Several key indicators point to some glimmer of optimism. Overseas Filipino workers (OFWs) continue to send in money; foreign investments are starting to rise; mortgage rates remain low; employment figures are starting to improve; and demand for mid-income, upscale and luxury condominium units holds firm. These should complement the positive and recent news about the production of an effective vaccine against COVID-19.
Finance Chief Carlos Dominguez earlier expressed optimism for a faster economic rebound in 2021, especially with the prospect of an effective vaccine against COVID-19 being rolled out in the second quarter next year.
Rise in remittances
Data from the Philippine central bank show that cash remittances sent by OFWs grew by 9.1 percent year on year in September, the fastest in 29 months. The central bank is projecting remittances to decline by only 2 percent in 2020, much slower than the 10 to 20 percent decline estimated by some analysts at the start of the year. This should have a positive impact on the country’s retail sector as household spending is likely to rise for the remainder of 2020 with the upcoming holiday season.
2021 national budget
Colliers believes that the timely approval and implementation of the 2021 national budget is crucial in attaining the 6.5 percent to 7.5 percent GDP growth in 2021. In our view, the continued construction of public projects such as roads and bridges is likely to stoke the property development sector. For 2021, the government has set aside P109 billion for the transportation department and about P667 billion for the Department of Public Works and Highways. These allocations will likely support the construction of infrastructure across the country beyond the current administration’s term. These public projects should also stoke demand for integrated communities outside of Metro Manila beyond 2022.
Pre-selling condo market
In the first nine months of 2020, take-up in the pre-selling market reached 24,900 units, down 28 percent year on year. Launches during the period also decreased by more than 50 percent annually. Given the gloomy investor sentiment, we expect take-up and launches in 2020 to reach 33,000 units and 22,000 units, respectively. This reflects a decline of 30 percent and 55 percent annually. This, however, should improve starting 2021 together with renewed investor interest and consumer confidence.
Aside from continuously offering flexible payment terms, we believe that developers should also consider adopting property technology (proptech) platforms. These include virtual reality (VR) tours and automated communication platforms for tenants and property management providers.
Developers that held off new launches in 2020 and are planning to recapture pent-up demand in 2021 should consider price segments and locations that remained attractive during the lockdown. These include mid-income and upscale (P3.2 million to P7.9 million) projects in Mandaluyong, Parañaque, C-5-Pasig corridor, and Caloocan-Malabon-Navotas-Valenzuela City (Camanava). Among the attractive business districts for luxury and ultra-luxury residential units are the Bay Area, Fort Bonifacio and Ortigas Center.
In the third quarter, vacancy across malls in Metro Manila reached 12.5 percent from the 10 percent recorded in the first quarter. We project vacancy to reach 14 percent by end 2020, matching the Asian Financial Crisis (AFC) level in 1999, as retailers rationalize their brick-and-mortar spaces and take advantage of all operators’ online platforms. Given the economic uncertainty, we see consumers mainly spending on essential needs such as food and beverage (F&B) and medicines.
As of end September 2020, Colliers saw the completion of about 53,100 sqm of new retail space, down 87 percent from our initial projection of about 393,700 sqm at the start of the year. In our opinion, the construction schedules of upcoming malls will likely depend on retailers’ willingness to take-up brick-and-mortar space despite the rising interest for online shopping and the recovery in consumer traffic.
In our view, consumer demand is unlikely to bounce back to pre-pandemic level for the remainder of 2020. The fourth quarter is traditionally a strong period for retail spending in the Philippines but slower remittance inflows from OFWs, closure of small businesses and limited disbursement of employees’ holiday bonuses are likely to constrict the retail segment’s potential for stronger recovery this year.
Colliers recommends that mall operators with rising vacancies explore the viability of converting their vacancies into flexible workspaces, which would support office occupiers’ desire for a hub-and-spoke model. We also recommend that operators look at converting vacant spaces into micro warehouses to allow their retailers to reach last mile deliveries.
Better responsiveness to tenants
Net take-up of office space has turned negative. Colliers recorded a net take-up of –113,000 sqm in the first nine months, down from the 605,600 sqm a year ago. Hence, Colliers sees office vacancy in Metro Manila reaching 8.3 percent by end 2020, as Pogos continue to vacate spaces and outsourcing and traditional tenants rationalize their office requirements. For 2020, we now project net take-up to reach –121,900 sqm, a complete reversal from the 899,200 sqm of net take-up in 2019.
Given the uncertainties in the market, Colliers encourages landlords to continue to be more responsive to tenants’ immediate office needs and offer available Peza spaces. During this period of uncertainty, we see tenants exploring short-term lease renewals while others are exploring alternative models such as hub-and spoke.
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