Prior to the pandemic, the Philippine property landscape was a bustling hub of investment. In fact, on the back of the government’s continued infrastructure investment, increased development of co-living projects, a surge of mid-income condominium units, and aggressive office construction alongside the explosive growth of the online gaming industry in 2019, the country’s real estate industry looked onwards with optimism.

Not half a year later in May, real estate experts Colliers International released an outlook calling the pandemic “worse than the Global Financial Crisis”, downgrading its previous net take-up forecast due to a softer demand in the market.

“We believe our original projection of 900,000 square meters (sq.m.) of net absorption (9.7 million square feet) is unlikely to be achieved. For 2020, Colliers is now looking at a net take up of between 300,000 sq.m. (3.2 million  sq.ft.) and  600,000 sq.m. (6.5 million  sq.ft.),” the report said.

“As a result, vacancy will likely hover between 5.5% and 7% in 2020. We see this supply and demand imbalance resulting in a 17% drop in office lease rates in Metro Manila this year.”

Yet the challenges for the industry did not end there. Inhibited by tax regulations and restrictive quarantine measures, Philippine online gambling operators (POGOs) were closing shop one after the other. In a report released by real estate consultancy firm Leechiu Property Consultants (LPC) in August, POGOs were found vacating 48,000 sq.m. of office space from March to June, making up 54% of the 89,000 sq.m. of vacated space during the period.

This exodus has led to a drop in first-half transactions to 234,000 sq.m. in 2020 from the previously recorded 885,000 sq.m in 2019. The business process outsourcing (BPO) industry — which accounted for the second biggest share of office demand — failed to fill in the gaps left by the POGOs, resulting in a massive plunge in office space demand of 74% in first half of 2020.

Property experts Jones Lang LaSalle (JLL) Philippines noted, however, that the BPO sector is expected to drive demand in the long term, despite the exodus of POGO firms in the country.

“Office demand from POGO firms may still remain despite ongoing tax concerns and reports of exits. We anticipate that operators that will stay are those that are keen to expand their operations in the country and lead to stable office demand moving forward,” Janlo de los Reyes, head of research and Consultancy at JLL Philippines, said.

The residential and retail sectors similarly showed weak activity due to the pandemic, with average residential rental vacancy rising to 8.2% in the third quarter of the year, while average retail vacancy rate increased by 6.3% as store closures outpaced store openings. JLL added that around 80% of mall developments originally slated for completion in 2020 slipped to 2021 due to construction schedule challenges posed by the pandemic.

Looking beyond the pandemic

Massive as they were, the consequences and overall impact of the pandemic are likely to linger throughout the year. Mr. de los Reyes said in a previous email that office space demand will remain subdued in 2021, led by the BPO and e-commerce sectors.


However, demand is still expected to improve as organizations adjust to the “new normal” of business activities. “We anticipate a change in office space requirements given the operational impact of the pandemic where flexible work arrangement has become a norm across occupiers,” he said.

“We’ve seen the growth of e-commerce which is driving the logistics sector, technology, and on demand services firms. We’re also seeing increasing activity in data centers, security companies, life sciences, and multi-family dwellings,” he said.

The significant growth of such sectors, driven by necessity and burgeoned by the ongoing health and safety measures, could provide the much-needed opportunity for recovery for developers. Colliers suggested developers to continue to adapt to the evolving preferences of investors and tenants to survive “in a property market that has been redefined by the pandemic”.

“In our opinion, developers should continue converting and repurposing assets to take advantage of opportunities brought about by a lockdown economy. We recommend that developers and tenants continue to monitor opportunities in the market especially with the government-projected economic rebound in 2021,” Colliers said. 

It added, “In our view, office landlords should be proactive in offering alternative leasing schemes to tenants while mall operators and retailers should ramp up omnichannel strategies to take advantage of pent up demand. Condominium developers should be on the lookout for attractive sites and price segments.”

