Philippine property sector remains vibrant amid challenges

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Developers urged to ramp up townships outside Metro Manila
SHAPING a substantial portion of the commercial real estate market in the Philippines today, the dominant “live, work and play” shift continues to reflect overall effects of urbanization and dictates how space should be efficiently utilized. This transition has also spurred various opportunities for the biggest and the tiniest segments of property developments in Metro Manila. Despite its advantages for both real estate companies and investors, however, the decentralization of the country’s National Capital Region (Metro Manila) had been pushed by various sectors, primarily by the government.

President Rodrigo Duterte himself had spoken about the need to stop the hyper urbanization of the region in order to finally give development opportunities to nearby provinces. During his speech in Pampanga late last year, the President suggested to close Manila for a decade, so that the government can focus on developing provinces similar to Pampanga, Batangas and Cavite.

Duterte said Manila was no longer conducive for particular business activities–thus, the city could hasten its own decay.

“Ten years from now, they should close Manila and start to develop this, this is the best,” he added. “Manila, I think will be, in about 25 years, will be a dead city. It will start to decay.”


The President also cited numerous problems that resulted from the region’s hyper urbanization, such as pollution, overpopulation and traffic congestion.

Larger predictions
Global real estate provider Colliers International this month published a report containing its prediction for the Philippine real estate sector for the rest of 2018.

According to Colliers, developers must take advantage of opportunities that implementation of government policies could generate. Among these are the tax reform package, foreign ownership restrictions on retail and construction and amendments to the existing procurement law and business registration systems that can attract more developers to participate in the Duterte administration’s enormous infrastructure development program.

This also mirrors the government’s decentralization push to unlock land values of areas outside Metro Manila, where developers and business giants should initiate commercial activities.

“We encourage the developers’ infrastructure units to explore operation and maintenance [O&M] opportunities involving transportation projects in and outside of Manila,” Colliers reported. “We also recommend that developers be more innovative given the proliferation of townships and expansion of opportunities in alternative markets such as Cebu.”

Colliers said group executives should expect Metro Manila residential condominium leasing to pose more challenges, chiefly because of influx of new condominium completions in major business district locations.

From the 11.7 percent vacancy rate in the second quarter of 2017, it projects that the vacancy will have risen to 14 to 16 percent over the next 12 months, after more than 21,000 units were projected to be completed.

The provider also expects developers to continue venturing into residential projects, especially in second-tier and third-tier cities all over the Philippines, where the demand primarily comes from end-user buyers.

Colliers noted that the markets in those cities may be smaller compared to Manila but they could be more stable when it comes to end user housing demand.

On the other hand, the office sector remains afloat despite slower take-up from outsourcing companies, it said. The developer also does not perceive offshore gambling as a major “demand driver” for the rest of 2018.

The Philippine Amusement and Gaming Corporation (Pagcor) continues to issue Philippine Offshore Gaming Operators (POGO) licenses, said Colliers. Thus, the POGOs would cover the lapse among industries left by the business process outsourcing (BPO) sector in terms of office tenancy.

Colliers said fewer offices have launched in 2018, in wake of a decline in BPO companies’ office space demand as the US takes a more protective stance by increasing talent recruitment difficulties or cost.

It added that the projects with greater demand for flexible workspace would prevail this year, especially with international working operators entering the local market.

“Residential leasing in Metro Manila remains challenging although we see opportunities in workers’ dormitories in key business hubs in major business districts and affordable house and lot developments in urban areas outside of the country’s capital,” Colliers said.

It observed that tenants might vary and even include freelancers as their number persists to grow because of better mobility, connectivity and flexibility.

Increasing popularity of e-commerce will further affect warehousing and logistics demand while only one percent of the country’s population shop online, Colliers also noted. This presents an opportunity for developers and retailers and consequently the need for logistics services and warehousing, it said. The surge of manufacturing investments is also propelling the demand for industrial space and factory buildings.

“We project that lease rates in the country’s industrial corridor, Cavite-Laguna-Batangas area, will record flattish growth over the near term due to the proliferation of alternative industrial parks in Northern and Central Luzon,” it said.

Developers of industrial parks are expected to “head north of Luzon” since the report anticipates industrial lease rates in Cavite, Laguna and Batangas to record steady growth as a result of development of more industrial space in the Central Luzon area.

Colliers also expects developers to build more townships in Bulacan, Pampanga, Cebu and Davao as land values are unlocked by the expansion of road networks.

Hotels in resort destinations will also rise until 2020 with possible locations in Cebu, Bacolod, Iloilo, Palawan, Davao and Bohol, it predicted.

Colliers said developers should consider increasing the number of budget hotels to accommodate a growing domestic market driven by millennial travellers.

Also, the report persuades operators and retailers to improve the security features of their online sites as more shoppers use their credit cards, debit cards and other cards for online transactions.

Colliers also noted that Cebu’s growing competitiveness as a tourist spot should support up to 20 percent growth in tourist arrivals for the next 12 months. This should sustain hotel occupancy of between 65 and 70 percent across Metro Cebu over the next 12 months, it said.

On top of it, Colliers implied that while various challenges lie ahead for developers, opportunities remain abundant for the property sector over the next 12 months.

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