Skip to main content Skip to footer

Value and Recovery: Bright Spots in Uncharted Territory


The Philippines' largest island Luzon, which accounts for more than 70% of the country's economic output had been placed under strict quarantine from March 16 to May 15 to contain the spread of the new coronavirus that has infected more than 38,000 and killed more than 1,200 in the country so far.

The stay-at-home orders had been relaxed in some low-risk areas outside the main capital from May 1, as the government tried to look ahead to restart the economy, which unexpectedly shrank 0.2% in the first quarter of the year from last year, the first contraction since the fourth quarter of 1998, as domestic consumption and business activity ground to a halt. The second quarter figures worsened putting the country into recession with a contraction of 6.7%.

Based on the Philippine government's latest forecast, the Southeast Asian economy's gross domestic product is expected to shrink between 2.0% to -3.4% this year, greater than initially thought, as the extension of the lock-down of the capital takes a heavier toll on domestic demand and business. Growth is seen to make a strong come back next year with the GDP forecast to expand between 7.1% to 8.1%, supported by a well-targeted economic recovery program.

As Metro Manila restarts under the more lenient general community quarantine (GCQ), the property sector is wary of the future as initial figures show office, residential, retail and especially the hotel sectors all took a beating during the first 3 months of the pandemic.

Office Sector

The business process outsourcing (BPO) sector, which accounted for a third of the office demand in 2019 and one of the bright spots in the property sector, was not spared, as the enhanced community quarantine disrupted its operations. Some outfits were reported to be downsizing (rightsizing) their businesses, while others were forced to rethink their once bullish expansion plans. The industry expects the pandemic to have an impact on this year's headcount and revenues. Last year, the BPO sector recorded revenues of $26.3 billion, up 7.1% from the previous year.

The Philippine offshore gaming operators (POGO), which accounted for another third of demand and now occupying over 10% of total office stock in the metro, also came under siege. Because they were employing mostly mainland Chinese, the travel-ban virtually prevented them from hiring workers, and those workers who went back to China for the Chinese Lunar New Year could not hop on the plane back to Manila.

To make matters worse, POGOs were forbidden to restart operations after the lockdown without first securing tax clearance from the tax bureau. There are already reports of POGOs pulling out of the country as the government begins to strictly regulate their operations.

Forecast: In the near term, rents are expected to make downward adjustments as demand slows down with capital values expected to follow suit. Recovery is expected as soon as the outbreak has abated.

Bright Spots: The overall slowdown in office market may be offset by possible new health and safety standards in office densities which may spur more space demand as well as the probable increase in outsourcing requirements from businesses in developed markets to cut costs.

Recommendations: Landlords could give rental concessions like additional rent free; instead of the standard 3 months deposit, 3 months advance rent, make it 2 and 2; postpone rent increases to help tenants cope with overall business slowdown.

Residential Sector

Remittances from the Filipinos working overseas, another major driver of Philippine real estate, is expected to decline by as much as 30% this year as thousands of overseas Filipino workers (OFW) return home. Considering a sizable chunk of it is used to acquire property and pay rentals, the decline in remittances will have an indelible impact on the residential property sector.

POGOs not only drive demand for office space but also has an effect in residential sales and leasing in the metro. But as POGO office demand decreases, so are their expected residential take-up.

The unemployment rate rose to 17.7% in April from January's 5.3%, and the figure is expected to climb as millions have lost their jobs due to the pandemic. This will significantly curtail people's ability to invest in residential properties.

In times of a crisis, cash is king, as the old adage goes. Buying houses or condominium units will be among the first decisions to be put on hold in the event of social and economic uncertainties brought about by the pandemic.

Furthermore, the dip in consumer confidence will translate into lower residential demand. Falling incomes from the returning OFWs and furloughed workers further put pressures on affordability of houses and condos.

Forecast: Condominium in the metropolis may experience a steeper drop in values compared to houses in the suburbs. Affordable and mid-income segments would likely take the brunt of the price correction as these are the markets that caters to OFWs and the middle-class workers.

Bright Spots: There is still a big residential supply backlog. When consumer confidence returns to normal, demand will pick up.

Recommendations: Immediately, developers can give discounts and extended payment terms while in the medium term, they can control new supply to control pricing. New projects should consider the luxury of open space, health and wellness and amenities in their designs. More focus in the suburbs of Metro Manila, where land is relatively cheaper, and where these new design philosophies can be implemented.

