Philippines’ growth outlook clouded by inflation risks

September 9, 2024 | 12:30 am

building-skyline — PHILIPPINE STAR/MIGUEL DE GUZMAN

By Luisa Maria Jacinta C. Jocson, Reporter

THE Philippines is likely to continue its stable growth trajectory in the medium term, although inflation and elevated interest rates remain major risks to this outlook, analysts said.

“First, inflation remains one of the main downside risks to growth for the year,” Gonzalo Varela, World Bank lead economist and program leader of the Equitable Growth, Finance and Institutions Practice Group for Philippines, Malaysia, and Brunei Darussalam, said in an e-mail.

“While inflation is back to within the Bangko Sentral ng Pilipinas’ (BSP) target, inflation for key commodities, such as rice, remains high.”

Since 2022, the Philippines has faced rising inflation due to a spike in global commodity prices and supply chain disruptions. Inflation averaged 5.8% in 2022 and 6% in 2023, well-above the BSP’s 2-4% target range.

The BSP expects inflation to average 3.4% this year.

To tame persistent inflation, the government has employed various monetary and non-monetary measures such as raising interest rates and lowering tariffs on certain commodities.

“Our (economic) performance would have been even better if not for the high inflation, particularly in food. But we expect those inflation pressures to diminish, allowing us to go back to the 2-4% inflation target,” National Economic and Development Authority (NEDA) Secretary Arsenio M. Balisacan told BusinessWorld.

The Philippine economy grew by 7.6% in 2022 but slowed to 5.5% in 2023.

The Development Budget Coordination Committee (DBCC) has set the country’s gross domestic product (GDP) growth at 6-7% this year, 6.5-7.5% next year, and 6.5-8% from 2026 to 2028.

Over the past months, the DBCC has trimmed its growth targets due to external headwinds.

“We stick to that (targets), and we have our fiscal consolidation program to ensure that even as we aim for high growth, we remain fiscally sound, externally sound, so that you can sustain the growth momentum even beyond the administration,” Mr. Balisacan said.

Many multilateral institutions’ Philippine GDP forecasts either fall short or settle at the low end of the government’s growth target.

ASEAN+3 Macroeconomic Research Office (AMRO) Senior Economist Andrew Tsang said that the Philippine government’s medium-term targets are “ambitious as they are higher than the trend growth rate.”

“My general sense is that the GDP growth targets in recent and in coming years are overly optimistic considering a few key factors,” Pantheon Chief Emerging Asia Economist Miguel Chanco said.

“The damage caused by COVID-19 (coronavirus disease 2019) and the cost-of-living crisis to household balance sheets in the Philippines is quite substantial and will take many years to repair,” he added.

PANDEMIC IMPACT
Mr. Balisacan admitted the economy is still reeling from the pandemic due to the “extraordinarily” long lockdowns.

“The pandemic and (the government’s) response to it, caused the sharp contraction of the economy. That easily wiped out three years of economic growth,” he said, referring to the 9.6% GDP contraction in 2020.

“Nonetheless, for the past two years, the objective was to restore the economy to pre-pandemic levels and to recover many of the losses. Many of these losses, like learning losses, take many years to recover.”

Despite expectations of below-target growth, most multilateral institutions’ forecasts still place the country among the fastest-growing economies in Southeast Asia or even the Asia-Pacific region.

The World Bank expects the country to grow by an average of 5.9% from this year until 2026. It sees GDP growth averaging 5.8% in 2024.

“This level of growth puts the Philippines as one of the top growth performers in the East Asia Pacific region (close to Cambodia’s 6.1% average and Vietnam’s 6% average,” Mr. Varela said.

AMRO sees Philippine growth averaging 6-6.2% from 2026 to 2028. This year, it projects GDP growth averaging 6.1%, which places it as the second-fastest expected growth in the ASEAN+3 region, after Vietnam.

“The Philippines will register one of the fastest growth in the ASEAN+3 region during 2024-2025 and will continue to grow steadily in the medium term,” Mr. Tsang said.

“The Philippines’ economy will outperform many of its regional peers in terms of growth. That is largely a catch-up following its long and deep downturn during the pandemic,” Sarah Tan, an economist from Moody’s Analytics, said in an e-mail.

However, Ms. Tan noted that economic output is still below around 10% of its pre-pandemic levels, which is much lower than the average 6-7% seen in other Association of Southeast Asian Nations (ASEAN) countries.

“We expect the economy to narrowly miss the government’s growth target of 6-7% as high borrowing costs keep a lid on private consumption — its main engine of growth.”

“Likewise, high interest rates will also slow private investment growth,” Ms. Tan added, as Moody’s expects GDP growth to average 5.9% this year.

Meanwhile, the International Monetary Fund (IMF) expects GDP to settle at 6% this year.

IMF Representative to the Philippines Ragnar Gudmundsson said this will be driven by a “recovery in exports and accelerate further to 6.2% in 2025 amid declining inflation and lower interest rates.”

“GDP growth is expected to remain at around 6-6.5% over the medium term, in line with the economy’s potential growth. This would make the Philippines one of the fastest-growing economies in the region, reflecting recent strong performance,” he added.

Aris D. Dacanay, economist for ASEAN at HSBC Global Research, said the country’s growth trajectory is “promising” but there is still much to be done.

“The odds are in the Philippines’ favor, and we expect that despite a backdrop of weak global growth, the Philippines’ medium-term outlook for growth is a promising one,” he said.

“The country has re-achieved stability. And in truth, the country will still grow respectably even when the status quo is maintained. But stability is different from prosperity, and to achieve prosperity requires going the extra mile,” Mr. Dacanay added.

INFLATION RISKS
Mr. Balisacan said that inflation is one of the primary concerns that the government must address.

“Inflation is linked with or breeds other problems. High inflation prompted the BSP to raise the policy rate, which is not good for business and not good for consumers,” the NEDA chief said.

“So, if you are able to reduce that, reduce the inflation, then there’s a lower likelihood that you’ll have your interest rates rising in the future,” he said.

The BSP at its Aug. 15 meeting reduced the target reverse repurchase (RRP) rate by 25 basis points (bps) to 6.25% from the over 17-year high of 6.5%. This was the first time the central bank cut rates since November 2020.

BSP Governor Eli M. Remolona, Jr. has also signaled the possibility of another 25-bp cut in the fourth quarter.

Managing inflation will continue to be crucial, Mr. Varela said. “Keeping inflation in check is important to ensure that the process of monetary policy normalization, or the reduction in the key interest rate by the BSP, is not delayed,” he said.

In the short term, Mr. Tsang said that the country’s growth prospects may be dampened by high inflation, particularly due to possible supply shocks which could stoke food prices.

“Inflation is still one of the main concerns given how private consumption is the largest contributor to GDP by expenditure. While we expect inflation to recede through the year and stabilize in the next, elevated food inflation threatens to slow the deceleration,” Ms. Tan said.

“That’s partly a function of poor food supply as the country is vulnerable to natural disasters like droughts and floods,” she added.

The Philippines is one of the countries most affected by storms, with an average of 20 typhoons per year.

The agriculture sector is still recovering from the impact of the El Niño, which caused P15.3 billion in total farm damage from June 2023 to August 2024.

“A key downside risk stems from the threat of climate and extreme weather-related events. For example, a stronger-than-expected La Niña and more destructive storms could cause disruptions to business activity and damage to farm output which could put pressure on food prices,” Mr. Varela said.

IMF’s Mr. Gudmundsson said that the balance of risks to the near-term growth outlook has improved but remains tilted to the downside.

“On the downside, higher-for-longer interest rates or spillovers from fiscal risks in the United States could result in tighter financial conditions than expected in the Philippines and larger-than-expected capital outflows,” he said.

Barring these risks, inflation is widely expected to begin easing for the rest of the year and in 2025.

“Inflation is expected to stay within the target range in the second half of 2024 and 2025, benefiting from the continued easing of international commodity prices and reduction in tariffs on imports, although the upside risks, such as peso depreciation, and wage increases, remain,” Mr. Tsang said.

The tariff cut is also widely expected to boost household consumption, Mr. Dacanay said.

“Households in the Philippines usually spend 9% of their budgets on rice so potentially lowering rice prices by a fifth can help lower the pressure on household budgets and unleash as much as 1.1% of GDP. That’s a lot of potential growth waiting on the sidelines.”

In June, President Ferdinand R. Marcos, Jr. approved a reduction on tariffs on rice imports to 15% from 35% previously, until 2028.

OTHER RISKS
Apart from inflation, analysts also cited other factors that could derail the country’s growth path.

Mr. Varela noted delays in the implementation of key investment and productivity-enhancing reforms, which could hinder the entry of foreign investments.

“Greater investment in physical infrastructure and human capital is still needed, while the Philippines has a lot of catching up to do in terms of signing and joining major free trade agreements with the world’s largest markets,” Mr. Chanco said.

In the long term, Mr. Tsang said that lagged effects from the pandemic could continue to constrain growth amid the “slow upgrading of the labor force and weak recovery in private investment.”

“Meanwhile, the potential growth is also affected by the pace of infrastructure development, prolonged geopolitical risks, and natural disasters caused by climate change. These factors underscore an urgent need for action to foster resilient, sustainable, and inclusive long-term growth,” he added.

To achieve higher growth, Mr. Tsang said the economy should address the scarring effects of the pandemic “by implementing human capital policy and investment policy in a timely manner and continue to embark on infrastructure development.”

Mr. Gudmundsson also noted that an escalation in geopolitical tensions could “disrupt trade and put pressure on the peso.”

GROWTH DRIVERS
Meanwhile, the NEDA secretary said that the government is ensuring that growth will be felt across all sectors.

“In the meantime, we are pushing every policy lever that we can use that ensures growth is not just high, but also inclusive. Despite the inflation pressure, growth has been broadly inclusive,” Mr. Balisacan said.

Mr. Varela said the economic growth potential for the Philippines remains high over the medium and long term.

“If the government commits to a combination of fiscal prudence and ambitious investment and productivity-enhancing reforms, the economy could be growing at higher rates than the already high rates at which it is growing today,” he said.