Colliers projects new office supply to reach 632,600 sq.m. (6.8 million sq.ft.) (+64% YOY) and a net take-up of about 250,000 sq.m. (2.7 million sq.ft.) (+213% YOY) in 2021. Vacancy rates are still expected to rise to 11.6% with rents treading a slow path to recovery of 2%.

For the residential sector, the forecast is a project delivery of 7,270 new units in 2021, up 21% from 6,000 units in 2020. More than 75% of the upcoming supply will likely come from the Bay Area as selected projects in 2020 were delayed to 2021 due to temporary work stoppages. 

Colliers also sees the delivery of about 304,700 sq.m. of new retail space in 2021, with a projected vacancy rate of 13% due to an expected rebound in consumers’ confidence and purchasing power. Lease rates are further expected to drop by about 2% in 2021.

Much of this depends on the rollout of the COVID-19 vaccine in the first half of the year. Colliers Philippines noted that the implementation of crucial infrastructure projects within and outside Metro Manila will be major drivers of growth moving forward.

“Previously, we emphasized that the completion and upgrading of railways, toll roads, and airports across the Philippines should contribute to higher land and property values. In our view, these projects are also likely to play an important role in dictating the development strategies of property firms beyond the pandemic,” Colliers said in its 2021 Property Outlook.

The timely approval and implementation of the 2021 national budget will be crucial in supporting economic growth for the year. The government has set a budget of P109 billion (USD 2.3 billion) for the Department of Transportation and about P667 billion (USD13.9 billion) for the Department of Public Works and Highways to resume the implementation of its landmark infrastructure program, and the construction of new roads, airports, and bridges is likely to stoke the property development sector. 

“In our view, these allocations will likely support the construction of infrastructure across the country beyond the current administration’s term. These public projects should also stoke demand for integrated communities outside of Metro Manila beyond 2022,” the firm said.

Colliers further suggested that office landlords, condominium developers, and mall operators be mindful of the government-projected recovery in 2021, urging them to be more strategic with their land banking and development strategies so they can capture pent-up demand once the economy rebounds in 2021. Particularly, office landlords should be more proactive in offering alternative leasing strategies to their tenants and assist those planning to occupy vacated PEZA spaces.

Meanwhile, demand in the residential sector in 2021 will likely be driven by mid-income to

luxury projects. As of Q3 2020, Colliers Philippines data showed that projects in these segments due to be completed from 2021 to 2022 have sold an estimated 86% of their inventory. To tap pent-up demand, developers should continue to offer flexible payment terms and adopt property technology (proptech) platforms, such as virtual reality (VR) tours and automated communication platforms for tenants and property management providers.

As it transforms the office landscape with new work-from-home models and stimulates residential transactions with such innovations, technology is serving to prop up recovery in the retail space.

This year, according to Colliers’ report, the pace of construction of new malls will ultimately hinge on the improvement of Filipinos households’ consumer confidence and purchasing power; and retailers’ propensity to continue taking up physical mall space despite the growing popularity of online shopping.

“Some mall operators have introduced curbside pick-up where customers are offered a contactless option to get their orders. Others have rolled out personal shopper services to reduce the risk of transmitting the COVID-19 and to enable contactless shopping,” the report pointed out.

Major players are leading the charge. Ayala Land is offering DeliverEasy and Ayala Malls Neighborhood Assistant (ANA); Megaworld has launched a lifestyle delivery app Pick.A.Roo; SM Supermalls has introduced Get and Go which offers curbside and drive-through pick-ups for essential needs; while Robinsons Malls is offering Ring Rob, Rpersonal Shopper and Rdelivery services.

“A number of retailers have also been aggressive in rolling out online shopping strategies. Swedish furniture giant Ikea recently announced that they will likely open their online store months before the completion of their physical store in the Bay Area. H&M has partnered with Zalora to setup its first e-commerce marketplace while Merrymart is pioneering the dark grocery stores concept that intends to provide a 15-minute delivery service in selected cities in Metro Manila,” Colliers said.

Whether such measures would be enough to turn the tide of a struggling industry, likely only time will tell. The Philippine property market has undoubtedly been redefined in the span of a short year, and it will likely continue to change moving forward.