WeWork gets a boost as firms eye alternative work arrangements
From March to July 2020, WeWork Philippines recorded a 10% growth in terms of enterprise members as companies opted for flexible working arrangements for their employees due to the pandemic. Enterprise members are companies that employ more than 500 employees worldwide. According to Ray Tan, WeWork Head of Growth for Southeast Asia and Korea, the companies under the segment require IT solutions, security, and usually take-up larger spaces. Tan added that companies providing essential services adopted the hub-and-spoke model in a bid to boost their business continuity plans and lessen further operation disruption. Selected companies that were affected by the pandemic also shifted to smaller offices and minimized real estate requirements.
In 2020, we project office vacancy to hover between 5.3% and 7.4% due to sluggish leasing across Metro Manila. This is higher than the 4.3% posted in 2019. We expect a gradual recovery starting 2021 on the back of macroeconomic recovery. The Bangko Sentral ng Pilipinas (BSP) or central bank and the National Economic and Development Authority (NEDA) project a GDP growth of about 6.5% to 7.5% in 2021, after a decline in 2020. Given the current impact of the pandemic, companies are adopting alternative solutions to ensure business continuity. Smaller flexible workspace providers will likely benefit from this as selected companies start adopting flex-and-core strategies as a solution to the limited mobility of employees. There are currently 183 flexible workspace centers in Manila occupying around 350,000 sq metres (3.8 million sq feet) of space. Some outsourcing firms may also consider plug-and-play offices as near-term solutions for immediate requirements. Companies that opted to occupy flexible workspaces for their mission-critical teams will likely be able to mitigate risks caused by the pandemic and other potential crises.
PH 2020 exports forecast to fall 21%
Based on the assumptions of the Export Marketing Bureau (EMB) of the Department of Trade and Industry (DTI), Philippine exports in 2020 will likely reach USD74.1 billion (PHP3.6 trillion), 21.4% lower than the initial target of USD102 billion to USD105 billion (PHP5 trillion to PHP5.1 trillion). The decrease was due to the decline of both merchandise and services. Director Senen Perlada expects merchandise exports to reach USD38.1 billion (PHP1.9 trillion), lower than the USD54.8 billion to USD56.9 billion (PHP2.7 trillion to PHP2.8 trillion) Philippine Export Development Plan (PEDP) target. Services exports will also likely reach USD36 billion (PHP1.8 trillion), 12.1% lower than the USD47.2 billion to USD49 billion (PHP2.3 trillion to PHP2.4 trillion) PEDP target. The pandemic had significantly affected exports of the country starting in March 2020, with decline reaching -49.9% in April. Perlada added that the decline decelerated starting May 2020, a good indication for the sector.
According to the Global Trade Update report published in June 2020 by the United Nations Conference on Trade and Development (UNCTAD), exports of developing countries fell by 18% in April 2020, worse than the 7% drop recorded in Q1 2020. The drop was likely driven by the decrease in demand from destination markets. Despite the general drop, East Asia and the Pacific regions fared relatively better as export decline in the area remained under single digits (-4%) in April 2020. The decline in exports will likely affect the growth of the manufacturing industry in the country which may lead to subdued industrial space absorption. Data from IHS Markit showed that the Purchasing Managers Index of the Philippines reached 48.4 in July 2020 from 49.7 in June, signaling a decline in the manufacturing sector. We expect demand for industrial space to recover on the back of global trade improvement as cross border restrictions are likely to be lifted gradually once the pandemic wanes.
Infra projects to fuel faster economic recovery
Department of Finance (DOF) Secretary Carlos Dominguez said that the fast-tracking of the government’s infrastructure projects under the ‘Build, Build, Build’ program including those in Northern Luzon will likely be key factors in the country’s economic recovery post COVID-19. Secretary Dominguez noted that investments in infrastructure have high multiplier effects, as they encourage investments, generate jobs and increase economic activities. The country’s economic managers have also expanded the ‘Build, Build, Build’ pipeline to 105 projects, totaling PHP4.1 trillion (USD). Among the projects in Northern Luzon cited by Sec. Dominguez include the New Clark City, Tarlac-Pangasinan-La Union Expressway (TPLEX), Central Luzon Link Expressway, Clark International Airport and the North-South Commuter Railway that is already 40% completed.
In our opinion, infrastructure projects under the government’s ‘Build, Build, Build’ program should have a positive impact on the property sector. The Development Budget Coordination Committee (DBCC) reported that the government is expected to spend PHP785.5 billion (USD16 billion) for infrastructure projects this year and PHP1.121 trillion (USD23 billion) in 2021, equivalent to 4.2% and 5.4% of the country’s GDP, respectively. These are higher than the previous administrations’ average allocation of 1-3% of GDP. In our view, infrastructure projects have the potential to raise property prices, unlock land values and create business opportunities. And we see these benefits trickling down to Northern Luzon’s property sector. Prior to the pandemic and lockdown, several firms have started to develop projects in the northern Luzon provinces of Bulacan, Pampanga, and Tarlac. The railways, toll roads, and airport modernization projects due to be completed in the next two to five years should boost the attractiveness of integrated communities in the region post-pandemic and after the relaxation of lockdowns. Prior to the pandemic and lockdown, several firms have started to develop projects in the northern Luzon provinces of Bulacan, Pampanga, and Tarlac. The railways, toll roads, and airport modernization projects due to be completed in the next two to five years should boost the attractiveness of integrated communities in the region post-pandemic and after the relaxation of lockdowns.