The government must also ensure the timely implementation of reforms to strengthen competition and boost productivity, Mr. Varela said.

“In an increasingly competitive environment, further efforts to attract FDIs (foreign direct investments) and measures to ensure knowledge transfer will be needed,” Mr. Tsang said.

Infrastructure development will also be key to supporting robust growth.

“The pace of infrastructure development is one of the key challenges facing the Philippine economy. Infrastructure investment should be stepped up through strategic prioritization among different sectors and effective utilization of various funding sources,” Mr. Tsang said.

The Marcos administration plans to spend 5-6% of GDP on infrastructure annually.

Mr. Dacanay noted that infrastructure must be well-planned and well-designed to “prioritize the overall mobility and welfare of all Filipinos, regardless of income.”

He said infrastructure development must also incorporate climate mitigation to make sure Filipinos become more resilient in the face of stronger typhoons.

“Looking forward, accelerating reforms to raise productivity, reduce infrastructure and education gaps, and harness benefits from the digital economy and demographic dividends could boost the country’s potential growth,” Mr. Gudmundsson said.

Policies must also strengthen social protection schemes and address climate issues, Mr. Gudmundsson added.

“In addition, policies that aim to close the physical and human capital investment gaps for the country will be important to boost our long-term growth prospects. This will allow the Philippines to continue to expand its potential growth,” Mr. Varela said.

UPSKILLING
The government must also focus on upskilling the labor force, analysts said.

“Overcoming the scarring effects of the pandemic mandates a sustained focus on upgrading and upskilling the workforce to embrace a more technology-driven economy,” Mr. Tsang said.

“In particular, the government should closely collaborate with the industries and training providers to formulate action plans and implement the plans to ensure that the supply of skilled labor is matched with industries’ demand,” he added.

Robust investments to generate quality employment is one of the priorities of the administration, Mr. Balisacan said.

“Our push is for investments, massive investments that we need to do because then the returns of labor will be higher in those places where there are investments.”

Mr. Balisacan said the government should address Filipino students’ learning losses from the pandemic as its effect will be felt when they join the workforce in a few years.

The NEDA in 2021 said that the lack of face-to-face schooling for one year during the pandemic may result in over P11 trillion in productivity losses over the next four decades.

Mr. Dacanay noted that skills training must also incorporate emerging technologies such as artificial intelligence (AI).

“Skills training needs to be prioritized, particularly in AI, to maintain the momentum seen in the country’s digital space,” he said.

By sector, the services industry is seen to continue being a key driver of growth. It is typically the biggest contributor to the economy among major industries.

“Within services, growth will be led by wholesale and retail trade as monetary policy easing reduces pressure on households’ budgets, giving consumer spending a lift,” Ms. Tan said.

Mr. Tsang said that the business process outsourcing (BPO) industry will “expand robustly going forward.”

“The BPO sector will continue to grow given the ongoing trend of digitalization and steady rise in external demand for IT-BPM services for cost optimization.”

Tourism is also seen as a bright spot for the Philippines, Mr. Tsang said.

“In the coming years, there is potential in the tourism industry with strong domestic tourism, and the level of international tourists is expected to surpass the pre-pandemic level,” he said.

In 2023, tourism accounted for 8.6% of GDP, up from 6.4% a year ago. The industry’s direct gross value added, which measures the value generated from various tourism-related activities, was P2.09 trillion.

The country should also continue to enhance the manufacturing of semiconductors, its top export.

“Over the near to medium term, the Philippine semiconductor industry is expected to benefit from the upturn of the global semiconductor cycle (it is expected to last until mid-2025) and the US semiconductor diversification strategy,” Mr. Tsang said.

Ms. Tan said that enhancing semiconductor production to move up the value chain will “attract investment and talent, improving the sector’s competitiveness.”

“Rising factory output is crucial to maintaining economic expansion; since the end of the pandemic, manufacturing output growth has lagged service-providing industries by half,” she added.

PHL on track to meet fiscal consolidation goals despite record-high debt

September 9, 2024 | 12:29 am

THE NATIONAL GOVERNMENT (NG) remains on track with its medium-term fiscal consolidation program even as it continues to borrow to help spur economic growth and as its debt remains at a record high due to loans racked up during the coronavirus pandemic.

Finance Secretary Ralph G. Recto said at a Congress hearing in August that the Philippine economy, as measured by its gross domestic product (GDP), is on track to outgrow its debt as targeted under its medium-term fiscal consolidation framework.

“From 60.9% (debt-to-GDP ratio) in 2022, it fell to 60.1% in 2023. And we are determined to continue pushing it below 60% so we have enough buffer in case another crisis hits us,” Mr. Recto said. “The continuous decline in our debt-to-GDP ratio since the pandemic is one of the reasons why our credit ratings remain high… This means that we not only have the capacity to pay our debts, but we can have more access to cheaper financing.”

The debt-to-GDP threshold considered by multilateral lenders to be manageable for developing economies is 60%.

The Finance chief said the government is still paying off borrowings made during the coronavirus pandemic, resulting in narrower fiscal space.

“There is nothing inherently wrong with a country having debt, as long as the money’s used for the right purposes, such as growing the economy, which in turn creates more jobs, increases income and provides more revenues for the government,” he said. “In our case, we are using debts to spur our stronger economic recovery by investing in more infrastructure and human capital development projects which have the highest multiplier effect on the economy.”

According to data from the Bureau of the Treasury, the government’s outstanding debt stood at just P7.73 trillion at end-2019 or before the coronavirus pandemic, accounting for 39.6% of GDP. The economy expanded by 6.1% annually that year.

This jumped to P9.795 trillion by end-2020 or 54.6% of GDP as the government borrowed to help support the economy — which contracted by 9.5% that year — and fund its spending needs during the health crisis.

Indebtedness further ballooned to P11.73 trillion as of 2021 (60.4% of GDP) and to P13.42 trillion by end-2022 (60.9%). This came even as the economy rebounded, growing by 5.7% in 2021 and by 7.6% in 2022.

At end-2023, the NG debt level rose 0.7% annually to P14.62 trillion, although its share in GDP inched down to 60.1%. GDP growth slowed to 5.5% last year.

As of end-June 2024, the NG’s outstanding debt stood at a fresh record high of P15.48 trillion, up 9.4% from a year ago. This translated to a debt-to-GDP ratio of 60.9% as the economy expanded by 6% annually in the first half.

The government set a debt-to-GDP ratio target of 60.6% for this year as its outstanding debt level is expected to reach P16.06 trillion and as it aims for 6-7% economic growth.

Under the Development Budget Coordination Committee’s (DBCC) updated medium-term fiscal program, the government aims to bring this ratio down to 60.4% by end-2025, 60.2% in 2026, 58.4% in 2027 and 56.3% in 2028. This, as it targets GDP growth of 6.5-7.5% in 2025 and 6.5-8% from 2026 to 2028.

“We make sure that when we do our borrowing, we take into account all these debt management objectives of making sure that we manage our refinancing risk, and our interest rate risk exposure is minimal,” National Treasurer Sharon P. Almanza told BusinessWorld via telephone.

Under its revised fiscal framework, the government wants to maintain an 80:20 borrowing mix in favor of domestic sources until 2028 to lessen foreign exchange risks, Ms. Almanza said.

Around 80% of the government’s current obligations have long-term maturities, making its current debt structure manageable, she added.

“So long as the economy is growing more than the cost of our borrowing, we are still able to reduce our debt ratio.”

Debt watcher Fitch Ratings said strong nominal GDP growth and narrowing budget deficits should help bring down the share of debt in the Philippine economy over the medium term.

The government has capped its budget deficit at P1.48 trillion this year, which is equivalent to 5.6% of GDP. The ratio is expected to gradually go down over the next four years to 5.3% in 2025, 4.7% in 2026, 4.1% in 2027, and then to 3.7% of GDP by 2028, closer to the pre-pandemic levels of 2-3%.

REVENUES NEEDED
“We believe there is some risk of further fiscal slippage, given the government’s continued focus on economic growth and the approach of midterm elections in May 2025. The Finance secretary has publicly indicated that no new taxes would be imposed in 2024, and possibly until the end of the Marcos administration in 2028. Nevertheless, we note that overall budget balances have tended to be close to the targets in recent history,” Fitch Ratings said via e-mail.

This highlights the balancing act needed to ensure strong fiscal health, Moody’s Analytics economist Sarah Tan said in an e-mail.

“The government needs funding to provide support for the country to expand, but it also needs to ensure that its debt doesn’t balloon. The million-dollar question is where this source of funding will come from, but the answer is not as straightforward. Ideally, funding should be less reliant on borrowings and more on tax revenue collections. This reinforces a kind of self-sufficiency,” Ms. Tan said.

“However, the current administration appears to be more hesitant towards the creation of new tax revenue streams, which could hinder the country’s fiscal consolidation efforts. But this is understandable as increasing consumption taxes could threaten to stall the country’s growth engine — private consumption.”

Based on the DBCC’s revised medium-term fiscal program, government revenues are expected to grow by 10.3% annually from 2024 to 2028, reaching P6.25 trillion or 16.9% of GDP by the end of the Marcos administration, supported mainly by tax administration reforms.

Meanwhile, government spending is estimated to remain at an average of about 21% of GDP over the medium term, reaching P7.621 trillion by 2028, the DBCC said. The government wants disbursements for infrastructure to reach 5%-6% of GDP to create a multiplier effect on the economy and seeks to invest in programs and projects that promote social and economic transformation.

Revenue collection currently remains “modest” and could be insufficient to fund the government’s spending priorities, which could result in needing to take on more debt to bridge the gap, GlobalSource Partners’ Philippines analyst and former Bangko Sentral ng Pilipinas Deputy Governor Diwa C. Guinigundo said.

There is a “natural limit” to relying on better tax administration to boost revenues, he said. “The Philippine government also needs to strengthen its tax structure by broadening the tax base and making it more progressive.”

“While debt aggregates continue to be manageable, if our revenue effort remains modest and our public expenditure remains substantial, their proportion to GDP and the corresponding debt service burdens could be unsustainable. There ought to be a significant improvement in both higher revenue effort and more modest expenditure programs in the medium term,” Mr. Guinigundo said.

