By Joey Roi Bondoc, Colliers Philippines
THE Philippine economy is definitely on its way to recovery and Colliers Philippines believes that will have a significant impact on the property market’s own recovery. The office market remains stable especially with continued take-up from outsourcing firms; we also see sustained demand for industrial spaces and warehouses. The residential market appears testy, especially with a slowdown in pre-selling condominium launches and take-up in the first six months of 2022. A bright spot for the residential market is the strong demand for horizontal (house and lot as well as lot-only) projects especially in Central Luzon, Calabarzon, and Central and Western Visayas. However, developers and investors should be mindful of rising interest rates and prices of basic commodities.
The economy surprised with 8.3% growth in the first quarter of 2022, a reversal from the 3.8% contraction posted a year earlier. This made the Philippines the fastest-growing economy in East Asia during the period. Colliers believes that this level of economic output sets the stage for accelerated GDP growth beyond 2022. A number of developers, investors and occupiers took a wait-and-see stance prior to the May 9 national elections. The election of a new set of leaders, along with the continued implementation of pro-property reforms such as accelerated infrastructure construction, should guide property firms in their expansion plans over the next three to six years. In our view, developers should continue lining up projects and acquiring parcels of developable land in anticipation of improving investor appetite. This will play a crucial role in the property sector’s recovery post-COVID.
OFFICE: TURNING A CORNER AHEAD OF THE GREAT RETURN
In the first quarter of 2022, Colliers recorded the completion of 306,100 square meters (3.3 million square feet) of new supply. This is higher than the 114,300 sq.m. (1.2 million sq. ft.) in the fourth quarter of 2021. Among the buildings completed in the first quarter were One Ayala Towers 1 & 2 in Makati CBD, DoubleDragon Tower, Four E-com Tower 3 and Iland Bay Plaza in the Bay Area, NEX 54 in Ortigas Fringe and Savya Financial Center North in Arca South.
In 2022, we project new supply to reach 821,900 sq.m. (8.8 million sq. ft.), up 30% from 2021 completions.
Colliers saw net take-up in the first quarter reaching 26,400 sq. m. (285,100 sq. ft.) from minus 130,100 sq.m. (minus 1.4 million sq. ft.) in the fourth quarter of 2021. This was also the first recorded positive net take-up after seven consecutive quarters of negative net absorption.
Office transactions in the capital region totaled 146,100 sq.m. (1.6 million sq. ft.), up 30% year on year. Traditional and outsourcing firms took up space during the period. Most of the firms leased space in Fort Bonifacio, the Bay Area and Makati CBD. Outside of Metro Manila, we saw absorption of new office space in Pampanga, Cebu, Iloilo, Davao, and Cagayan de Oro.
In our opinion, the return-to-office (RTO) mandates should support the recovery of the office market. The improving COVID situation and the passage of economic reforms such as the amendments to the Retail Trade Liberalization and Foreign Investment Act should help boost office space take-up for the remainder of the year. These pro-business reforms also play an important role in ensuring continued take-up of office space as they indicate that the country is open for business.
RESIDENTIAL LEASING TO PICK UP AS EMPLOYEES RETURN TO CBDS
Colliers recorded the delivery of 560 units in the first quarter of 2022, down 86% year on year, with the completion of Proscenium Residences in Rockwell Center. In 2022, we expect the completion of 10,500 units, up 20% year on year, with the Bay Area likely accounting for 57% of new supply.
Meanwhile, pre-selling launches in Metro Manila reached 1,500 units in the first quarter of 2022, down 80% quarter on quarter. On the other hand, take-up in the pre-selling market reached 3,100 units, up 16% from a quarter earlier.
In the first quarter of 2022, we saw rents dropping by 0.2% quarter on quarter, miniscule compared with the 1.6% quarter-on-quarter decline recorded in the first quarter. Meanwhile, prices in the secondary market rose by 1.2% quarter on quarter. In our view, the recovery in the residential leasing market will be driven by local employees starting to work on-site and the gradual return of expatriates. Residential demand should also be supported by an increase in office leasing and an improvement in general business confidence.
The return of traffic to pre-COVID levels should also drive employees to rent a condominium unit or co-living facility near their offices.
RETAIL TO SEE FASTEST REBOUND IN PROPERTY SECTOR
In the first quarter of 2022, vacancies across malls in Metro Manila continued to increase, albeit at a slower pace, to about 15.2% from 14.8% in the third quarter of 2021. In 2022, we see vacancy reaching 16%, lower than our previous projection of 17% despite the estimated completion of 409,000 sq.m. (4.4 million sq. ft.). Among the malls due to be completed this year are Mitsukoshi Mall in Fort Bonifacio, Ayala Triangle Retail in Makati CBD and Parqal Mall in the Bay Area.
Colliers is optimistic that the de-escalation of the capital region to Alert Level 1 and improving vaccination rates should increase consumer traffic and consumer confidence. Various operators have reported that consumer traffic in malls has reached about 63% of pre-COVID level.
The Philippine Statistics Authority (PSA) estimates that household spending grew 10.1% in the first quarter from a 4.8% contraction a year earlier. Among the sub-segments which showed significant increase year on year are restaurants and hotels, transport, and food and non-alcoholic beverages. Revenge spending and dining should help buoy the retail sector’s rebound this year.
We project retail rents to rise by 1% in 2022, from a cumulative 15% drop in 2020 and 2021. We expect the gradual pickup in retail space absorption supporting our projected rebound in lease rates.
DEVELOPERS PLUG INTO THRIVING DATA CENTER DEMAND
Colliers Philippines is seeing growing interest in data centers. In our view, this should be sustained by the continued rise of e-commerce transactions, emergence of smart cities, proliferation of cloud computing technologies, the need for 5G connectivity, increasing financial inclusion, and the government’s push to digitize its processes. Colliers encourages developers of industrial parks to take a proactive stance in cornering demand from data center operators. In our opinion, the conversion of brownfield assets should also be considered. Looking forward, we believe that joint ventures will be a popular route among foreign and local players planning to establish and expand data center presence in the Philippines. Stakeholders should also maximize fiscal and non-fiscal incentives provided by the government. In our view, the data center is one industrial segment that property developers should keep an eye on.
Joey Roi Bondoc is associate director and head of research at Colliers Philippines.