A WOMAN fixes the store display at a mall in Mandaluyong City, May 27, 2021. — PHILIPPINE STAR/ MICHAEL VARCAS

THE PHILIPPINE commercial real estate sectors, particularly retail, is making a strong comeback, thanks to pent-up consumer demand, looser travel restrictions and return-to-office mandates, according to real estate services firm Santos Knight Frank.

Jan D. Custodio, Santos Knight Frank Research & Consultancy senior director, projected that the vacancy rate in the retail sector can reach pre-pandemic levels by the end of 2022.   

“For the retail, we’re seeing that it is slowly picking up to near pre-pandemic levels. Probably towards the end of the year (it can reach pre-pandemic levels), barring new variants coming in and stymying the people’s drive to go out,” Mr. Custodio said during a virtual briefing on Tuesday.

As mobility restrictions eased, more Filipinos are now flocking to malls and eating in restaurants more regularly.

However, Mr. Custodio said improving public transportation is key to the retail sector’s sustained recovery.

Kash B. Salvador, Santos Knight Frank Investment & Capital Markets director, said the second-quarter vacancy rate in the retail sector is now approaching the pre-pandemic level.

“As of Q2 2022, in comparison to Q4 2019, the vacancy rate is now at 4.6%, with the pre-pandemic levels at 3.6%. More and more stores are opening with the continuous lowering of restrictions and we’re seeing a lot of strong activity in this sector,” he said.

Santos Knight Frank data showed food and beverage outlets and clothing stores account for two in every three upcoming stores in malls in Metro Manila.

Average retail lease rates in the second quarter have recovered, and are now just 4.4% lower than the rates in the fourth quarter of 2019.

Meanwhile, office space demand is still not likely to reach pre-pandemic levels this year due to the reduced demand from Philippine offshore gaming operators (POGOs).

“The (office) demand is picking up in the second quarter and we will start to see more of it in the latter half of this year. But I’m not sure that we’re not going to get there in 2022. The good news is that demand has been picking up,” Santos Knight Frank Occupier Strategy & Solutions Senior Director Morgan A. McGilvray said at a virtual briefing on Tuesday.

Demand from business process outsourcing firms (BPOs) may have been getting better, but there’s no evidence it may return to the same levels seen in 2018 and 2019, he said.

According to Mr. McGilvray, there was a surge in leasing activity during the second quarter as employees returned to their offices. This includes workers employed by companies registered with the Philippine Economic Zone Authority (PEZA).

Despite this, Metro Manila’s office space vacancy rate for the second quarter still increased to 23% due to the introduction of 228,500 square meters of new office space, Mr. McGilvray said.

The vacancy rates may decline as demand for offices in Metro Manila starts to increase.

“We’re going to continue to get supply but not as much as we’ve been getting over the last few years and so the balance of that is that the vacancy rate would be expected to start creeping downward again moving forward,” Mr. McGilvray said.

Rick M. Santos, Santos Knight Frank chairman and chief executive officer, said the office demand from BPO firms will be driven by multinational companies that want to cut costs and outsource to other countries like the Philippines.

“Negative earnings of companies in the US means job cuts, which means they need to supplement that with more jobs being outsourced to the Philippines and India,” Mr. Santos said.

Santos Knight Frank also noted that PEZA-registered companies may require additional office space in the coming months, as they will have to comply with 90% work-from-office requirement by September. — Revin Mikhael D. Ochave