“Our total outstanding debt-to-GDP ratio is a little over 60%, but still manageable. So, we’re okay. But ideally, we should be further reducing this ratio below the internationally accepted threshold,” former Finance Secretary Margarito B. Teves said in a virtual interview.

Mr. Teves noted that the Philippines’ revenue collection is not as efficient as its regional counterparts.

“We also need to figure out whether there are some few tax measures that should be reasonably proposed to Congress for approval.”

Mr. Recto has said they do not plan to introduce new taxes to raise revenues as they want to focus on improving collection efficiency.

The Finance department has only backed the passage of several revenue reforms to boost revenues: the excise tax on pickup trucks and single-use plastics, changes to the mining fiscal regime and the motor vehicle road user charge, and amendments to the Corporate Recovery and Tax Incentives for Enterprises law. These measures remain pending at different levels in Congress. Only the proposed value-added tax on digital service providers has been passed by lawmakers.

STRATEGIC SPENDING
“The sustainability of the debt management trajectory depends on the government’s ability to maintain a balance between borrowing and economic growth,” Asian Development Bank Country Director for the Philippines Pavit Ramachandran said in an e-mail.

The government must continue to implement reforms like optimizing revenue collection through tax reforms and enhancing nontax revenues, which will allow it to invest in key sectors to boost the economy, he said.

“Structural reforms include market liberalization that opens the economy to more foreign investment and trade, and boost growth prospects. The acceleration in public investment, with its high multipliers, continues to lift growth. Strategic investments in infrastructure and key economic sectors can drive economic growth, expanding the revenue base while lowering the debt-to-GDP ratio,” Mr. Ramachandran added.

“Revenue is just one half of the equation. Expenses by the government should also be kept in check. Prudent spending will go a long way in reducing debt,” Moody’s Analytics’ Ms. Tan said. “If we talk about priorities, perhaps in industries that are more exposed to the private sector such as manufacturing or construction, the government should advocate for even more public-private partnerships. This could help reduce the load on public funding. In doing so, more funding can then be allocated to other sectors such as health and education.”

The government must ramp up investments in infrastructure and upskill the labor force to boost economic activity as part of its debt management efforts, GlobalSource Partners’ Mr. Guinigundo added.

“The Philippine government can only be an enabler of business activities. As such, it should concentrate on providing infrastructure, both soft and hard. It should provide quality education at all levels to ensure we have a competitive labor force, a labor force that knows how to leverage technology and digitalization, a labor force that should be the subject of constant reskilling and upskilling,” he said. “On hard infrastructure, it should concentrate on establishing both physical and communication connectivity. The Philippines is an archipelagic country and therefore transportation infrastructure is most critical.”

“If we are able to boost business activities in a big way, then we can also nurture exports and win big in foreign exchange earnings. That should help us service foreign debts,” Mr. Guinigundo said. — Beatriz Marie D. Cruz

Navigating climate risk in the Philippines through insurance

September 9, 2024 | 12:28 am

Flood-residents-rescue — PHILIPPINE STAR/MIGUEL DE GUZMAN

By Arup Chatterjee

AN AVERAGE of 20 storms and typhoons hit the Philippines each year, leading to flooding, landslides, and storm surges that ravage communities and cause significant economic losses. No other country is more at risk from natural hazards, according to the World Risk Index.

Implementing proper financial protection arrangements is crucial to climate change resilience by better managing residual risks and setting incentives for financial preparedness. The Philippines has an enormous catastrophe protection gap — the difference between optimal and actual insurance coverage — at 98%, compared with the world average of 58%. The insurance penetration rate is currently less than 1%, leaving many people, especially in vulnerable communities, acutely exposed.

Climate risk manifests in two ways. First, physical risks can damage properties and disrupt supply chains, causing enormous economic losses. A lack of climate risk mitigation infrastructure and other capacities exacerbates this. Second, policy, technology, and market sentiment shifts raise costs, reduce incomes, and strand assets amid a transition to a low-carbon economy. Both types of risks impair asset values and the credit quality of loans and investments from banks, financial institutions, insurers, and capital markets.

Without appropriate countercyclical financing mechanisms, such as income-smoothening social safety nets and public insurance schemes it can create sizeable implicit contingent liabilities for the government in its disaster response due to a perceived moral obligation for it to pay for losses.

Yet, national and local governments across Asia and the Pacific have been slow in integrating climate risk into their decision-making and strategies.

As society’s risk managers, insurers play a critical role in the intricate web of climate change complexities, ensuring financial stability. The insurance industry’s unique expertise enables it to assess and price risk through differential premiums and set deductibles to incentivize climate-resilient and green investments.

IMPACT OF EXTREME WEATHER
Moreover, price signaling can incentivize policyholders to mitigate risk and minimize the impacts of extreme weather.

For instance, the International Energy Agency forecasts that renewable energy sources such as solar and wind will contribute 49% of global electricity generation by 2050. By popularizing insurance that covers the entire life cycle of renewable energy projects, the Philippines can de-risk energy efficiency financing, providing confidence to potential private investors in green technology projects.

Earlier this year, a dangerous heat index of 43 degrees Celsius led to severe livelihood, food, and health insecurities. Innovative heat-stress insurance can reduce these impacts by offering financial compensation and shock-responsive social protection. For example, vulnerable women working in extreme heat can receive multiple payouts to compensate for missed work when temperatures hit a pre-determined level over a pre-defined period.

The International Rice Research Institute estimates that grain yield decreases by at least 10% for each 1-degree Celsius increase in growing-season minimum temperature in the dry season. In the agriculture sector, crop insurance is crucial in securing the livelihoods of Filipino farmers against multiple risks. By offering discounted premiums for climate-resilient measures like sowing drought-resistant seeds, these insurance schemes can significantly increase their overall cost-effectiveness in the face of climate-related risks.

It is important to keep in mind that while climate-related risks present challenges to insurance operations, they also present opportunities for growth and innovation. The insurance sector in the Philippines is currently facing these headwinds, but by focusing on strengthening risk-based and market conduct regulations, developing new taxonomies — a key strategy in addressing climate-related risks, and implementing best practices, the Philippines insurance sector can pave the way for new product development that meets the demands of a changing risk landscape.

These factors can affect the insurability of policyholders’ assets and incomes, and insurers’ operations and investments. Increased natural catastrophe exposure can lead to significantly greater risk capital requirements, reduced reinsurance capacity for nonlife insurers, or higher premiums.

Policyholders vulnerable to climate-related catastrophes may face financial exclusion as premiums become unaffordable or the cover is not within an insurer’s risk appetite. The delicate balance between premium affordability and risk-reduction incentives is critical in this scenario.

ROLE MODEL
The insurance industry should prepare itself to play a pivotal role in reducing residual risks and narrowing the protection gap by actively pursuing financial risk literacy. This is not just a challenge but an opportunity for the industry to make a significant positive impact.

The Philippines is seen as a role model for implementing a toolkit of sovereign disaster risk financing instruments using a risk-layered approach. This involves using multiple financial instruments, each with a different risk profile, to manage and mitigate the impact of climate change-induced events. By diversifying the risk, the Philippines can reduce the overall financial implications of these events.

Public-private partnerships and pooling mechanisms can provide affordable coverage, helping real-economy actors to absorb shocks and protect their debt-service exposure against climate change-induced events. This underscores the importance of collaboration in addressing climate change risks. The Asian Development Bank (ADB)-supported Philippine City Disaster Insurance Pool project will provide cities with cost-effective insurance and offer near-immediate payouts for post-disaster response.

The Philippine insurance industry must invest in modern data management systems to reshape the insurance value chain. A much greater volume, velocity, and granularity of data is also needed to allow consumers and insurers to understand and price risks. Any successful response must involve compulsory and voluntary measures backed by a robust assessment, implementation, and monitoring framework that leverages the latest technologies — big data, data analytics, automation, artificial intelligence, and machine learning.

Finally, policy reforms are needed to drive climate-sensitive public policies and disaster risk management solutions. Environmental, social, and governance issues are gaining traction with institutional investors on projects that deliver measurable nonfinancial benefits while improving long-term financial returns.

Insurers must shift business models away from transactional risk transfers and indemnity payments toward mitigating physical climate risks. These can include rebates for using resilient construction materials, working with governments to improve land use planning and building standards and policies, and supporting a just transition to clean energy.

Climate action can improve lives, create jobs, build green cities, and protect ecosystems. The Philippine insurance industry is well-equipped to play a crucial role by reducing residual risks and narrowing the protection gap by actively pursuing financial risk literacy.

Arup Chatterjee is principal financial sector specialist of the Finance Sector Group of the Asian Development Bank.

Sustaining growth momentum in an ever-changing global landscape

September 9, 2024 | 12:27 am

silhouette-students-graduation — BAIM HANIF-UNSPLASH

By Gonzalo J. Varela

THIRTY-SEVEN years ago, when this newspaper was reformed under this new name, the average Filipino earned less than one tenth of the income of the average high-income person. Since then, the Philippine economy has experienced significant growth. Today, that same average Filipino earns almost one-third of the income of his peers in high-income countries — still a large gap, but a narrowing one. The value Filipinos add at work has doubled in real terms since the late 1980s. But that growth was not uniform over the 37 years. The past decade, even with the COVID-19 shock that wiped out 10% of the Philippines’ income in one year alone, showed as much growth as the other 27 years combined.

This recent growth has three distinct features: it’s about catching up, a better use of resources, and an inward shift.

The first distinct feature is catching up. At the household level, incomes of the poorest families have grown faster than those of the better-off families, reducing income disparities. To be sure, income disparities in the Philippines are still among the highest seen in East Asia, but they narrowed during the past decade. At the firm level, productivity improvements were most pronounced among mid-level firms, which grew about 30% faster than leading firms. The catch-up is positive, and even natural. Yet, sustained growth requires innovative leading firms that keep pushing the boundaries of productivity. Regionally, labor productivity gains were stronger in less developed areas — take region XII in Mindanao, or Eastern Visayas — than in the National Capital Region, thus helping reduce the long-standing income gaps between different parts of the country.

