STRONGER GDP CONTINUES TO BOLSTER PROPERTY SECTOR
The Philippines’ robust real estate market is expected to be sustained over the next two to three years by a strong economic growth fueled by increased infrastructure spending, improved credit ratings, decelerating inflation, and a higher ranking in the global competitiveness surveys.
Latest government data showed that the economy expanded by 6.2 percent in the third quarter this year, making the country one of the fastest growing economies in Asia ahead of China’s 6 percent and next to Vietnam’s 7.3 percent.
The third quarter gross domestic product (GDP) growth was also faster than the 5.6 percent posted in the first six months of 2019. The improvement can be attributed mainly to government spending, with public construction rising by 11 percent in the third quarter of 2019, from a 27 percent contraction in the second quarter.
Private construction rose by 19.1 percent, sustaining the 10.4 percent growth posted in the third quarter of 2018. This indicated a strong appetite for office towers, residential units (condominiums and house & lots), malls, hotels and industrial parks across the country.
Colliers has observed that while Metro Manila office’s demand drivers remain diversified, the offshore gaming firms or Philippine Offshore Gaming Operators (Pogos) continue to outpace others in terms of share to total leasing transactions.
For the first nine months of 2019, offshore gaming accounted for 37 percent of all closed deals, representing about 442,000 sqm of office space. Pogos currently occupy about 10 percent of total leasable office space in Metro Manila or 1.14 million sqm.
We remain optimistic that Pogos will continue to lead the office space take-up over the next two to three years especially with continued efforts from lawmakers to legitimize their operations.
In the office segment, among the headwinds that Colliers sees over the next three years include slower GDP growth (multilateral lending firms and foreign banks are now projecting a 6 percent growth from the previous 6.2 percent). A slower domestic economy is likely to slow down the expansion of traditional and non outsourcing tenants; and outsourcing firms (call centers and shared service firms) taking a waitand-see stance due to the uncertainty over the tax reform proposal of the government which intends to reduce tax perks that these firms enjoy.
Colliers encourages 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.
Pogo firms have also started to occupy space outside Metro Manila and landlords should offer opportunities in cities that accommodate Pogo operations.
Solution to traffic crisis
The ongoing construction and rehabilitation of railway and expressways across Metro Manila has resulted in unbearable traffic jams across the capital’s major roads. This 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 central business districts.
Colliers believes that these types of housing are likely 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.
Colliers 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, for example.
Mid-income segment demand
Colliers has also observed that the take up of mid-income condominium units, priced from P3.2 million to P6 million per unit, remains strong, accounting for the bulk (or 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 (P370,000 per sqm) in Makati CBD and Federal Land’s Grand Midori (P232,000 per sqm) in Ortigas Center should further raise condominium prices in key business hubs in Metro Manila.
To further benefit from the country’s robust real estate market and sustained economic growth, Colliers encourages both landlords and tenants to further explore opportunities in the market by identifying expansion sites and alternatives for outsourcing and offshore gaming firms, and developing more co-living and mid-income projects to address a growing demand.