PHL economy could shrink by 4.5% in 2020
Moody’s Investors Service projects the Philippine GDP to contract by 4.5% in 2020, with a 6.5% growth in 2021. The projected drop in 2020 is worse than the initial 2% contraction the group projected in May 2020. On the other hand, Fitch Ratings projects a 4% drop in 2020 while S&P Ratings expects GDP to contract by 3% in the same year. The government also expects a 2% to 3.4% GDP contraction in 2020. Christian de Guzman, Senior Vice President of the Sovereign Risk Group of Moody’s, noted that lowering the infection rate is an important factor to consider for economic recovery. Effective containment may also help with the deployment of Overseas Filipino Workers (OFWs). According to the Department of Foreign Affairs (DFA), more than 68,000 OFWs have been repatriated as of July 4, 2020. The Bangko Sentral ng Pilipinas (BSP) or central bank projects OFW cash remittances to decrease by 5% in 2020. Cash remittances in March 2020 already decreased by 4.7% to USD 2.397 billion (PHP119.85 billion).
The projected contraction of the Philippine economy will likely lead to investors temporarily holding off their investment and expansion plans due to uncertainties in the market. We see investor confidence improving on the back of the gradual recovery of the economy. Given the uncertainties in the economy, we project a slowdown in office space absorption in 2020. This will likely lead to vacancy peaking at 5.5% in 2020, from 4.3% in 2019. We project take-up in the sector to recover starting 2021 as economic recovery will likely support business activities and office leasing deals. We recommend that developers highlight the wellness features and property management capabilities of their buildings to recapture demand in 2021.
Century Properties reservation sales improve, reach P6 billion
In Q2 2020, reservation sales of Century Properties Group, Inc. (CPG) reached PHP3.16 billion (USD63.2 million), up from PHP2.96 billion (USD59.2 million) in Q1 2020. In H1 2020, the company pre-sold 651 condominiums and 1,274 house and lot units. CPG President and CEO Marco Antonio said the digitalization efforts of the company helped boost its sales during the period. Antonio added that the pandemic caused a shift in consumer behavior as investors are now starting to appreciate the value of homeownership more.
To help boost sales and attract potential investors, we recommend that developers further tap technologies to digitally market their projects. Offering digital alternatives to potential buyers will likely ease the process of home buying and lessen the safety concerns of investors. Developers should also tie up with banks to ensure seamless online transactions. Property firms with upcoming projects should ensure that their buildings are adaptable to modern technology – especially with employees now working from their homes. These features should also help attract potential investors looking to buy pre-selling units while mortgage rates are low.
Farmers get spaces in malls, restaurants
The Department of Agriculture has signed a memorandum of understanding with SM Supermalls and Resto PH that would give farmers spaces in malls and restaurants as part of the government’s efforts to provide livelihood amid the pandemic. The project, called Farmers Produce, aims to provide affordable food for consumers in places where health and safety protocols are observed such as malls. SM will likely allot their underutilized spaces for farmers free of charge to encourage more farmers to participate in the program.
Colliers believes this initiative of the government and mall operators will likely help raise occupancy of malls in Metro Manila. Data from Colliers show that vacancy of malls inched up to 10% in Q1 2020 from 9.8% in Q3 2019. In our opinion, the implementation of physical distancing measures will likely affect retail sectors where people convene such as cinemas and foodcourts. Hence, mall operators should rethink the densities of these segments. Colliers expects that only about half of the new leasable space due to be completed in 2020 is likely to absorbed due to the erosion of consumers’ purchasing power and subdued retail demand across Metro Manila. This is likely to raise Metro Manila’s retail vacancy to about 12% by the end of 2020.