The second distinct feature of growth is a better use of resources. If Carlos Yulo had been forced to box, and Nesthy Petecio and Aira Villegas to be gymnasts, the Philippines would have not secured the three medals it did in Paris. They excelled by focusing on their strongest fields. Similarly, over the past decade, the Philippines benefited from aligning resources with their most productive uses. Many workers moved from informal, self-employment activities, often in agriculture, to higher-productivity, formal, wage employment that increased by nearly ten percentage points over the past decade. While these job changes have boosted overall productivity, many of the new jobs still offer unstable work conditions and few benefits. When focusing on firms, the most productive ones are the ones that employ the most workers. In manufacturing, the most productive 20% of firms employ 46% of workers, while the least productive 20% employ only 6%. In services, the shares are 31% versus 10%. This part is good news. However, because the leading firms have not been all that dynamic, the new jobs are not being created by the most productive, but rather those in the middle of the distribution. Ensuring the most productive recover dynamism will be crucial to sustain allocative efficiency.

The third distinctive feature of the past decade’s growth was its inward focus. As the economy grew, sectors not exposed to international competition, known as non-tradable sectors, such as construction, for example, saw faster asset growth than those engaged in international trade, such as food production or business process outsourcing. While this is a common trend for growing economies, it also presents risks. Vietnam, for example, which during the period grew on par with the Philippines (even slightly faster), it did so while becoming more outward-looking, promoting foreign direct investments and deepening its integration with the global economy.

The Philippines saw its export-to-gross domestic product ratio decline from 34.7% in 2010 to 26.7% in 2023. Over that period, the number of exporting firms also fell to 2,750 from about 3,500. This inward shift could limit future growth. In the Philippines, firms that engage in international trade are typically about 2.5 times more productive than those focused solely on the domestic market, and they get more productive as they export more systematically. Exposure to global competition drives innovation and efficiency, as firms learn and adapt — a concept known as “infusion.”

Our Olympians can help illustrate. Yulo, Petecio, and Villegas didn’t win their medals by competing only at home or erecting artificial barriers so that others could not beat them. They trained hard, exposed themselves to tough international competition, and incorporated global best practices into their routines. In a similar way, firms need to look outward, adopt technologies, modern management practices, and continuously innovate to stay ahead.

Looking ahead, the global economic environment presents new challenges that the Philippines must navigate carefully. Global growth potential, the rate at which the world economy can expand without causing inflation, is expected to drop to a three-decade low by 2030. This decline is driven by falling productivity growth, weaker international trade, and geopolitical tensions that have led to more protectionist industrial policies.

Climate change has moved from a future threat to a present reality. Adapting to it increasingly demands more of the limited fiscal space and requires modifying business strategies. Decisions on infrastructure investment, business locations, and production methods are increasingly shaped by the need to build resilience against climate impacts, or to produce in a way that helps mitigate it. The rapid advancement of technologies, particularly artificial intelligence (AI), also presents both opportunities and risks. In sectors like BPO, which has been key to the Philippines’ growth, AI could either enhance the country’s competitive edge by complementing workers’ skills, or undermine it by substituting labor, depending on how both policy makers and businesses respond.

To sustain growth in this changing environment, the Philippines needs to focus on three critical areas: enhancing competition and global integration, investing in skills, and strengthening institutions.

Competition and integration are essential. Recent reforms in sectors like logistics, telecommunications, and renewable energy are positive steps. These reforms, when fully implemented, will attract investment, boost competition, and improve the efficiency of these key sectors, leading to broader economic benefits. Additionally, reducing cross-border trade and investment costs will help facilitate knowledge transfer and productivity growth. Deep trade agreements are effective instruments to decrease these costs and can also help counter the negative effects of protectionist policies.

Investing in skills is just as important. The Philippines faces high levels of learning poverty and stunting problems that directly impact long-term growth. Investing in health and education from an early age is critical, but it’s also important to provide continuous training opportunities that allow workers to adapt to and use new technologies like AI, rather than be replaced by them.

Finally, institutional development is necessary for sustained growth. Efficient and accountable public administration is key to the effective design and implementation of policies. Good data and continuous monitoring and evaluation are important to assess outcomes and adjust as necessary. For the Philippines, strengthening the capacity of local governments is particularly important to support the spatial economic convergence that has contributed to so much growth over the past decade.

The challenges ahead are real, but so are the opportunities. By focusing on competition, embracing integration into the global marketplace, skills upgrading, and institutional development, the Philippines can continue its upward trajectory, and even accelerate its growth potential, moving closer to its goal of becoming a prosperous middle-class society by 2040. The future holds great promise if the reform momentum is maintained.

Gonzalo J. Varela is World Bank lead economist and program leader of the Equitable Growth, Finance and Institutions Practice Group for Brunei, Malaysia, the Philippines, and Thailand, based in Manila

Green is good: Why more developers eye green certifications for buildings

September 9, 2024 | 12:26 am

By Aubrey Rose A. Inosante, Reporter

PHILIPPINE property developers are increasingly seeking green certifications for office buildings not only because of government energy mandates but also rising demand from multinational companies.

It’s no longer uncommon to find developers touting the sustainable features of their new office buildings, which have received certifications like Leadership in Energy and Environmental Design (LEED), Building for Ecologically Responsive Design Excellence (BERDE), Excellence in Design for Greater Efficiencies (EDGE) and WELL Building Standard.

To get a green building certification, a project must meet certain environmental and sustainability standards. These usually ensure that a building meets high standards of energy efficiency, resource conservation, air quality, among others.

“We see the increase (in green certifications) because of the mandates by the government, such as the Department of Energy, to comply with the laws to Republic Act No. 11285 or known as the Energy Efficiency and Conservation Act,” Jess Niño H. De Villa, Head of Engineering, Energy and Environment of Knight Frank told BusinessWorld.

The law requires Philippine businesses to monitor energy consumption, which is the top contributor to net-zero emissions.

“Certification helps ensure compliance with these requirements, avoiding potential fines or legal issues, making it a top reason for properties to adopt green certifications in the Philippines,” Mr. De Villa said.

Green certifications can make a big difference in attracting potential tenants.

“A green-certified building can be more attractive to potential tenants who prioritize environmental responsibility. Green certification can set a building apart, making it a preferred choice for tenants and investors who value sustainability,” he added.

As of now, 31.2% of the 8.5 million square meters (sq.m.) of existing office supply within Metro Manila have varying levels of LEED certifications, Mr. De Villa said.

He noted the NEO Property Management’s real estate portfolio in the Philippines was the first in the world to secure the International Finance Corp.’s (IFC) EDGE Zero Carbon certification. NEO’s entire portfolio is powered by Cleanergy, which delivers 100% renewable energy.

While the cost of securing green certifications can be costly, it can still be worth it for developers.

“In general, (the cost of the) certification is still quite low in terms of the savings that you can be able to gain and for the revenue,” Mr. De Villa said.

STRONG DEMAND
Demand for green certified buildings in the Philippines is also driven by multinational companies.

“It’s largely because of the Western companies and Western tenants moving to the country, requiring their buildings to be LEED certified. Their head offices in, let’s say, London and the US, have certain requirements for the office space that they need to occupy here,” Leechiu Director of Research Roy Amado L. Golez, Jr. said.

Mr. Golez said most of the newer buildings are compliant with green building standards, mainly because they don’t want to lose out on the tenants whose parent companies are based or headquartered in Western countries.

“It has become a must-have. If you don’t have it, your market might be smaller,” Mr. Golez said.

CBRE Philippines Country Head Jie C. Espinosa said global companies make green building standards a “first hurdle” when choosing office spaces.

“There are certain cases, that these occupiers consciously negotiate provisions in their contract, that down the road developers need to be proactive in providing sustainable features into their buildings,” Mr. Espinosa told BusinessWorld over a video call.

Green leases, rental agreements where tenants and landlords set sustainability-related targets, benefit both parties by raising the value of the property and creating incentives for tenants.

Mr. De Villa said domestic companies also see green-certified office buildings as an ideal location for their operations, as they also seek to comply with evolving environmental standards.

He also noted that tenants that want to integrate sustainability in their operations are willing to pay premium rates to secure office spaces in buildings with green certifications.

ADOPTION HIGH IN METRO MANILA
Central business districts in Metro Manila have seen significant gains in green building adoption in recent years, CBRE Philippines Director of Advisory and Transactions Services Garri Amiel P. Guarnes said.

Based on CBRE data, the office segment in Fort Bonifacio has seen its green building adoption rate jump to 73% in 2024 from 63% in 2022.

For Alabang, the green building adoption rate inched up to 67% this year from 49% two years ago.

The green building adoption rate in Ortigas rose to 66% in 2024 from 42% in 2022, while in Quezon City, it went up to 45% in 2024 from 42% in 2022.

However, green building adoption in provincial locations is lower than in Metro Manila, Mr. Guarnes said.

“This was due to developers being more focused towards third-party outsourcers but moving forward, these companies or the clients they serve would implement their sustainability targets,” he said.

In Davao, 24% of the office stock is green certified, followed by Cebu with 23%, Iloilo with 16% and Pampanga with 8%.

However, Cebu is leading in terms of the rate of increase in adoption, Mr. Guarnes said.

In Cebu, 44% of the recent completions between 2020 and 2024 have green certifications, while 16% are still under application.

FIVE-STAR BERDE
For Aboitiz InfraCapital, Inc., its 800-hectare LIMA Estate in Lipa-Malvar, Batangas, is one of the strongest examples of a green-certified property.

“It’s been recognized as a five-star BERDE, which means it is implementing sustainable practices that are aligned with the global standards,” Aboitiz InfraCapital, Inc. Economic Estates Vice-President for Inventory Generation Group Jolan P. Formalejo said.

BERDE is a local green building system rating that was developed by the Philippine Green Building Council.

Mr. Formalejo said the developments inside the estate, such as the Outlets at Lipa and the LIMA Tower 1 were five-star BERDE certified in 2022.

LIMA Tower 1 holds a BERDE certification for environmental sustainability, and has pre-certification from the WELL Building Standard, which assesses features promoting health and well-being.

