PEZA investment pledges up 8.5%
The Philippine Economic Zone Authority (PEZA) reported an 8.5% increase in approved investment pledges as of H1 2021. PEZA investments amounted to PHP32.1 billion (USD669 million) based on 119 new and expansion projects. In June 2021, PEZA approved 62 projects, which are mainly investments for the information technology and manufacturing sectors. The investments promotion agency set a 7% investment growth target this year hoping that the recent passage of the law cutting corporate income tax and reforming the tax incentives system would attract more foreign firms. PEZA believes that as the economy reopens and the country moves towards herd immunity, they can continuously attract more investments, generate exports, and produce jobs for millions of Filipinos post-pandemic.
Even with the effects of Covid-19, the Philippines remains as an ideal investment hub as investors continue to look at the country for their expansion plans. Government policies such as the recently enacted Corporate Recovery and Tax Incentives for Enterprises (CREATE) law should provide clearer guidelines for firms planning to invest in the Philippines, as well as outline the taxes they should pay and incentives that they should enjoy. We encourage investors to take advantage of these incentives as they firm up their plans in the Philippines over the next 3 to 5 years. Colliers believes that economic recovery will likely hinge on the government’s ramped-up inoculation program, which should help spur economic activity and revive demand for office spaces and industrial parks.
Retail industry pushes back recovery projections
The Philippine Retailers Association (PRA) said that the retail industry’s recovery may like be pushed back to 2023 from their previous projection of 2021 due to the implementation of a stricter lockdown. Non-essential retailers such as clothing and jewelry stores are not allowed to operate while Metro Manila is under the enhanced community quarantine (ECQ). PRA President Rosemarie Ong noted that retailers have moved to online platforms and have been using their stores as fulfillment centers. Meanwhile, the e-commerce industry has partially lifted the sector, representing 20% of total retail sales.
In Q1 2021, Colliers saw retail vacancy rising to 14% from 12.5% in Q3 2020 due to a number of brick-and-mortar stores shutting operations in several regional and super-regional malls in the capital region. In our opinion, the renewed lockdowns in Metro Manila as well as the subdued consumer confidence will likely push retail vacancy to 16% by the end of 2021. We also project lease rates to decline before a slow recovery starting 2023. Colliers believes that the imposition of a stricter form of lockdown in the capital region has highlighted the need for mall operators to reconfigure their spaces for consumers. We encourage mall operators to convert and repurpose their vacant spaces. Retailers, meanwhile, should implement “brick and click” strategies.
Due to the COVID-19 pandemic, more buyers are looking for properties outside of Metro Manila as they seek for larger spaces. Data from the Bangko Sentral ng Pilipinas (BSP) or the central bank show that property prices in the capital region dropped by 10% in Q1 2020, while prices outside Metro Manila rose by 0.8% YOY. Results from the central bank showed that there has been a decline in demand for condominiums in Metro Manila but an increase in demand for horizontal units in subdivisions.
In Q2 2021, vacancy across Metro Manila’s condominium market reached 17.1%, up from 11.8% in Q2 2020. Prices and rents also saw a further correction, declining by 3.2% and 1.7%, respectively. We have been seeing an uptick in demand for affordable to mid-income (PHP1.7 to PHP6 million) house and lot projects outside the capital region as more Filipino families opt for larger spaces and gravitate towards less dense communities. Colliers believes that demand for these projects will continue to be driven by remittances from Filipinos working abroad. Young professionals have also been aggressive in investing in lot-only and house-and-lot projects in key urban areas outside Metro Manila. Based on the results of a Colliers Philippines survey, among the popular locations are Pampanga, Bulacan, Tarlac, Cavite, Laguna, and Batangas.