WHILE economic volatility now shakes global markets a bit, the Philippine property industry stands to benefit from still positive investor sentiment, especially as the local office sector enjoys strong demand from outsourcing foreign companies, industry analysts have noted.
“Although it faces a lot of threats and risks, sentiments toward [Philippine economic] growth remain positive within the next one to three years due to its strong underlying fundamentals,” said Michael McCullough, co-founder and managing director of KMC Mag Group, the Philippine associate of global property advisor Savills. “Aside from this, the ASEAN integration is also expected to stimulate various economic sectors and create further investment opportunities for the country. Real estate is the biggest gainer from this positive sentiment, and this is expected to continue through the rest of 2016.”
In a separate report, Cushman and Wakefield shared the same optimistic sentiment, as it described Manila’s property market as “still in the fast lane,” driven by the robust business process outsourcing (BPO) sector, on the back of low inflation and sustained policy accommodation.
“The BPO sector will continue to propel the Philippines’ economy as one of Asia’s strongest performers; at the same time, accelerated implementation of public-private partnership projects and spending related to the May 2016 presidential election will lift growth,” Cushman and Wakefield said.
Office sector thrives
While the party goes on for the local real estate industry, the office sector, particularly the landlords, is the happiest, according to McCullough, who specializes in commercial real estate brokerage.
He said a record-breaking take-up of Premium and Grade A office spaces in Metro Manila was seen in the third quarter of 2015, reaching 231,412 square meters.
“Metro Manila’s office market shows no signs of slowing down,” he noted. “As in the previous years, this demand is mainly driven by the ferocious take-up of the outsourcing industry and this is expected to continue well into 2016.”
McCullough said the landlord’s market would remain in 2016, given the unwavering vigor of the business process outsourcing (BPO) sector.
He cited US-based firm Datamark’s projection that the Philippines would rise to the top spot of the world’s BPO destination ranking, as the sector is seen to grow further this year.
Calling it the biggest job provider in the private sector, McCullough said the BPO industry’s compound annual growth rate now stands at 27.7 percent over the past decade.
As such, McCullough anticipates a continuation of a landlord’s market, and that vacancy and rental rates would remain stable despite increasing supply in office space.
This year, he pointed out, the Bonifacio Global City (BGC) would absorb most of the demand, since it would host most of the new supply of office space.
“BGC’s rental growth might slightly ease, and vacancies might also increase this year,” McCullough said. “But we believe it will soon stabilize, as firms are forced to move here due to the lack of space in major CBD Makati.”
Cushman and Wakefield echoed such projection, saying slower rental growth is expected this year, especially for BGC, which has the lion’s share of new office developments.
“Nonetheless, we expect strong take-up levels to sustain high office occupancies and record rents, and continued increases in capital values this year.” Cushman and Wakefield noted.
Condo market slows
Meanwhile, McCullough said 2016 would be a challenging year for the residential segment, particularly on the condominium market, as a rental growth and demand for mid-end and high-end units might slow down due to oversupply.
In an interview with The Manila Times, Claro Cordero Jr., head of research of another global property advisor, Jones Lang Lasalle, pointed out that the demand for residential developments is not necessarily the issue, but rather the mismatch between the rate of project completions and demand.
“Because of the tremendous amount of supply completed, maybe in the last five years, that’s the reason why seemingly, the market has softened,” said Cordero. “A lot of people have that impression because of supply pressures, but I don’t think that’s the scenario. I think the demand for condominiums remains to be strong. It’s just that the rate of growth of completion of condominium developments is much faster than the rate of new demand being generated.”
Cordero noted said there would come a time when the market eventually fully absorbs this excess inventory.
“I think the ideal scenario maybe around four to five years and the market will be fully stabilized,” he said.
But then, McCullough pointed out that despite the expected slowdown in the residential condominium market, a massive opportunity for the lower housing segments remains, since this is where the backlog is.
“There is a massive opportunity for economic, socialized, and low-cost housing units, as it is where most of the backlog comes from,” he stressed. “The projected demand for these units from 2012-2030 is at 6.5-million households.”
As for the retail market, private consumption remains one of the strongest drivers of the Philippine economy, backed by overseas remittances and a robust service sector, according to McCullough.
“With the upcoming elections, we expect further boost in consumption during the first two quarters of the year, translating to higher sales and earning opportunities for the retail market,” McCullough said. “At the same time, the growing income of the Filipino household is also causing a shift in lifestyles.”
He noted that Filipinos, especially from the young working middle-class, are quickly “upgrading their preferences,” thus, opening more opportunities for new and existing brands to enter the market.
“Some developments to look out for this year include the opening of the Manila Bay Resorts Mall and the expansion of The Podium and Mall of Asia,” he said.
Hotels and leisure
Despite issues in airport infrastructure, Philippine tourism continues to gro.w, according to McCullough, with the ongoing Asia Pacific integration, aside from the thriving eco-tourism and BPO industries.
“We see strong opportunities in the mid-scale and budget hotel segments,” he said. “With the rising number of domestic tourism due to the growing income of the Filipinos, there is opportunity in developing better quality of supply for these segments outside of Metro Manila and, closer to eco-tourism hotspots such as Palawan, Davao, and Cebu. The development of the Clark area is also another opportunity to explore.”
As for the luxury segment, prices might be going down, with some supply coming online.
“While the increased competition may affect investors, the silver lining is that it makes the Philippines more competitive in the tourism sector, as its prices are currently higher compared to neighbors, such as Thailand.”
The most-awaited luxury hotel development to open this year, he cited, is the Shang at the Fort.