“Hopefully, once we start to operate LIMA Tower 1, all the tenants will appreciate the operational savings that they can achieve,” Mr. Formalejo said.

He said the Smart Water Network, wherein its water facilities turn into interconnected and intelligent systems, operated by LIMA Water Corp., resulted in 30% savings in operations and uptime of 99.3%. It is also less than 5% in terms of wastage of non-renewable water.

“Soon we will be developing our Tower 2. We’ll also gear up for these certifications,” he said, adding that The West Cebu Estate and Mactan Economic Zone 2 Estate are aiming for five stars this year.

Mr. Formalejo noted these green certifications make the locators feel secure knowing their business operates inside a sustainable development along with the assurance that all these facilities and systems are future proof.

Makati CBD: The premier financial center, getting its second wind

September 9, 2024 | 12:25 am

buildings-skyline — JC GELLIDON-UNSPLASH

By David Leechiu

FOR MORE THAN 50 years now, the Makati Central Business District (CBD) has been at the heart of the Philippines’ business scene. It was the pioneering district that set the standard for urban development in Metro Manila. What started as a farm with an airport has grown into the premier mixed-use master-planned city. Makati has evolved into the large-scale transit-oriented development that we see today. And it continues to evolve.

ENTERPRISING VISION
Those familiar with the history of Makati know its beginnings stemmed from the vision of Colonel Joseph McMicking who dreamed of building a city and, with Alfonso Zobel de Ayala and Colonel Jaime Velasquez, persevered in creating the prime financial district of Makati, centered around the runways of Nielson Airport. We can still see evidence of that airport in the Nielson Tower which was the airport’s control tower and now form the Ayala Triangle. Colonel McMicking was married to Mercedes from the Zobel de Ayala clan. The connection of their families birthed the vision and eventual execution of plans for Makati CBD. Ayala Corp. still helps shape the CBD today, influencing its growth and continued development.

USHERING THE SUCCESS OF OTHER CBDS
Makati CBD’s success helped pave the way for other business districts. This is especially true for Bonifacio Global City (BGC), separated from Makati CBD only by Epifanio de los Santos Avenue and luxury villages. Like Makati CBD in its early stages, BGC has fresh new buildings that meet today’s standards of efficiency, sustainability, and smart technologies. However, despite being an older district with aging developments, Makati CBD still retains its identity as a premier business and financial district.

UNDERGOING REDEVELOPMENT
Many of the structures in Makati were constructed more than three or four decades ago. The designs of these old buildings have been eclipsed by newer more efficient plans and technologies. These structures do not meet the demands and requirements of the current market. Thus, we see older buildings suffering higher vacancies as preference has shifted to the more cost-efficient space in newer buildings — the tenants’ flight to quality.

The Makati CBD, however, remains competitive, as buildings have been torn down to make way for newer, more dense glass towers but whose design and features are more in line with the current needs of businesses. Makati is no stranger to redevelopment. It has undergone this kind of transformation before. And despite the changes it seems to continually undergo, the essence of Makati CBD’s original plan remains. A revitalized skyline, ensuring the CBD remains modern.

SELECT PROJECTS UNDERWAY
Some developers have already disclosed their plans for redevelopment. For instance, Ayala Land Premier is developing the old site of Le Parc Apartments into a 51-storey exclusive luxury residential tower with large residential condominium units. Bank of the Philippine Islands is building its new sustainable and green headquarters at the corner of Ayala Avenue and Paseo de Roxas, offering around 89,000 square meters of gross floor area. Meanwhile, the new Mandarin Oriental Hotel at the Ayala Triangle Tower 2 will open in 2026, which will offer 276 rooms. Other building owners are in various levels of the planning process looking to redevelop their properties.

MAKATI CBD’S REAL EDGE
What keeps Makati CBD at the forefront isn’t just its master plan, it’s the responsiveness of its stakeholders to keep it at the top spot as a preferred business district. The local government promotes business growth by streamlining permits processes and allowing online payments of real estate and business taxes. There’s also the Makati Commercial Estate Association (MACEA), a civic nonprofit association of stakeholders in Makati that promotes and preserves the Ayala Avenue, Paseo de Roxas, Makati Avenue, Salcedo Village, and Legaspi Village areas. But what really sets Makati CBD apart is its community. Residents, locators, and visitors all play a part in maintaining high standards for cleanliness, order, adherence to rules, making the district a model city that everyone wants to preserve — and even keep improving. We can view Makati CBD district as like a living organism with different parts, each with its own function but dependent on the other.

A LIVING, EVOLVING CITY
We will soon see a much different Makati skyline in the next decade of its life — its second wind — as it continues to evolve to meet the ever-changing needs of the people and businesses who call it home. It’s a place that will keep inspiring the growth of other township projects in the country. With the active role of stakeholders and a solid master plan, Makati CBD is set to remain at the top spot of preferred locations in the country, showcasing the legacy of a living, evolving city that adapts to ever-changing needs.

David Leechiu is the founder and chief executive officer of Leechiu Property Consultants, Inc. (LPC).

LPC provides real estate solutions to clients and partners through its expertise in tenant and landlord representation, investment sales, capital markets, general brokerage, research and consultancy, and property valuation. For more information about LPC, visit www.leechiu.com. For media inquiries or further information, contact Mawhi Steley, director of marketing and communications, at mawhi.steley@leechiu.com or 09171291650.

Recalibration to quell extinction

September 9, 2024 | 12:24 am

miniature house — TIAGO RODRIGUES-UNSPLASH

By Joey Roi Bondoc

OVER the past few years, we have seen major shifts in property developers’ strategies. From primarily focusing on Metro Manila, Colliers has seen substantial launches in growth areas outside the capital region. More master-planned projects mean sizable additions to horizontal and vertical supply across the Philippines, especially in competitive regions such as Central Luzon, Calaba (Cavite, Laguna, and Batangas) corridor, Western Visayas, Central Visayas, Northern Mindanao, and the Davao Region.

Aside from differentiation strategies employed in the construction of residential projects, developers are also acquiring massive parcels of developable land in the above-mentioned regions. These regions accounted for about 47% of the Philippine gross domestic product (GDP) in 2023 and contributed 54% to total overseas Filipino workers (OFW) deployment in 2022. These regions also grew between 5.2% and 7.3% in 2023, while the entire country’s economic output expanded by 5.7% during the year under review.

These are essential strategies for developers that aim to remain relevant in a constantly evolving Philippine property market.

FROM VERTICAL TO HORIZONTAL: THE SHIFT TO SUBURBIA
The Metro Manila pre-selling condominium market continues to see tepid launches and take-up. We attribute this to elevated mortgage rates and lengthened remaining inventory life. Colliers sees a sizable delivery of new condominium units this year, which is likely to raise vacancy in the capital region’s secondary market.

Given a lukewarm pre-selling market in Metro Manila, major developers have taken an aggressive stance in expanding outside the capital region. Property firms are actively landbanking and developing expansive master-planned communities in prime development hubs outside of Metro Manila.

Colliers believes that while property firms are launching integrated projects outside Metro Manila, developers should constantly monitor interest rate changes and assess the most attractive price segment for each Metro Manila sub-location; reassess promos for ready-for-occupancy (RFO) units; and further integrate differentiating features for condominium projects to seize recovering demand.

Developers have been recalibrating their strategies and carefully assessing which developments to focus on. The change in end-users’ and investors’ preferences post-COVID (coronavirus disease) has resulted in property firms aggressively launching massive township projects that highlight the live-work-play-shop lifestyle. Developers are also slowly shifting to horizontal residential projects in key growth areas given the Metro Manila pre-selling condominium market’s stifled demand.

INTEGRATING DIFFERENTIATING FEATURES
Colliers believes that the importance of open/green spaces, smart home technologies, and proximity to places of work and malls are highly valued more than ever. The pandemic has changed the way people live, work, and shop, resulting in developers integrating new features into their projects to satisfy residents’ evolving preferences.

In our view, residential projects in Metro Manila that provide upscale amenities and top-tier concierge services continue to remain popular among the experienced and affluent clients. We believe that developers should continue innovating with their condominium projects by offering new features and services and by aggressively differentiating. Over the past year, several developers have integrated more healthy and sustainable amenities into their newly launched projects. Some have also incorporated unique features such as glamping nooks, garden gazebos, and sky promenades as hyper-amenitized condominium developments become the norm.

LAUNCH OF HORIZONTAL PROJECTS OUTSIDE METRO MANILA
Colliers believes that developers will continue to venture into horizontal residential projects outside of Metro Manila where demand comes from end users. Among the developers that will launch massive horizontal projects outside the capital region include Rockwell Land Corp. with its 85-hectare beach property in Lian, Batangas and a 300-hectare horizontal project in San Jose, Bulacan. Century Properties, Inc. also announced that it is launching five new projects under the PHirst brand this year with a combined land area of 85 hectares.

Meanwhile, Cebu Landmasters, Inc. has also announced its plan to expand outside of Visayas and Mindanao (VisMin) and establish its presence in Luzon. The firm disclosed that it is receiving offers from landed families in Camarines Sur, Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon), and Pampanga. This is a strategic move for one of the country’s major developers in the VisMin region. This is definitely a recalibration for Cebu Landmasters, Inc., going out of its stronghold (VisMin area) and exploring investment opportunities in Luzon.

MORE JV DEALS FOR UPSCALE TO LUXURY PROJECTS
The share of upscale to luxury residential projects to total pre-selling take-up in Metro Manila increased to 18% in 2023 from 10% in 2022. We attribute this to the rising share of higher-priced condominium units to total launches in the pre-selling market in 2023. While the supply and demand for mid-income projects have held firm, the share of pre-selling condos priced at least P12 million ($214,300) per unit has steadily increased, particularly after 2020 and 2021, which we consider to be a disruptive period for the Metro Manila condominium market.

In our view, developers planning to launch projects within the upscale to luxury price band should consider joint venture (JV) deals either with local players or foreign developers. We have seen developers implementing this strategy as they attempt to push their pre-selling residential prices higher. These partnerships should be beneficial to property firms with limited landbank as well as to those that intend to offer upscale to luxury and even ultra-luxury residential projects.

