development expand to areas outside major CBDs (central business districts),” the firm said.
However, project completions in the second quarter — which generated around 2,300 units and brought the total number of stock to 96,000 units — increased vacancy. Vacancy rate in Fort Bonifacio, for instance, rose from 12.38% in the first quarter of the year to 14.02%. Overall rate in Metro Manila CBDs reached 10.9% at the end of June.
Higher vacancy rates depressed rental rates. “In the major CBDs, average rents for Prime 3-bedroom units have declined between 0.7% and 3.0% per quarter in the last 12 months,” Colliers said.
In an e-mail, the firm said that the continued expansion of the business process outsourcing industry as well as that of the traditional firms should spawn more job opportunities and that development, in turn, should boost demand for more worker-accommodation units in Metro Manila.
“Colliers recommends that developers look into worker accommodation projects that cater to young urban professionals who can’t afford to own their own apartment yet or rent a condominium unit within the established business districts such as Makati, Fort Bonifacio, and Ortigas Center.”
The office property market was generally healthy during the first six months of the year. “We had record new office supply in the first half,” said Fredrick Rara, research manager at KMC Savills, Inc., a real estate services firm based in Bonifacio Global City. “We thought we’d have double-digit vacancy rates at the end of the first half.”
As of the second quarter of 2017, vacancies stood at 4.2%, the latest KMC report noted. A total of 264,300 square meters (sq. m) of new office space was completed during that quarter, a number significantly higher than the 162,200 sq. m recorded in the first quarter of 2017.
Strong occupier demand helped prevent the vacancies from ballooning. KMC said in its report that the performance of the market went beyond what it had initially estimated for 2017 because of strong leasing activity in the major submarkets it covers. “We’re surprised, but we’re happy that the market is still sustaining the take-up,” said Michael McCullough, managing director of KMC Savills.
The firm observed a slowdown in rental growth during the second quarter in a number of submarkets, a sign that there was supply pressure. “Keeping rents affordable during this massive inflow of completions should sustain the take-up velocity in Metro Manila. We believe a critical factor on the first half’s impressive performance is due to landlords’ willingness to negotiate rents in order to stay competitive,” it said.
From a landlord’s point of view, the trend might not exactly be a cause for relief. “It may hurt the landlord in the short term, but if you fill that building as quickly as possible, still the better for them in the long run,” Mr. Rara said. “That’s maybe why there’s an acceleration of the take-up.”
For his part, Mr. McCullough said: “Some of the landlords have been quick to adapt to the changing dynamics in the office market. And so, for the right company, for the right brand, for the high-growth companies, they’re willing to give highly attractive offers.”
Looking ahead, KMC sees a healthy occupier demand from expanding outsourcing and offshoring market, which is also anticipated to absorb the building completions in the coming quarters.
Jettson Yu, managing director of PRIME Philippines, the fastest growing real estate advisory firm in the country, shared his insight on the 2017 property market. “The continuously growing population and labor force is pushing the demand for regional malls, pocket malls, and commercial strips,” said Mr. Yu, referring to the retail sector. He added, “pocket malls and commercial strips are the types of developments found on secondary roads, occupying 2,000-square-meter-or-less lots.”
PRIME Philippines’ property market report for the first half of 2017 has noted that retailers are moving toward smaller-scale stores. The trend is a product of the growing mass market that demands convenience and accessibility. This is identified by the rise of community supermarkets and small-scale food and beverage stores.
In terms of retail space demand, PRIME Philippines noted: “The health, beauty & wellness industry takes up 19% of retail demand, second only to the food & beverage industry, which maintains a dominant share of retail space demand for Metro Manila at 40%.”
Optimism for the ‘golden age of infrastructure’
According to Colliers, worsening traffic, flooding and poor mass transportation systems have spurred real estate companies to lead the development of master-planned communities that embody the live-work-play-shop lifestyle.
“We see developers pursuing more township projects in areas outside of Metro Manila such as Cavite, Laguna, Bulacan, and Pampanga over the near to medium term as land values are being unlocked by an aggressive expansion of road networks,” the firm said.
It added: “We are confident that this will be sustained by the government’s push to generate economic opportunities in the countryside anchored on its commitment to usher in the ‘golden age of infrastructure.’”
That push is the “Build, Build, Build” program, which has earned praise from property developers and analysts, who have long lamented and been adversely affected by the country’s poor infrastructure.
When asked about the “Build, Build, Build” initiative of the government, Mr. Yu has a positive outlook. “It’s a strategic long-term plan,” he said. “We’re very optimistic that this will be good for the economy.” With infrastructure being one of the backbones for economic growth, the program is designed to propel the Philippines to greater heights. However, he noted one caveat that will significantly affect the outcome of the project. “Timeliness is a major factor in determining the success of the initiative. Delays are expected when it comes to expropriation of properties, and certain circumstances may come up in the course of the planned developments.”
For its part, Colliers said: “The ushering in of the ‘golden age of infrastructure’ also lends support to the government’s decentralization push which should unlock land values in areas outside of Metro Manila and stimulate business activities in the countryside.”