There was a brief discussion of the Philippine property sector’s performance in 2019. Colliers observed that in the past year, the property sector remained robust but we saw key adjustments in the strategies of property players in the past 12 months, including –

• Development of more co-living projects as developers and commuters adjust to the worsening traffic in Metro Manila;
• Ramped up launch of mid-income condominium units in the fringes of major business districts due to dearth of developable land in CBDs; and
• Aggressive landbanking and office construction outside the capital region as developers follow the government’s infrastructure plan and identify alternative expansion sites for occupants including Philippine Offshore Gaming Operators (POGOs) and Business Process Outsourcing (BPO) amid the government’s ecozone moratorium in Metro Manila and pending approval of a tax reform bill that purges tax perks to investors; 
Overall, we see the Philippine economy’s upward growth trajectory being sustained by massive public infrastructure spending. This government spending-backed economic growth should further stoke the property sector. 

But Colliers sees a number of headwinds that might constrict the property segment’s growth moving forward. These include the following –

• Acute shortage of skilled construction workers threatening the launch of more residential projects in Metro Manila; 

• Lingering concerns on final version of the Comprehensive Tax Reform Program to be approved by Congress. The delay in the approval of the measure that proposes to reduce corporate income tax rates and rationalize tax incentives granted to foreign investors has been compelling occupants to take a wait-and-see stance; and

• Challenges to full utilization of the government’s infrastructure budget which are likely to result in delayed construction of vital public projects that provide direction to property developers’ expansion strategies.

Despite these, we still see opportunities in the market. For instance, Colliers believes that economic growth over the next 12 months will likely remain public infrastructure-driven. This should have a positive impact on developers’ projects as bridges, airports, railways, and toll roads help unlock land values and strengthen the demand for transit-oriented developments.

Colliers also sees the POGO sector being a major office space demand driver in 2020. The offshore gaming firms have dominated the office market in the first nine months of 2019. Traditional occupants such as banks and government agencies are also driving the demand. 
Colliers sees the completion of about 1 million sq metres(10.8 million sqfeet) of new leasable retail supply over the next three years. In our opinion, mall operators should continue to implement innovative leasing strategies and attract interesting tenants to fill the substantial amount of new retail space.  

Over the next 12 months, Colliers believes that a major opportunity for Metro Manila mall developers is the housing of flexible workspaces. Colliers has observed that flexible workspace operators are continuously looking for space across Metro Manila. But with office vacancies hovering between 0.5% and 1.0% in prime locations such as Makati CBD and the Bay Area, these operators have been scrambling to find suitable space.
Colliers has also seen the re-emergence and refurbishment of food courts in Metro Manila malls. Colliers believes that food courts have incorporated unique themes and modern designs, creating a destination within the mall. Over the next twelve months, we expect a more pronounced refurbishment of food courts in malls across Metro Manila.

But a major development that is likely to redefine the Philippine property sector in the next 12 months is the full implementation of Real Estate Investment Trust (REIT) law

Colliers believes that there is greater interest in the implementation of the REIT law following the signing of the amended implementing rules and regulations (IRR) governing REITs in the country. The implementation is likely to develop the country’s property and capital markets. REITS should also stoke the construction  and infrastructure sectors which have significant multiplier effects to the economy.
To best take advantage of REITs, Colliers recommends that developers also undertake the following –

• Divest properties into REITs to access a cheaper source of capital

• Use REIT proceeds to renovate and reposition assets such as offices, malls, and warehouses

• Use REIT funds to develop integrated communities in key cities outside Manila

• Set aside a portion of REIT proceeds to acquire reclaimed properties in Manila

• Use REITs as a benchmark for valuing assets

Several developers have expressed interest in REITs. It will be interesting to see which developer will be able to secure the first-mover advantage.

This article first appeared on The Philippine Daily Inquirer last January 29, 2020.