As of end-2023, Colliers data showed that JV luxury projects in Metro Manila have take-up rates of between 64% and 100%.

STRATEGIC LANDBANKING FOR FUTURE MASTERPLANNED PROJECTS
Property firms remain aggressive in developing master-planned communities outside Metro Manila. Over the past 12 months, among the expansive townships launched by national players include Ayala Land, Inc.’s Centrala in Pampanga, Alsons Properties, Inc. and DoubleDragon Properties Corp.’s Northtown Center in Davao, Federal Land, Inc. and Nomura Real Estate Development Co., Ltd.’s Riverpark in Cavite, and Megaworld Corp.’s Baytown Palawan in Puerto Princesa (see map for others). Colliers attributed this not only to the lack of developable land in Metro Manila but also to a gamut of other factors, including the improving infrastructure connectivity in key development hubs outside the capital region as well as rising appetite for condominium projects and office towers.

In our view, property firms can command premium pricing for their residential projects developed within master-planned projects while office developers are able to capture demand from emerging outsourcing destinations outside Metro Manila. Colliers believes that the completion of Metro Rail Transit-7 (MRT-7), New Manila International Airport, and North-South Commuter Railway should entice more property firms to landbank near these public projects and develop new master-planned communities.

LAUNCH OF MORE LEISURE-THEMED PROJECTS OUTSIDE METRO MANILA
Developers have been taking advantage of the rising demand for resort or leisure-oriented properties outside Metro Manila. These projects were already popular pre-COVID but the pandemic only highlighted the need for these leisure-themed residential enclaves. Among the developers that have leisure-centric properties outside Metro Manila include DMCI Homes, Inc., Rockwell Land Corp., Megaworld Corp., Ayala Land, Inc., Robinsons Land Corp., Cebu Landmasters, Inc., and Damosa Land, Inc. with projects located in Cebu, Davao, Bohol, Palawan, and Batangas. These projects remain popular, and Colliers encourages developers to further assess launching similar projects.

We also see the popularity of golf communities. In our view, residential projects near golf estates have high price appreciation potential. Golf communities are also becoming popular as they are banking on the travel and tourism sector’s recovery post-COVID.

Joey Roi Bondoc is the director and head of Research of Colliers Philippines.

joey.bondoc@colliers.com

Integrated rail, bus, and active transit systems needed for better commuting — experts

September 9, 2024 | 12:23 am

Edsa carousel — PHILIPPINE STAR/MIGUEL DE GUZMAN

By Ashley Erika O. Jose, Reporter

A COMPREHENSIVE and integrated transport plan should incorporate active transportation options like walking and cycling, along with first-mile, last-mile connectivity solutions, to create a seamless and efficient network for commuters, according to transport experts.

“Investment in rail is important, but it is not the sole solution to our mobility issues; it needs to be matched by equal investment and attention to supporting active and public transportation,” Ira F. Cruz, a transport advocate and director of AltMobility PH, said in a Viber message.

Under an underdeveloped active and public transportation system, the majority of Filipinos have to contend with unreliable, unsafe, and undignified daily commutes, he said, adding that this also translates to economic losses.

With this, the government must tap and promote active transportation as part of a comprehensive transport plan involving multi-sectoral initiatives with members from the transport sector, experts, and civil organizations, he noted.

The Transportation department has launched an ambitious rail network plan designed to reduce traffic congestion, enhance mobility, and improve regional economic activities.

“We are looking into improving travel… We are expecting more progressive development of [rail projects]. We are aiming for substantial and comfortable travel times for the riding public,” Transportation Undersecretary for Railways Jeremy S. Regino said in an interview.

The worsening traffic congestion problem is not unique to the Philippines but rather similar to many urban cities across the globe driven by a car-centric society, according to analysts.

“If everybody ditched their cars and used public transport, this problem will disappear in thin air,” said Nigel Paul C. Villarete, senior adviser on public-private partnership at the technical advisory group Libra Konsult, Inc.

Mr. Villarete said the Philippines’ neighboring countries in Asia like Singapore, Japan, and Hong Kong offer good public transport alternatives that even car owners patronize.

“For Metro Manila and Metro Cebu and other urban areas in the country, we should fast-track more rail and bus-based systems,” Mr. Villarete said.

However, most of the Department of Transportation’s (DoTr) big-ticket rail projects are expected to become operational between 2028 and 2030, Mr. Regino said.

These include the North-South Commuter Railway, which is slated for full operations by 2029; the Metro Manila Subway project, which is expected to be operational by 2029; the Mindanao Railway project, currently undergoing a design overhaul; and the Metro Rail Transit Line 7 (MRT-7), which is scheduled to commence operations by 2028.

COLLABORATION
The Japan International Cooperation Agency (JICA) and the DoTr are collaborating on a railway master plan aimed at bringing the Philippines’ rail lines up to international standards by incorporating Japanese technologies, while also increasing the share of passenger trips and improving the sustainability of the rail network.

“We are also supporting the master plan for the future possibility because here you have only three lines. We have 83 lines with the same land area size between Metro Manila and National Capital Region and Metropolitan Tokyo,” JICA Chief Representative in the Philippines Takema Sakamoto said in an interview.

“We do not need a patchwork or piecemeal railway project. We need to make a comprehensive plan but that will take time,” Mr. Sakamoto noted.

The Philippines’ long-standing transport problem stemmed from the government’s decade-long refusal to introduce reforms in the transportation sector, AltMobility PH’s Mr. Cruz said.

“The government opts to continue a regime of car-oriented policies that, at the end of the day, compromises everyone’s mobility — including those in motor vehicles,” he added.

For AltMobility PH, rail networks alone will not advance the country’s transport sector as it has to be complemented by feeder systems like jeepneys.

The Philippines will never unlock the full potential of rail systems if the government continues to ignore the importance of creating an ecosystem of transportation networks, Mr. Cruz said.

For Metro Manila and Metro Cebu, the government must fast-track not only rail projects but bus-based systems like bus rapid transit, Libra Konsult’s Mr. Villarete said.

Rene S. Santiago, former president of the Transportation Science Society of the Philippines, said the Philippines’ ongoing transport challenges are a result of the government becoming oblivious to past lessons.

“Rail network will help ease congestion in the long run but won’t solve traffic congestion without corollary efforts on road-based public transport and land use controls. Our zoning regulations are a big joke,” Mr. Santiago said.

FUTURE DIRECTIONS
Mobility solutions company MPT Mobility Corp. plans to bring its proposed technology-driven mobility solutions to Metro Manila to help address transport woes.

“That is the vision. For now, let’s make this work in Baguio first,” Leo Emmanuel K. Gonzales, assistant vice-president for corporate affairs at MPT Mobility, said in a Viber message.

MPT Mobility, the innovations arm of the Metro Pacific Tollways Corp., has proposed to implement its tech-driven mobility solutions in Baguio, which include the collection of congestion fees or the mobility program, smart parking management system, advanced traffic management system, and public transport fleet management system.

Mr. Villarete said the government must also consider diversifying the mix of transport systems by also looking into first-mile, last-mile or FMLM connectivity.

He said understanding the role of FMLM and how to better utilize this mode of transportation presents opportunities in advancing the country’s transport sector.

“It’s one thing to patronize public transport, it’s another to get home from a train or bus station,” he said.

He said mobility is seldom addressed by a single solution, and while rail may offer the highest capacity, the government must still design a diversified transportation mix factoring in the rise of ride-hailing companies and transport network vehicle services.

“The speed and ease of rail transport is often offset by the difficulty and inconvenience in getting home from a station,” Mr. Villarete said.

FMLM mode of connectivity provides direct connectivity from point A to point B or an FMLM trip, he said.

“Roll out more and better passenger transport services to cover areas and provide convenient FMLM connections,” he said.

The utilization of transportation network vehicle services (TNVSs) is exactly what is needed to solve the FMLM issues as they offer solutions to other mobility needs, Mr. Villarete said, urging the government to craft better regulations for TNVS.

“TNVS offers more productive use of shared transport like cars and motorcycles. The constraint for wider use is archaic government regulations,” Transport expert Mr. Santiago said.

According to Mr. Cruz of AltMobility PH, the increasing number of TNVSs can also be leveraged, but the government should first develop a plan to assess how their growth can be integrated with other modes of transportation.

“Transport planning is a holistic practice. There is no single magic pill that will improve our mobility,” he said.

Bridging the Gap: The Bataan-Cavite Interlink Bridge

September 9, 2024 | 12:22 am

3D-Render-BCIB — A 3D render of the Bataan-Cavite Interlink Bridge | Source: The Office of Congressman Albert S. Garcia, 2nd District of Bataan

By Almira Louise S. Martinez

IN 1987, the idea of building a link from Southern to Central Luzon was first proposed by Felicito “Tong” C. Payumo, former chair of the Subic Bay Metropolitan Authority and then-Bataan representative.

“Back then, it was a lofty dream that’s very abstract, it seemed impossible,” 2^nd District of Bataan Congressman Albert S. Garcia said in an interview.

The bridge did not push through before due to several factors.

“That time the technology, the money, and the need weren’t clearly spelled out,” Mr. Garcia told BusinessWorld.

In 2018, the Japan International Cooperation Agency (JICA) released an updated report on the economic impact of traffic congestion in Metro Manila. It stated that P3.5 billion is lost every day due to the time wasted in traffic.

Mr. Garcia said the JICA report inspired him to revisit the idea of the bridge, now called the Bataan-Cavite Interlink Bridge (BCIB).

During former President Rodrigo R. Duterte’s administration, the BCIB project underwent a feasibility study as one of the 100 infrastructure projects listed under the flagship list of the Build, Build, Build (BBB) program.

The 32.15-kilometer bridge spanning across Manila Bay, connecting the provinces of Bataan and Cavite, is projected to boost regional economic integration and development.

“It has the highest economic return rate among all the BBB projects… even now at 34%,” Mr. Garcia said.

According to the Department of Public Works and Highways (DPWH), the challenges faced by the project were rooted in the difficulties encountered during the COVID-19 pandemic.

