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Property poised for historic highs as GDP declines

Manila, August 14, 2018 - The Philippine economy grew by 6% in 2Q2018, slower than the 6.6% recorded in the same period last year and below the 7% to 8% initially projected by the government. The 2Q2018 figure makes the Philippines the third fastest growing economy in the region, only behind Vietnam (6.8%) and China (6.7%). The government intends to post faster economic growth in the next three to six years by enticing more investments thru relaxation of foreign ownership restrictions in key economic sectors such as construction and ramping up the implementation of vital infrastructure projects.

Amid the slower growth, the property sector remains resilient with major segments such as office, residential, and leisure poised for record-high demand and supply in 2018. However, we see challenges ahead, primary of which are the following:

  • Rising interest rates which could dampen low to mid-income residential demand over the next 12 to 24 months. Aside from surging land values in major business districts, Colliers attributes the slowdown in condominium launches in 1H2018 to developers’ concerns surrounding increasing interest rates. On August 8, the central bank raised policy rates by 50 basis points, the most aggressive hike since the Global Financial Crisis in 2008. We believe that a volatile interest rate environment should entice local developers to be more open to partnering with foreign firms to develop horizontal and vertical residential projects;
  • Surging inflation rate that curtails consumer spending, which accounts for nearly 70% of the country’s economy.  Household spending grew by a slower 5.6% in 2Q2018 from 6.0% in 2Q2017 due to rising cost of basic goods, with inflation reaching five-year highs.


Sources: Bangko Sentral ng Pilipinas; Colliers International Philippines Research

  • Persisting private construction delays due to the acute shortage of skilled workers and ramped up implementation of public infrastructure projects. In 1H2018, public construction grew 22.1%, more than double the pace of 9.3% growth in 1H2017 as the government commits to ‘Build,Build,Build’ throughout the country. The resiliency of the construction sector is supported by the 17% growth in the purchases of construction equipment and machinery;
  • Uncertainty surrounding the implementation of the second package of Comprehensive Tax Reform Program. The measure proposes to reduce corporate income tax rates and rationalize tax and non-tax perks granted to foreign investors. This compelled a number of manufacturing investors to wait-and-see, resulting in a 38% drop in foreign investment pledges in 1Q2018; and
  • Right-of-Way (ROW) issues obstructing the construction of vital infrastructure projects across Metro Manila. These projects, once completed, should ease access to major business districts in Manila and play a major role in dictating developer strategies over the next three to six years.

In A Nutshell: Growth Drivers Over the Next Three Years


BPOs and KPOs (Metro Manila, Cebu)

Offshore Gaming (Cebu, Laguna, Pampanga)

Traditionals/Non-BPOs (Metro Manila)


Upscale Projects (Bay Area)

Mid-Income (Paranaque, Mandaluyong, Ortigas Fringe)

Chinese demand (Makati Fringe)

Worker Dormitories (Makati, Ortigas, and Fort Bonifacio fringes)


Three-and Four-Star hotels (Cebu, Bohol, Bacolod, and Iloilo)

Three-star hotels and hostels (Clark, Makati Fringe and Quezon City)

MICE facilities (Clark, Quezon City)

Resort-oriented projects (Cebu)


Pampanga (Light to Medium manufacturers)

Cavite and Batangas (Medium to Heavy industries)



Office: Traditional businesses sustain office demand


Indicators point to a record-high supply and net take up for 2018. For 1H2018, Metro Manila recorded a net take up of 641,000 sq m (6.9 million sq ft), already higher than the 638,000 sq m (6.87 million sq ft) posted for the entire 2017. Colliers sees net take up for the year reaching 1.07 million sq m (11.5 million sq ft) complemented by 1.08 million sq m (11.6 million sq ft) of new leasable office supply, another historical high. We believe that demand for the remainder of the year will be sustained by strong pre-leasing among office towers due to be completed in 2H2018; about 31% of which has already been pre-committed. Aside from BPOs and offshore gaming firms from China, traditional businesses such as logistics, telecommunications, insurance and financial firms sustain demand across Metro Manila.



Residential: Chinese nationals sustaining occupancy


The benefits of warmer relations between the Philippines and China are spilling over to the residential sector. Developers have been benefitting from increasing residential demand from Chinese employees and investors. We see greater potential for partnership with foreign developers as Colliers Philippines has observed more enquiries from firms based in Hong Kong, Japan, and Mainland China. A number of developers are looking at building horizontal (house & lot) projects in key hubs outside of Manila such as Cavite, Bulacan, and Pampanga. Colliers believes that developers should continue to venture into residential projects in second-tier and third-tier cities all over the country, where bulk of demand comes from end-users.



Hotel: Lower occupancy despite surge in arrivals


We project between 7.3 and 7.5 million international visitors this year from 6.6 million in 2016. Despite the   continued rise in arrivals, Colliers sees Metro Manila occupancy hovering between 65% and 68% due to record-high completion – about 2,800 new hotel rooms are projected to be delivered in 2018. We see Manila occupancy averaging between 68% and 70% per year from 2019 to 2021 as the completion of new hotel rooms tapers off. We see daily rates rising by about 1% and 2% per year during the three-year period.



The completion of the second terminal of Mactan Cebu International Airport is a major boost to the country’s tourism infrastructure backbone and this should play a major role in enticing more foreigners to visit the Philippines. From only 4 million passengers, Mactan Cebu airport is now able to accommodate more than 12 million passengers per year. Both local and national developers are capturing Cebu’s tourism gains by employing different strategies – local developers are bringing in foreign hotel and serviced apartment brands such as  Radisson Red and Dusit  Princess while national developers such as Ayala and Rockwell are expanding homegrown brands such as Seda and Aruga.



Industrial: Investors take a wait-and-see stand


Foreign investment pledges into the Philippines for the first three months of 2018 declined by 38% due to uncertainties surrounding the implementation of the second package of Tax Reform for Acceleration and Inclusion (TRAIN 2). Despite the uncertainty, the take up of industrial space remains stable while a few existing locators have announced plans to expand operations within Central and Southern Luzon industrial parks. Light and medium manufacturers gravitate towards Pampanga and Tarlac while higher value manufacturers continue to look for available space in Cavite and Batangas. Industrial park developers Ayala, Filinvest, and Double Dragon have started to establish industrial footprint in Northern and Central Luzon to capture opportunities in the region.



Philippine Property Sector Moving Forward


There are initial concerns about the country’s property sector overheating. But the central bank has been implementing measures to temper inflation and quell overheating concerns. But for the economic growth to be more inclusive and supportive of a thriving property market, the government must guarantee that policy reforms are in place, and these include the continued granting of both tax and non-tax incentives to ensure that the Philippines retains its stature as an attractive destination for outsourcing and industrial locators; and relaxation of foreign ownership restriction in key sectors such as construction to address delays in the completion of projects.



Colliers believes that aside from a highly-skilled labor pool, incentives granted to BPOs and industrial locators are among the Philippines’ advantages over its regional peers. In our opinion, the government’s push to build key infrastructure projects and promote other provinces as viable investment hubs should foster a more inclusive and sustainable economic growth over the next three to six years, and this should benefit the property segment.



Philippine Economic Performance, 2014-2016


Indicator (%)



Gross Domestic Producta



Demand Side

Consumer Spending



Government Spending



Capital Formation (Investments)









Supply Side