A challenging year ahead

While the Philippine property sector remained robust in 2019, a number of headwinds might constrict the property segment’s growth moving forward, according to a latest report prepared by Colliers International Philippines.

Colliers noted that property players had to make key adjustments in their strategies in the past 12 months by developing more co-living projects to address Metro Manila’s worsening traffic and by ramping up the launch of mid-income condominium projects in the fringes of major business districts.

In its latest report, Colliers said developers also had to undertaking aggressive land banking and office construction outside the capital region to follow government’s infrastructure plan and identify alternative expansion sites for occupants such as offshore gaming and outsourcing firms due to government’s ecozone moratorium in Metro Manila and pending approval of a tax reform bill that purges tax perks to investors.

Likewise, property players had to explore the possibility of housing of non-traditional mall tenants, such as flexible workspace operators to avert the threat of increasing vacancy.

But moving forward, a number of challenges might limit the property sector’s growth. These include the acute shortage of skilled construction workers, concerns on the final version of the Comprehensive Tax Reform Program,  which proposes to reduce corporate income tax rates and rationalize tax incentives granted to foreign investors, and government’s inability to fully spend its infrastructure budget which is likely to result in delayed construction of vital public projects that provide direction to property developers’ expansion strategies.

In its 2020 Property Outlook Report, it explained that developers should continuously look for opportunities to capture demand from foreign retailers in light of the lower capital requirements for foreign retailers and capitalize on opportunities for transit-oriented development in urban areas outside Metro Manila, following the infrastructure development of the national government.

Collier projects the delivery of about 15,610 residential units in 2020, higher than the yearly 10,700 units completed from 2016 to 2018, a period that benefitted from the trickle-down impact of offshore gaming demand.

With Metro Manila’s traffic problem, it said developers are compelled to build co-living residential projects near key business hubs, primarily catering to young professionals who want to live near their place of work but cannot afford to buy or lease condominium units within the major CBDs.

For pre-selling condominium projects, Colliers expects sustained demand from investors and local and foreign employees, with the Bay Area, Quezon City, Ortigas Center and its fringe area dominating take-up.

For the office sector, Colliers expects new supply of about one million square meters, a net take-up of 960,000 square meters in 2020, and vacancy rate reaching  6.2 percent with rents growing by about 5.5 percent by the end of next year.

The report said that Metro Manila office’s demand drivers are likely to remain diversified in 2020, with traditional occupiers, business process outsourcing (BPO), knowledge process outsourcing (KPO ) firms such as health information management and software engineering firms, and POGOs likely to dominate Metro Manila office space take-up in 2020.

In the report, Colliers called on 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. It said POGO firms have started to occupy space outside Metro Manila and landlords should offer leasing options in cities that accommodate POGO operations such as Cebu, Laguna and Clark in Pampanga.

Among the headwinds Colliers sees the office segment encountering over the next three years are the slower GDP growth which is likely to slow down the expansion of traditional and non-outsourcing tenants; the wait and see stance of outsourcing firms such as calls centers and shared services companies due to the uncertainty over the government’s tax reform proposal to reduce tax perks that such firms currently enjoy, and the lingering concerns on the sustainability of offshore gaming firms in Metro Manila.

Meanwhile, the property consulting firm anticipates the completion of about 3,300 hotel rooms in 2020, saying the increase in hotel supply is likely to be absorbed by the sustained growth in foreign arrivals and should bring occupancy rates to about 70 percent in 2020.

It said that Chinese tourists will drive the hospitality sector in the next 12 months, contributing to higher hotel occupancy and spending in Metro Manila and other key destinations.

From 2020 to 2022, the report expects the completion of about 7,800 rooms or 2,600 rooms annually. Annual new supply, it said, is likely to peak in 2020, followed by a gradual decline from 2021 to 2022.

A 70 percent occupancy rate is expected until from 2022 as the continued rise in foreign tourists should sustain occupancy despite the delivery of new hotel rooms.

As for the retail sector, the report expects the completion of about 310,000 square meters of new retail space in next year. It said that due to the substantial new supply, vacancy is expected to rise to about 12 percent with lease rates rising at a slower pace of one percent from 1.3 percent in 2019.

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