“The stringent lockdowns and health protocols significantly delayed data gathering… complicated logistics and coordination efforts,” the DPWH said in a statement.

Transitioning into the administration of President Ferdinand R. Marcos, Jr., the BCIB project was placed under the Infrastructure Flagship Projects of the Build Better More program.

With an initial cost of $3.91 billion, the bridge is envisioned as a ‘world-class’ infrastructure, given its complexity and magnitude, the DPWH said.

To fulfill the initial budget, the government utilized a multi-tranche financing scheme under which the Asian Infrastructure Investment Bank approved the $1.14-billion loan.

In 2023, the Asian Development Bank, co-financing the project, green lit the $2.11-billion loan for the bridge.

The Philippine government would cover the remaining $664.23 million in the estimated project cost.

IMPACTS OF THE BRIDGE

AN APPROXIMATION of the path of the Bataan-Cavite Interlink Bridge

The four-lane road link will minimize disparities in public service access and available economic opportunities between Metro Manila and other regions in Luzon.

Danica, a hotel receptionist in Balanga, Bataan, believes that the bridge will help businesses in the province.

“Makakatulong po siya sa business namin kasi mas mapapadali po ang pagpunta ng mga turista [It will help businesses here by making us more accessible to tourists],” she said.

When the bridge is completed, Ms. Danica said local businesses should strive to improve their facilities and strategies to keep up with new competitors.

“The bridge will open up a lot of doors for Bataan,” Mr. Garcia said.

“It will make us more accessible to 50 million tourists in the entire island of Luzon.”

The local economy is also expected to be stimulated through job opportunities, regional developments, business ventures, and infrastructure improvements, according to the DPWH.

Apart from Cavite and Bataan, the Philippine Economic Zone Authority said the neighboring economic zones — Clark and Subic, would also feel the “transformative impacts” of the mega bridge.

“Shorter travel times between major economic zones will streamline supply chains, leading to cost savings for businesses.”

ENVIRONMENTAL CONSIDERATIONS

Biodiversity in the province was one of the main concerns discussed in the 2023 DPWH environmental impact assessment of the bridge.

According to the study, one of the most significant risks of the project is the injury and disturbance of protected marine mammals.

To avoid this, Mr. Garcia said provisions and technologies will be introduced during the construction to avoid damage to biodiversity.

“They will use curtain walls while drilling to avoid noise pollution and avoid other environmental impacts,” he said.

On weather resilience, the DPWH said the BCIB project is meticulously designed given its nature as a marine bridge.

“This monumental structure is built with a 100-year design life ensuring resilience against extreme events and harsh environmental conditions.”

DECONGESTING NCR

Vehicles and motorcycles are stuck in traffic along EDSA in this file photo. — PHILIPPINE STAR/WALTER BOLLOZOS

One of the main goals of the BCIB is to decongest Metro Manila by reducing the travel time between the provinces of Cavite and Bataan.

“It will significantly cut down travel time… from five (5) hours down to 45 minutes thereby easing the traffic congestion in Metro Manila as well as in South Luzon and North Luzon gateways,” the DPWH said.

By utilizing SCTEX, Roman Expressway, BCIB, travelers can easily reach Calabarzon to save time and money, Mr. Garcia said.

“Normal travel of commuters, tourists, deliveries, logistics that doesn’t need to pass through Metro Manila can bypass it.”

Aside from traffic decongestion, Mr. Garcia said the bridge will help solve the overpopulation in Metro Manila.

“Those losses, the P3.5 billion a day, is a product of unplanned growth and unmanaged in-country migration.”

Once the bridge is constructed, Bataan expects migration due to the economic activity happening in the region.

“If we’ll be connected to a very populous area like Calabarzon and NCR, along with all the economic opportunity, growth in migration is inevitable,” Mr. Garcia said.

He added that the province is meticulously crafting a master plan to avoid creating the same ‘mistake’ as Metro Manila.

“So we prosper, we increase the quality of life, we increase the economic activity and hopefully no traffic, no pollution, more green spaces, and better work-life balance.”

The detailed engineering design and bidding of the project was done last July, according to Public Works Undersecretary Maria Catalina E. Cabral during the Build Better More Infrastructure Forum.

The BCIB is expected to be fully operational by 2029.

15 years after Ondoy: Flood safety still out of reach?

September 9, 2024 | 12:21 am

Flood area — PHILIPPINE STAR/MIGUEL DE GUZMAN

By Edg Adrian A. Eva

WHEN the Southwest Monsoon (Habagat) was enhanced by Typhoon Carina, it devastated large parts of Luzon. Many Filipinos were haunted by memories of Ondoy, a typhoon that caused record-breaking levels of flooding in Metro Manila.

Rhea Perez, a mother of three and a resident of Barangay Gulod, Novaliches, Quezon City, is no stranger to flooding as she grew up near the Tullahan River.

“With Ondoy before and then this, it’s really been traumatic for us,” Mrs. Perez said in Filipino during an interview.

“We were already awake at 4 a.m. putting aside our belongings,” she said.

“We got scared that the flood rose quickly. By the time we were rescued, the water had already reached the second floor,” Ms. Perez said.

As she returned to their home after the flooding, she remembered their experience with Typhoon Ondoy, as most of their belongings have been washed away by the flood.

“We were back to zero again,” she said.

LOOKING BACK AT TYPHOON ONDOY
The rainfall and flooding caused by Typhoon Ondoy in September 2009 have become a benchmark for subsequent floods in Metro Manila, according to Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA).

The storm inundated 80% of the capital, affecting Pasig, Quezon City, Manila, Caloocan, Muntinlupa, and Marikina, as well as nearby provinces.

The Marikina River’s water level rose to 23 meters above sea level, exceeding the 16-meter threshold that prompts evacuation of nearby residents.

Floodwaters as high as 20 feet (6 meters) were observed in areas of Marikina, Pasig, and Quezon City.

Typhoon Ondoy affected 993,227 families and resulted in 464 deaths, 529 injuries, and 37 people remaining missing, according to the National Disaster Risk Reduction and Management Council (NDRRMC).

An estimated P11 billion in damages to infrastructure and agriculture was caused by the typhoon.

CHALLENGES
• Urban congestion

The subsequent flooding in Metro Manila is attributed to the capital’s urban congestion, according to Armando Alli, an architectural consultant and environmental planner.

“The area on which the National Capital Region (NCR) sits is a massive 640.0 square kilometer floodplain. It is not actually ideal for very high-density human settlements,” Mr. Alli said.

Another issue pointed out by Mr. Alli is that urban congestion manifestations, such as structures near waterways and waste management problems, have further exacerbated the capital’s problem of flooding.

• Plastic waste

About 356,371 metric tons of “mismanaged plastic wastes” are dumped into 466 rivers across the country each year, according to a peer-reviewed study published in the Science Advances journal.

Notably, Pasig River ranks as the world’s top contributor, accounting for 6.43% of global plastic pollution.

“Require businesses to shift away from single-use plastics by adopting reuse and refill systems, and utilizing reusable materials,” Marian Ledesma, Zero Waste Campaigner of Green Peace said in a written interview.

• Water from the mountains

According to urban planner Felino A. Palafox, Jr., the region’s waterways can no longer handle the volume of rainwater flowing from nearby mountains.

“More than 4,600 cubic meters per second flowed down from the denuded mountains but the capacity of Pasig River is 600 cubic meters during Ondoy,” Mr. Palafox said.

The remaining 4,000 cubic meters of excess flood water flowed into residential areas in Metro Manila, he said.

• PHL in typhoon belt

According to PAGASA, the Philippines’ ongoing struggle with flooding is largely attributed to its geographical location within the “typhoon belt” found in the Western Pacific.

“The geographical location of the Philippines really makes it more vulnerable,” PAGASA Hydrologist Rosalie C. Pagulayan said in Filipino.

On average, up to 20 tropical cyclones enter the Philippine Area of Responsibility each year, with about 8 or 9 of these making landfall in the country.

• Climate Change

PAGASA warns that extreme meteorological events may become more frequent due to climate change.

“That’s what our climatologists always say — we could experience extreme climatic events,” Ms. Pagulayan said.

The Philippines is in the forefront of disaster risks among 193 countries from the effects of climate change, according to World Risk Index.

This study indicates that the impact of climate change is also worsening due to the lack of societal capacities and resources in the Philippines.

FLOOD CONTROL PROJECTS
A pressing concern for communities constantly plagued by these floods is how much longer they need to endure this.

DPWH Secretary Manuel Bonoan admitted that there is no single nationwide master plan for flood control in Metro Manila, but more than 5,000 completed flood projects are intended to provide immediate relief and protection for low-lying areas.

“Our decentralized strategy allows us to customize solutions for each major river basin, considering their unique geographical, hydrological, and environmental conditions,” Mr. Bonoan said.

One significant flood control project is the ongoing P351-billion plan for flood management in Greater Metro Manila.

According to the World Bank, the notable measures include construction of the Upper Marikina River Catchment Area, construction and modernization of pumping stations along critical waterways and improved solid waste management for the drainage systems.

The project completion is at 30% and is facing delays due to various factors, including environmental, social, and other issues, Mr. Bonoan said.

Mr. Palafox suggested that a similar concept to the water impounding structure in BGC (Bonifacio Global City) could be applied to some major roads in Metro Manila.

“Let’s say underneath roads like EDSA, you put a big cistern, collect the water before they flow down,” he said.

“We can have a six series of rainwater harvesting in the circumferential roads.”

IS THERE STILL HOPE?
Despite the daunting challenges facing the country’s flood management efforts, the NDRRMC remains hopeful, believing that the nation can become flood-resilient — if only we can get our act together.

The government is prioritizing and investing in engineering, science-based, and long-term solutions to effectively address the country’s flooding issues.

Mr. Alli believes that achieving flood resilience within 18 to 25 years is possible, but only if we commit to a concerted effort across multiple administrations.

“It has to be a very well-coordinated and sustained effort using a combination of natural and artificial solution that must put politics in the backburner,” Mr. Alli said.

