Manila, 21 March 2019 - The Philippine economy clocked in a full-year 2018 economic growth of 6.2%. Multinational banks, aid agencies and credit rating firms are forecasting a GDP growth of between 6% and 6.5% in 2019. Colliers encourages developers to maximize the country’s sustained macroeconomic environment. We recommend that developers align their projects with the government’s infrastructure push, which we see bannering the Philippine economic growth over the next two to three years. In our opinion, developers should strategically acquire land in key areas outside of Manila where economic activities are likely to be fueled by major infrastructure projects. Given the public projects in the pipeline, we see Cavite coming to its own as an urban center South of Manila while Metro Clark in Pampanga should be North Luzon’s main business hub.

 

Philippine Property segment: Opportunities and Threats

Opportunities

Threats

Higher infrastructure spending

Lack of skilled construction workers

Decelerating inflation

Election ban on public works

Easing of foreign ownership cap in key sectors (e.g. retail and construction)

Reenactment of 2018 national budget

Release of new Foreign Investment Negative List (FINL)

Slow PEZA proclamation

Thriving e-commerce

Second phase of tax reform

Rising foreign tourists

Lower foreign direct investments

Property sentiment remains positive, but headwinds seen

Sustained economic growth will probably continue to spill over to the real estate sector. However, outpacing the record-high supply and absorption posted by the office and residential sectors in 2018 appears daunting. Several factors could constrain the growth of the property sector moving forward, including:

>      The lack of skilled construction workers which may compromise the implementation of the government’s infrastructure projects nationwide. Colliers raised this issue as early as 2016 when property developers were scrambling to complete residential projects amid a tight labour situation.

>      Potential delays in the implementation of public projects due to election ban and the delay in the passage of the 2019 national budget.

Office: Outsourcing, offshore gaming to sustain demand

Colliers recorded record-high supply and demand in the Manila office sector in 2018. Outsourcing firms drove overall office space absorption in 2018, dominating other sectors such as offshore gaming and traditional/non-BPO occupants. The 1.18 million sq metres (12.7 million sq feet) of net take up posted in 2018 was even higher than our initial forecast of 1.15 million sq metres (12.4 million sq feet).

Colliers projects new supply to reach 1.10 million sq metres (11.84 million sq feet) over the next 12 months with net take up of about 1.0 million sq metres (10.8 million sq feet). In our opinion, the demand from the outsourcing sector is likely to be sustained while office space take-up from offshore gaming firms should re-emerge as they occupy new buildings in the Bay Area. We also expect greater expansion outside Metro Manila as cost-sensitive outsourcing companies look for PEZA-proclaimed office space.

Colliers expects a number of local governments taking a more concrete stance on offshore gaming operations, which should offer some clarification as to the expansion plans of these firms moving forward.

Residential: Outpacing 2018 sales a challenge

About 54,000 residential condominium units were sold in the Metro Manila pre-sales market in 2018, outpacing the 53,000 units sold in 2017. However, Colliers believes that take-up in the pre-selling market will moderate in 2019 due to our projected drop in condominium launches. We attribute this slowdown to the lack of developable land in Metro Manila’s major business hubs and the rapidly rising prices of land. Given this trend, we expect developers to be more aggressive in launching new projects in the fringes of central business districts, where land is cheaper.

Meanwhile, we see sustained end-user demand for horizontal (House & Lot) projects especially in key areas outside Metro Manila. Over the past 12 months, we have seen new launches in Tarlac, Nueva Ecija, Cavite, Laguna, Batangas, Bacolod, Cebu, Iloilo, and Davao. Money sent in by Overseas Filipino Workers (OFW) is among the major drivers of residential demand. OFW remittances reached USD32.2 billion in 2018 (PHP1.7 trillion), up 3% YoY.  

An upside for the residential market is that the country’s inflation environment is starting to stabilize, with February's 3.8% inflation falling between the 2% and 4% projection of the central bank. With the central bank projecting a slower inflation rate, we do not see a major hike in benchmark bond yields over the next 12 months. This should help temper concerns about the Metro Manila residential market overheating.

Retail: Enticing more foreign players

Household spending showed slower growth of 5.6% growth in 2018, versus 5.8% in 2017, due to higher inflation (5.2% in 2018 versus 2.9% in 2017).  Despite the spike in inflation in 2018, the Philippines remained attractive among foreign food and beverage (F&B) firms. Among the companies planning to open shop over the next 12 to 18 months are Shake Shack, Panda Express, and Popeyes.

Overall, a sustained macroeconomic backdrop and rising purchasing power should entice mall developers to expand and house an interesting mix of retailers. From 2019 to 2021, Colliers sees the completion of about 200,000 sq metres (2.15 million sq feet) of new leasable retail space per annum.

Among the major malls due to open or be relaunched during the period are Arca South Mall, SM Mall of Asia expansion, Gateway Mall expansion, CityGate retail, and Greenhills mall redevelopment.

Hotel: Occupancy to rise

According to the Tourism department, the Philippines attracted a total of 7.1 million international tourists in 2018. While lower than the initial projection of 7.4 million visitors, the figure is still higher than the 6.6 million foreign visitors recorded in 2017.

Domestic travelers have also been driving the segment, with national players such as Ayala, Filinvest, 8990, Rockwell, and Vista Land tapping the growing demand by developing their own hotel brands. We also see foreign brands opening over the next two to three years including the new Mandarin Oriental in Makati CBD, Hotel Okura in the Bay Area, and Ibis Styles hotel in Araneta Center.

Colliers sees the Hotels and Restaurants sector receiving a boost this year from election-related spending. In 2018, hotel occupancy in Metro Manila reached 69%, slightly lower than the 70% posted in 2017 due to the completion of a record-number of hotel rooms – 2,700. Over the next 12 months, we see Metro Manila posting a hotel occupancy of between 68% and 70% as the delivery of new hotel rooms tapers and the number of foreign arrivals rises.

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