Pandemic overhang brings property sector from cool to chill this year

by Ian Nicolas Cigaral (Philstar.com), 9 Feb 2021

MANILA, Philippines — The Philippines’ hot property sector is sizzling with unoccupied spaces carried over from 2020, which are bound to keep prices in check this year, property consultants have said.

Office and residential vacancies will remain elevated especially in Metro Manila, with the former potentially hitting a historic high this year, as demand from typical sources like offshore gaming firms and migrant workers only slowly return.

Pandemic tempers hot Philippine property market

“Overall the decrease in demand will likely result in a rental correction in 2021 before our predicated recovery which should start in 2022,” Colliers International Philippines said in their latest report on Tuesday.

KMC Savills, another real estate consultant, agreed. “With completions set for the next year, we expect landlords to become malleable with their current stance on rents,” KMC Savills said in a research note.

KMC Savills sees residential rates falling 25-30% in central business districts like Bonifacio Global City in Taguig and Makati this year. Colliers is penciling in an increase, albeit a measly 0.5% year-on-year.

The assessments highlighted the pandemic’s bittersweet impact on real estate, long considered a reliable economic driver. Indeed, while a supply overhang meant slowing down on new projects this year, declining leases, rents and even prices of condominiums bode well for a sector long believed to be overheating from perked-up demand.

The only bad news is this is happening for the wrong reasons. On one hand, KMC Savills said the exit of most offshore gaming firms that use condos as offices would prompt office vacancy to hit 12% in the National Capital Region this year, led by those in Ortigas Center in Pasig.

On the other, Colliers, meanwhile, projects a slightly higher 12.5%, the largest since 2003, but mainly because of a broader demand slump from Philippine offshore gaming firms (POGOs), business process outsourcing and other “traditional” buyers.

The exit of POGOs due to the pandemic as well as government crackdown served as double-whammy to the office segment reliant on their business. While the high court had since temporarily halted larger duties against POGOs, consultants said these were not sufficient to keep them at arm’s length.

Some sectors did try to offset the space left by POGOs, especially those in the delivery business which boomed at the height of the health crisis, but Colliers said their take-ups were not big enough.

“Small POGO firms have fled the Philippine market, but the larger players are still holding…However, a key factor for the industry’s rebound is the return of its employees from abroad,” KMC Savills said.

The same story of oversupply is expected to unfold for new residences. With dismal take-ups from migrant workers, thousands of whom had been displaced by the pandemic, residential vacancy rate would likely 16.9% in 2021 from 15.6% in 2020, Colliers said.

Anemic demand prompted developers to slow down completion of new projects last year by as much as 70%.

“More than 90% of new launches in 2020 were classified as mid-income to luxury projects. Developers should monitor this price segment as we expect demand to be driven by these projects beyond 2020,” the firm said.