Still a growing sector

The real estate bubble is not about to burst, at least not in the next three years.

Colliers International Philippines, in its latest report, said that with the economic growth for the remainder of President Duterte’s term likely to be anchored on government and infrastructure spending, it sees a sustained property market over the next 12 to 36 months.

It noted that the growth in the country’s gross domestic product of 6.2 percent in the third quarter was mainly government spending-driven, with public construction rising by 11 percent in the July to September 2019 period compared to a 27 percent contraction in the second quarter. Private construction, it said, rose by 19.1 percent, sustaining the 10.4 percent growth in the third quarter of 2018.

Colliers said this indicates a strong appetite for office towers, residential units both for condominiums and house and lots, malls, hotels and industrial parks across the country.

It expects that over the next two years, economic growth will be sustained by an improved credit rating, decelerating inflation, and a higher ranking in global competitiveness surveys.

It encouraged both landlords and tenants to further explore opportunities in the market by identifying expansion sites and alternatives for outsourcing and offshore gaming firms, developing co-living and mid-income projects, and  housing flexible workspace operators.

In a report released just last week, Colliers observed that while Metro Manila’s demand drivers for the office sector remain diversified, the offshore gaming firms or POGOs continue to outpace others in terms of share of total leasing transactions. In fact, for the first nine months of the year, POGOs accounted for 37 percent of all closed deals and occupied about 10 percent of total leasable office space in Metro Manila.

Colliers expressed optimism that POGOs will continue to lead office space take-up over the next two to three years, especially with continued efforts from lawmakers to legitimize their operations.

Meanwhile, also in the office segment, the report noted that among the headwinds seen over the next three years are the slower GDP growth, with multilateral lending firms and foreign banks projecting a six percent growth from a previous 6.2 percent. Colliers said that a slower domestic economy is likely to slow down the expansion of traditional and non-outsourcing tenants, while outsourcing firms like call centers and shared service companies are taking a wait-and-see stance due to uncertainty over the government’s tax reform proposal to reduce tax perks that these firms currently enjoy.

It encouraged landlords to help outsourcing tenants identify viable alternative sites outside Manila, particularly with the national government’s push to expand outsourcing operations in second and third- tier cities. The report noted that POGO firms have also started to occupy space outside Metro Manila and landlords should offer opportunities in cities that accommodate POGO operations.

Also in its report, Colliers pointed out that the construction and rehabilitation of railway and expressways across Metro Manila has resulted in unbearable traffic jams across the capital’s major roads. This, it said, has compelled developers to build co-living projects near key business districts which primarily cater to young professionals who want to live near their places of work, but cannot afford to buy or lease out condominium units within the major CBDs.

Colliers said it expects these types of housing to remain popular among Metro Manila employees especially as major infrastructure projects, intended to ease Metro Manila traffic, will likely continue through at least 2025.  It added that it sees a more pronounced development of these projects and developers should start incorporating differentiating features such as childcare facilities and private lounges for phone calls.

Meanwhile, the report observed that the take up of mid-income condominium units, or those priced between P3.2 million to P6 million remains strong, accounting for 43 percent of aggregate take-up in Metro Manila in the first nine months of 2019. Meanwhile, newly-launched projects, such as Alveo’s Parkford Residences in Makati CBD and Federal Land’s Grand Midori in Ortigas Center should further raise condominium prices in key business hubs in Metro Manila, it said.

As for mall developers, Colliers said they should continue to open new malls and expand existing ones as they capture Filipinos’ rising purchasing power, backed by holiday-induced spending and sustained remittances from overseas Filipinos.

The report cited data from the Bangko Sentral ng Pilipinas which showed that money sent by Filipinos working abroad reached $24.6 billion  or around P1.28 trillion from January to September 2019, an increase of 3.9 percent compared to the $23.7 billion (P1.23 trillion) sent in the same period in 2018. The remittances cover about 10 percent of the Philippines’ annual GDP.

Colliers noted that while a portion of annual remittances is set aside for the amortization of condominiums in Metro Manila and house and lot units outside the capital region, a substantial portion of it is allocated on retail expenditures.

Another opportunity for mall developers, the report pointed out, is housing flexible workspace operators. Colliers observed that flexible workspace operators are continuously looking for space across Metro Manila, but with office vacancies hovering between 0.5 and one percent in prime locations such as Makati CBD and the Bay Area, these operators have been scrambling to find suitable space.

It cited research by Colliers USA which showed that flexible workspaces have the potential to drive consumer traffic and consequently, revenue spend to in-mall shops and restaurants.

According to the survey, more than two-thirds of respondents said that co-working space located in a mall would encourage them to visit shops more often and for restaurants, the figure is 73 percent. The poll also noted that almost a quarter say that a co-working space in a mall means they may spend more money inside the mall.

Colliers emphasized that “work where you shop” is a proposition that every mall operators and retailers should be seriously considering.

So for those who are thinking of investing their money in the real estate sector, particularly in condominium units whether for residential or office use, it still seems to be a good idea.

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