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Moving into 2023, there was much optimism surrounding the Philippine real estate market, as strong macroeconomic fundamentals was expected to buoy the country’s economy from the downward pressures skyrocketing inflation rates across the globe and the lingering effects of the COVID-19 pandemic.

And although economic headwinds are still present in the background, the cautious optimism seemed to survive to the second half of the year.

Property consultant JLL Philippines, in a recent report, has said that there is cause for hope in the real estate market this 2023, a sentiment that is echoed by many other experts.

“Occupiers have gained their footing and settled post-pandemic, and now have a clearer view on their short- to medium-term strategy in terms of office space requirements,” Janlo de los Reyes, JLL Philippines’ head of research and strategic consulting, said.

Similarly, real estate experts Colliers Philippines said that they project office net take-up in 2023 to reach 116,400 square meters (sq.m.), a marginal increase from the 110,500 sq.m. recorded in 2022.

Colliers data noted office vacancy marginally improved to 18.7% in first quarter (Q1) 2023 from 18.8% in fourth quarter (Q4) of 2022.

“The Metro Manila office market posted positive net take-up for the fifth consecutive quarter. By end-2023, Colliers expects net take-up to reach 116,400 square meters, a marginal increase from the 110,500 square meters in 2022,” the property consultancy firm said in their Q1 Property Market Report – Office.

“However, office vacancy, which marginally improved to 18.7% in Q1 2023 from 18.8% in Q4 2022, remains elevated due primarily to continued completion of new office buildings and the implementation of hybrid work arrangements.”

The company pointed out that rents throughout the country are still dropping, and anticipates them to bottom out by end-2023.

“We saw a marginal rise in Metro Manila transactions but deals outside the capital region plummeted by more than a third,” the report said.

Opportunities over new horizons

Landlords and tenants, according to Colliers, should keep searching for opportunities to invest both in and around Metro Manila. Considering the current market trending toward tenants, the firm also suggested landlords continue providing discounts to businesses to ensure optimum occupancy rates are reached in spite of increased vacancies.

Meanwhile, tenants should continue using flight-to-value techniques and take advantage of rental price reductions in certain commercial districts.

In a column published in BusinessWorld, Joey Roi Bondoc, director at Colliers, said, “The Philippine property sector is highly cyclical and is susceptible to periods of expansion, overbuilding and a subsequent crash and price correction. The period from 2017 to 2019 highlighted the sector’s strengths, with substantial office space take up complemented by an aggressive demand for condominium units across Metro Manila.”

“The property sector is one of the key segments of the Philippine economy. It has tremendous multiplier effects which bode well for the country. Sub-segments such as office, residential, hotel, retail, and industrial are the sector’s major planks. Attracting more foreign investments into these sub-sectors is crucial to raising the Philippines’ stature as a major property investment in the Asia-Pacific region and ensuring that the country remains on the radar of foreign property investors.”

Mr. Bondoc explained that prior to the pandemic, the Philippines was priming itself to become a key property investment destination in Southeast Asia. More foreign property firms partnering with local developers in building several office, residential, retail, even township projects in anticipation of this eventuality.

However, because of the pandemic, such investments were paused.

”It is interesting to note that the country is finally recovering after major economic disruptions in 2020 and 2021. Colliers Philippines believes that there are several factors that will help the Philippines become an attractive investment destination in Asia-Pacific over the near to medium term,” he said.

Such factors include the massive infrastructure program being pushed by the government as the ramped-up spending on public projects will support the continued development of satellite communities outside of Metro Manila.

“These integrated communities offer a better value proposition than standalone projects since they offer mixed-use developments. We believe that this feature makes integrated townships a more attractive option for investors,” he said, adding that these will attract more foreign players to invest in master planned communities around the country.

“More business process outsourcing (BPO) tenants will also gravitate toward integrated communities as they offer a better living and working environment. We project more joint venture deals between major foreign developers and Philippine property firms moving forward.”

Regarding the growing investment opportunities outside Metro Manila, Cyndy Tan Jarabata, president of TAJARA Leisure & Hospitality Group Inc. and the chairperson of the PropertyGuru Philippines Property Awards judging panel, expressed the same sentiments in an article published on their website.

“There is a positive outlook for the Philippine property market this year, with new developments outside Mega Manila, Cebu, and Davao,” she said.

For developers in particular, the decentralization effort pushed by the government and the development of key city centers all over the country have presented new opportunities to master plan communities that promote new ways of living. Such communities would be more open to new living environments such as those where “walkable communities” or “live-work-play” environments truly thrive.

Ms. Jarabata cited a report by real estate experts Santos Knight Frank, pointing out that the country’s economic growth and favorable demographics will remain key drivers for growth for the market.

The growing demand for office spaces driven by the country’s booming outsourcing industry, according to the report, is projected to fuel growth in the office segment, while the industrial sector is expected to benefit from the growing e-commerce and logistics industries.

In the same vein, the residential market is expected to maintain its strength, with demand for moderately priced homes coming primarily from those in the medium income range. There is also an increase in demand from both domestic and international customers, including the luxury residential market.

“In hospitality and tourism, luxury resorts are in the pipeline including new master-planned developments in destinations like Palawan and Bohol, including Batangas and Laguna. There’s a strong interest in developing luxury and branded residences, especially from boutique developers. Residential developments remain strong outside of the city and there is a huge backlog to address demand on affordable and socialised housing,” Ms. Jarabata added.

Even with the current headwinds, research from JLL noted the Philippine real estate market will continue to advance thanks to the government’s ongoing infrastructure program and the continued expansion of the outsourcing industry, both of which have been significant economic contributors for the country.

“Occupiers have gained their footing and settled post-pandemic, and now have a clearer view on their short- to medium-term strategy in terms of office space requirements,” JLL Philippines’ Mr. de los Reyes said.

“We have moved past the pandemic, but it must be noted that there are varying degrees to recovery. Some sectors are performing better than others.”

Some segments of the Philippine property market, such as the residential market, is moving sideways, while hospitality is finding its own way to return to pre-pandemic levels of activity.

JLL expects supply pressure to be one of the key challenges that will have notable impact on the performance of the market for the remaining quarters of 2023.

“We are anticipating a notable volume of supply to enter the market, potentially weighing down on the recovery of demand indicators across sectors,” Mr. de los Reyes concluded. — Bjorn Biel M. Beltran