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Manila Market Intelligence: September 28, 2020

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Consumers, businesses see gloom continuing in coming months, says BSP survey

NEWS

The Consumer Expectation Survey (CES) conducted  by the Bangko Sentral ng Pilipinas or central bank showed that Philippine consumer confidence declined to a record low of -54.5% in Q3 2020, the lowest since the start of the survey in 2007. Meanwhile, business confidence dropped to -5.3% after recording 43 quarters of positive confidence. In Q1 2020, business confidence was at 22.3%.Business owners were pessimistic in the third quarter due to the adverse impacts of the pandemic and community lockdowns.  The survey also showed that firms were concerned with decrease in orders, slowdown or temporary shutdown in business operations, and the perceived insufficient anti-COVID-19 measures.

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RESEARCH VIEW

The Philippine economy contracted by 16.5% YOY in Q2 2020, its worst performance since World War 2. The economic slump’s impact on the economy is becoming more apparent, with condominium prices likely to drop by an average of 13.8% and office lease rates to decline by an average of 17%. Colliers noted that government agencies remain optimistic that the country’s economy will recover by end-2020 or early 2021. The National Economic and Development Authority (NEDA) and the Bangko Sentral ng Pilipinas(BSP) or central bank are projecting 6.5% to 7.5% growth in 2021. This should enable key sectors of the country’s economy, such as property, to post a slow recovery. In our opinion, improved business optimism should have a positive effect on office leasing while a growth in consumer confidence should result in increased household spending and benefit retail space and condominium take-up.

MerryMart forays into ‘dark stores’

NEWS

Edgar Sia II’s MerryMart Consumer Corp has partnered with Foodpanda Philippines to operate a “dark grocery” store. According to MerryMart dark grocery stores will serve as invisible stores and will be exclusive for online deliveries. Its first two dark grocery online stores are set to start operations in Manila and Makati City and are expected to offer a 15-minute delivery service. This unique concept is also expected to complement MerryMart’s pursuit to further expand its brick-and-mortar branches in the country. MerryMart currently has 11 operating branches and aims to have about 25 by the end of 2020 and 100 branches by 2021.

 

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RESEARCH VIEW

In our opinion, mall operators and brick-and-mortar retailers have started to feel the adverse effects of the pandemic. In Q1 2020, Colliers saw vacancy among malls in Metro Manila at 10% from 9.8% in Q3 2019. We expect vacancy to increase to about 12% in 2020 due to lower purchasing power and subdued consumer confidence. The implementation of a lockdown and physical distancing protocols have also compelled retailers to reach more consumers by expanding their online presence. This is through utilization of mall operators’ existing online platforms or use of popular social media sites such as Facebook and Instagram. Meanwhile, other developers  have implemented their respective personal shopping services . Colliers believes that these measures are likely to be part of the new normal in retail.

S&P sees PHL economy performing worst in SE Asia

NEWS

S&P Global ratings projects the country’s economy to contract by about 9.5% in 2020, the lowest in Southeast Asia. Meanwhile, the ASEAN+3 Macroeconomic Research Office (AMRO) also expects the economy to shrink by 7.6%, next to Thailand’s 7.8%. S&P said that the re-imposition of a lockdown, lackluster stimulus measures, increase in unemployment and the continued rise in the number of COVID-19 cases are contributing to the gloomy outlook. Despite the dampened economic growth for 2020, S&P sees the economy rebounding by about 9.6% in 2021, higher than the government’s forecast of a 6.5-7.5% economic growth.

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RESEARCH VIEW

The persistent rise in the number of COVID-19 cases and the re-imposition of a lockdown have compelled economic managers and credit rating agencies to revisit their economic forecasts. The Development Budget Coordination Committee (DBCC) now projects the country’s economy to contract by 5.5% in 2020, the lowest since the 6.9% contraction in 1985. For the office sector, the subdued demand from outsourcing, traditional and Philippine Offshore Gaming Operators (POGOs) has resulted in an increase in vacancy of about 4.9% in Q2 2020 from only 4.1% in Q1 2020. We see this rising further to about 7% by the end of 2020 due to the new office completions and weakening demand. Meanwhile, vacancy of condominium units in Metro Manila reached 11.8% in Q2 2020 from the 11.3% recorded in Q1 2020. This is likely to reach mid-teens by the end of the year. Despite the economic setback in 2020, government agencies and credit rating firms’ outlook of between 6.5% to 9.6% in 2021 should support recovery in the demand for office spaces and condominium units. In our opinion, the recently-enacted economic stimulus package (Bayanihan II) should help boost the economy and this should trickle down to the property sector.

 

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Joey Bondoc

Associate Director

Research

Manila

Prior to joining Colliers in March 2016, Joey worked as a Research Manager for a research and consutancy firm where he handled business, political, and macroeconomic analysis. He took part in a number of consultancy projects with multilateral agencies and provided research support and policy recommendations to key government officials and top executives of MNCs in the Philippines.

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