Retail Sector

The Philippines avoided recession during the 2008-2009 Global Financial Crisis, thanks to our robust domestic consumption. But containment measures introduced by the government to curb the spread of the coronavirus have sapped domestic demand and that will obviously weigh on the retail sector. 

Malls have been virtually shut down for nearly three months when the government introduced curbs on movement and business. Even with the easing of restrictions, the retail landscape won’t be the same. Mall operations will be limited with the social distancing measures required under the new normal until a treatment or a vaccine is developed.

Forecast: Retail occupancy will take a hit as some weaker stores and restaurants may close shop. For those who survive, they will have to tend to consumers changing their shopping behavior. Base rents are expected to fall and expected overage rents zeroes out with retail capital values sharply decreasing.

Bright Spots: The Philippines is still a consumer- driven economy and malls will remain to be the center of urban living and culture for most Filipinos.

Recommendations: Immediately adjust rental fees, postpone scheduled rent increases or shift to percentage of sales rental during this period to help locators cope and survive. For vacant spaces re-evaluate tenant mix and consider leaning more towards essential stores and services. Redesign malls from monolithic blocks to a strip mall hybrid with more open spaces, open-air seating, and shops with their own external access.

Hotel Sector

The hotel industry has entered uncharted territory. The effect of the COVID-19 pandemic will be worse than the impact of the 9/11 terror attack on travel and the 2008 Global Financial Crisis on the hospitality industry.

Tourism, which accounts for over 10% of the Philippine economy, will be the hardest hit property sector. With the domestic and international air travel restrictions, hotels in Metro Manila and beach and island resorts in the country are reeling from its effect.

The timing of the pandemic has affected the seasonality of local and international tourism. The whole local summer season is already lost. Business hotels will likely lose 9 months of this year with nearly minimal occupancy, if any. Foreign tourists who flock our best beaches during their summer months from June to August are also expected to skip traveling this year.

Forecast: Hotel industry should expect a longer recovery compared to other property segments. It may take a year after the outbreak has ended, that is, if travelers’ behaviors don't change. In the near term, hotel occupancy falls and hotel capital values plummets.

Bright Spots: International travel will return eventually and so will hotel-staying guests. Locally, there will be pent-up demand for a holiday escape after three months of lockdown and more months of strict quarantine once COVID19 is under control.

Recommendations: In the near term, the first business travelers are ones with essential short business travel requirements such as site visits, sales calls aside from medical and government travels while non-essential travel will be more for family visits. In the meantime, prepare for reopening with emphasis on health and safety measures. Focus on local tourism as cautious travelers prefer to stay close to home. This will start to drive occupancy once all quarantine measures are lifted and hotels are allowed to operate.

Industrial/Logistics Sector

Disruptions in the global supply chain will impact export- oriented industrial developments. However, food manufacturing will largely remain unaffected. Demand for in-city logistics will grow as people’s shopping habits shift from brick and mortar to online.

There may be expected demand to secure additional storage space as companies try to manage their supply chains. As businesses rethink their lean-inventory strategies, an increase in e-commerce operations and need for more “safety stock” positioned near the cities will spur demand for warehousing.

Forecast: While capital values are expected to decline in the near term, demand for near city or in city warehousing may offset the negative impact of corona virus on industrial/logistics values in the medium term.

Bright Spots: Demand for logistics and warehousing near the metropolis or on the fringe may increase to better service the growing needs of e-commerce.

Recommendations: Develop near- city or in- city logistics to support surge in e-commerce. If possible, repurpose some vacant in-city buildings as last mile storage.

Colliers View

A sharp slowdown in domestic demand, which will likely intensify in the coming months due the general economic climate with the country falling well into recession with two consecutive quarters of negative growth as the government implemented one of the world’s longest tight lockdowns to combat COVID-19 has rained on the Philippine property sector's decade-long parade.

A recovery (whether U-shaped or V-shaped) in the property sector can be expected once a vaccine or treatment becomes available as the market dynamics that fueled the sector's stellar growth in the last 10 years remain largely intact.

Related Experts

Paul Ramirez

Senior Director

Valuation Services


Colliers Philippines

Senior Director | Head of Valuation

June 18, 2007 – Present


Asian Appraisal Co., Inc.

Asst. Vice President                          

March 16, 2001 - May 31, 2007    

View expert