PHL firms need to embrace AI to stay ahead in the digital era — experts

September 9, 2024 | 12:20 am

digital-blue-hud-interface-laptop-concept — RAWPIXEL.COM-FREEPIK

By Revin Mikhael D. Ochave, Reporter

ADOPTING artificial intelligence (AI) is essential for companies to stay competitive and drive growth, as it enhances operational efficiency, customer engagement, and innovation, according to experts.

National Economic and Development Authority Secretary Arsenio M. Balisacan said in July that the Philippine economy stands to gain P2.6 trillion annually if local businesses adopt AI in their operations.

“I believe that we will see higher adoption of AI in the near future, as more and more companies realize the benefits and opportunities of AI, as well as the risks and challenges of not using AI,” Microsoft Philippines Chief Executive Officer Peter D. Maquera said in an e-mail interview.

He said that Microsoft Philippines uses various AI programs to automate tasks such as scheduling meetings, creating reports, and finding information.

The company also uses a cloud-based platform that provides access to AI models improving customer engagement, product development, and innovation, as well as a machine-learning platform addressing business needs such as demand forecasting, sentiment analysis, and fraud detection. The solutions can also be accessed by local businesses to support the growth of their operations.

“Our motivation in considering the use of AI for our business is to create more value for our customers, partners, and employees, and to contribute to the social and economic development of the Philippines,” he said.

Mr. Maquera said that Microsoft Philippines has seen improved profitability and reduced operating costs through AI solutions, which have enabled the company to create more value for customers and partners. These solutions have also attracted more customers and increased their satisfaction and loyalty.

INCREASED ADOPTION, INTERNAL APPLICATIONS
Lee Carlo B. Abadia, technology consulting principal at the professional services firm SyCip Gorres Velayo & Co. (SGV), said that increased AI adoption is expected among Philippine companies.

“We see better adoption in the next year or so, but more for internal tasks centered on boosting productivity related to reporting or facilitating the ease of decision-making for leaders,” he said in an e-mail interview.

He said that companies can use AI to foster better employee engagement, helping employees complete tasks more efficiently.

However, he noted that the largest barrier to adoption is the fear of jobs being replaced. He said that companies should promote a human-AI partnership in operations, focusing on making tasks more efficient rather than reducing labor costs.

Mr. Abadia also said that SGV’s AI assistant tool, EYQ, aids in ideating, researching, and consolidating information, allowing the firm to focus more on formulating client recommendations.

“The tool boosts productivity by augmenting the capabilities of our people in crafting and improving solutions, considering more information in less time,” he said. “It is not intended for rightsizing activities but to provide value faster.”

Sara Venturina, chief data officer of mobile wallet GCash, said in an e-mail interview that the company has been using AI to develop more relevant products and personalized services. Internally, GCash will launch an AI-powered work assistant to improve productivity and is testing a contact center AgentCopilot to enhance customer service.

She added that while GCash has used AI to streamline internal systems, it has not undergone any rightsizing of manpower, as the company continues to grow and scale up support.

She projected that more businesses will adopt AI to keep up with the fast-paced and data-driven market.

FUTURE PROSPECTS, CHALLENGES
Alex A. Ustaris, chief technology officer of PHINMA Education Holdings, Inc., said that local companies and organizations will catch up on AI adoption soon.

Cloud-based platforms and mobile technology could push forward AI-enabled services in the Philippines, he noted.

He also said that PHINMA Education will use AI to transform how its students learn and how its employees work.

“AI will help us provide customized learning for each student and scale the learning process so that we can make more lives better through education,” he said.

PHINMA Education has already increased quality leads by 15% and reduced manpower costs for manual tasks through AI initiatives, according to the company.

Mr. Abadia said that universities and businesses should integrate AI into their curricula and on-the-job training programs to enhance local adoption.

Additionally, both the public and private sectors should identify areas where AI can be applied and pursue proof-of-concept projects to build momentum, he also said.

Microsoft’s Mr. Maquera stressed the need for investments in AI education and training, infrastructure, and partnerships to boost AI adoption in the Philippines.

“AI is the new electricity, the new internet, the new platform that will power the next wave of innovation and growth for businesses and society,” he said.

According to Microsoft’s latest AI Readiness Index, the Philippines ranks eighth out of 10 ASEAN countries in terms of AI readiness, with a score of 47 out of 100. The main challenges include a lack of skills, data, and infrastructure, as well as low awareness, trust, and regulation of AI.

Alex Takeda Lagata, Jr., global business director of Tokyo-based AI firm rinna Co., Ltd., said the government and private sector should push for increased AI awareness in the Philippines.

He noted that businesses may be hesitant to adopt AI due to public stigma but emphasized that inaction could lead to lost opportunities.

Hybrid is the future of work

September 9, 2024 | 12:19 am

work from home-wfm — NELLY ANTONIADOU-UNSPLASH

By Chloe Mari A. Hufana, Reporter

LOCKDOWNS spawned by the coronavirus pandemic forced people to adopt a flexible working life. They also showed that a considerable amount of work that took place in the office can continue when it’s closed.

Work life and home life melded together under the work-from-home setup, and now that the pandemic is gone, the hybrid setup appears to be the way forward, with many employers and employees agreeing to maintain this flexibility.

“This system enables employees to have the best of both worlds,” according to Jobstreet Singapore. “When they need a break from the office and the commute, they can work from home.”

“Hybrid work arrangements open up job generation opportunities for people who need the flexibility in their work setup for better work-life balance,” Jack Madrid, president and chief executive officer of the IT & Business Process Association of the Philippines (IBPAP), told BusinessWorld in a Viber message.

He noted how the hybrid setup had helped decongest Metro Manila traffic, known globally for being one of the worst.

Being able to work from home on some days means doing away with daily commute times, increasing worker productivity and benefiting their health and well-being, he said. “It provides better talent retention and by expanding talent pools, it results in stronger diversity and inclusion.”

At the start of the COVID-19 pandemic in 2020, about 2.9 million cars passed through major Philippine highways in the capital region, according to the Metropolitan Manila Development Authority (MMDA).

In 2021 and 2022, when lockdown restrictions were slowly being lifted, MMDA recorded 3.19 million and 3.53 million. Last year, it recorded the highest annual average daily traffic at 3.6 million, beating pre-pandemic levels.

“The future of work is about flexibility,” Mr. Madrid separately said by telephone. “You listen to what your customer needs. You listen to what your employer needs, and you listen to the voice of the employee.”

“You have to balance the interests and objectives of the customer, the employer — in this case, it’s IBPAP — and the employee,” he added.

IBPAP doesn’t necessarily cut costs by allowing hybrid work because its more than 400 members still have to pay office rent.

“The location of where the work gets done is not important,” Mr. Madrid said. “What’s more important for me are the results. If you can do it outside the office, good. If you can only do it in the office, then you have to go to the office. Everyone has a different job. So, the future is about flexibility.”

Mikaela Katrina D. Coco, a 24-year-old multimedia producer for Chapters PH, creative content creator, said a hybrid setup is best for balancing work and life.

“It provides more opportunities for work-life balance and saves time and resources compared with reporting to work every day,” she said in a Facebook Messenger chat. “Since I work in media production, I don’t have fixed work hours.

Hybrid work, however, might not be for everyone.

Quintin V. Pastrana, president and head of Business Development at WEnergy Power Pilipinas, Inc., said his company has a traditional, in-office setup, but incorporates different activities in between office hours to help employees.

While WEnergy allowed employees to work from home thrice a week during the pandemic, the traditional face-to-face setup works best for his lean team, he said by telephone. They went back to a full office setup in mid-2022.

“It’s difficult [to have a remote setup] because we’re a very flat organization,” he said. “So, a lot of it is multitasking. And you cannot multitask in front of a desktop or laptop at home.”

Mr. Pastrana said the company requires a lot of collaboration among employees that is better done face to face. “That collaboration is in our DNA as a company… [It can get] stifled with a work-from-home setup, [where] there’s not a lot of interaction.”

Despite a full office setup, WEnergy employees still enjoy flexible hours, he said. “If somebody has a traffic issue, we can start at 10 a.m. So, those things will make a difference in terms of micro-flexibility. I think that is also a function of what we’ve learned from the pandemic.”

Mr. Pastrana said the company closed more deals when people were working in the office. “Those things make a difference.”

“A more nuanced approach to a hybrid setup doesn’t necessarily mean work from home. It just means building in a lot more balanced activity within the workday. And in our case, we have a very set schedule in terms of when the activity day is, which is Friday,” he said.

“Team lunch is on Tuesday.”

STATE OF REAL ESTATE
Hybrid work did affect the demand for office real estate, Joey Roi H. Bondoc, research director at Colliers Philippines, told BusinessWorld by telephone.

“At the height of the pandemic in 2020 and 2021, at some point during that period, vacancies in the flexi-space market peaked at about 40%, mainly because people were not allowed to go out,” he said. “As a result of flexi workspace vacancies during that period, I think the work-from-anywhere setup resulted in an increase in demand for these co-working facilities,” he added.

Mr. Bondoc noted that before the pandemic, companies used to rent three floors of office space, but under the so-called new normal, they are down to just one floor. Colliers expects Metro Manila’s office vacancy rate to widen to 19.6% by yearend from 19.3% in 2023.

The rise of hybrid and remote work setups also gave way to the rise of co-working spaces. Colliers found that people prefer co-working spaces inside malls for convenience.

Mr. Bondoc said Colliers is seeing a rising trend of state agencies occupying more properties in the metro. For instance, the National Bureau of Investigation is occupying an entire building in the Bay Area in Pasay City.

“They are transferring to newer office spaces but at lower lease rates,” he said. “They are taking advantage of the vacancies in the market.”

Mr. Bondoc said Colliers continues to advise clients about where they should invest amid headwinds in the local property market.

“If you’re a mall, a residential developer or an office building developer, you need to innovate and renovate, otherwise you will evaporate,” he said. For developers and property firms, we believe that recalibration is important to quell extinction.”

Companies should also learn to adapt.

“If you’ve decided to be a hybrid organization, activating the office component isn’t simply a matter of unlocking the doors and dusting away the cobwebs,” according to a blog post from peoplemanagingpeople.com. “You’ve got to manage your office in a different way. It’s not the place where people come to do work anymore.”

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