High vacancy and falling rents hound office, retail and residential property segments, but the luxury residential remained undaunted by the overall economic slowdown caused by the global pandemic.
Janlo Delos Reyes, head of research and consultancy at JLL Philippines, at the company’s 3Quarter 2020 Metro Manila Market Overview, noted that luxury residential projects, which are very niche developments have been resilient during this challenging period.
“Luxury projects are doing relatively well while some declines of existing projects are offset by the resiliency of upcoming projects in Taguig and Makati, but the mid-level has been affected by price decline given the weakened overall demand,” said Delos Reyes.
Residential rents continued to decline by 2.4 percent in the third quarter to P40,000 per month as more units become vacant. The weaker pre-selling market results to further negative absorption.
In contrast, Delos Reyes said that the luxury residential developments have been taken up last year already.
The overall residential sector is expected to post significant slip in the delivery of projects to 2021 and beyond as vacancy rates climbed to 8 percent given higher existing stocks. Manila has lower take up rate. Rents continued to decline amid the implementation of quarantine measures.
In terms of office vacancy rates in Metro Manila office, this rose 9.5 percent in the third quarter this year following the exit and pre-termination of POGO contracts. Office space supply is estimated at 91,300 square meters were completed in the third quarter of 2020, although around 61 percent of scheduled completions in the same quarter were further delayed.
In addition, overall pre-commitment rate slightly fell to 24.4 percent at the end of third quarter as potential tenants are holding off leasing plans as they continue to assess office space requirements in the next normal.
Rental also slightly declined from the second quarter with average rental at P1,154 per square meter per month. For existing office spaces, rent plateaued as overall demand remained weak, coupled with increasing vacancy rates as businesses are keeping the work from home setup amid prolonged community quarantine.
Delos Reyes, however, said the POGOs that left was actually a form of screening out those non-compliant with government regulations from those legitimate making the POGO office space occupiers with a more stable.
Based on the JLL data, there has been no POGOs in their monitored office spaces in the third quarter this year which are dominated by outsourcing and offshoring, and traditional offices.
But all is not lost, Delos Reyes said there are pockets of bright spots in the property sector. He said that recovery would be boosted by the back-end sector in the IT business process management (ITBPM) sector, especially in the back-end for technology security firms.
“Given that there's a lot of move towards online space, a lot of the data done digitally, we can say that there may be a consequent demand coming from tech security company in the future. We've talked about data centers and logistics as some of their most recent resilient assets classes,” said Delos Reyes.
He also noted of growth in other corporate real estate, traditional asset classes, basically in terms of volumes and values that is going to carry over in 2021 and in the future as there is a wave of migration into big ecommerce platform by a lot of retailers.
The tech security market is going to play a significant role in driving more activity into the logistics space as more retailers are looking at warehouse space. These facilities are mainly build-to-suit.
Apart from those areas, Delos Reyes cited some bright spots coming from retail because of significant transformation given all this technology adoption. This is despite the fact that 80 percent of mall developments are expected to slip to 2021. As more malls were closed, rents in malls average P1,620 per month or 17 percent decline all districts.
“This dynamism would lead to new terms with how we look at the product or any service model for a lot of mall players and even retailers alike and I think it's going to again, go back to that ecommerce platform and how it's going to feed back into the physical space,” he added noting that the online and the physical brick and mortar are not going to compete against each other but rater complement that.
“It's going to become marriage of both. I think that's going to transform and see how we look forward.”