Except for industrial and logistics, the lone growth driver and the Philippines new sunshine industry, the country’s property market across most asset classes are in a far worse situation this year than last year with rising vacancy rates and potential sell-offs if not closures of some hotels.
Santos Knight Frank (SKF), the country’s leading property management and consultancy services firm, during its Real Estate Outlook 2021 Mapping the Road Ahead said the domestic property markets are slowly recovering.
Morgan McGilvray, SKF senor director for occupier services and commercial agency, said that office vacancy rate this year in Metro Manila could worsen to as much as 15 percent from 10 percent in 2020, which was more than double the 2019 vacancy rate of 4 percent. The last time high vacancy rates hit the country was in 2009, but it quickly recovered.
McGilvray said that the vacancy rate in Metro Manila will rise as supply exceeds demand because new supplies are coming into the market this year from projects that were supposed to BE delivered in 2020 had been delayed by the pandemic.
Approximately 1.2 million square meters of office spaces are expected to come on stream this year amid downsizing of office spaces. Local firms have been downsizing their office spaces although the large BPOs and multinational firms are expanding. Leasing rates are also flattening out, he said.
McGilvray, however, said that 15 percent is still healthy even stressing that a 20 percent vacancy rate for the Philippine office space market is still a healthy figure. Some markets are doing higher than that, he said.
McGilvray further said that a higher office vacancy rate is even good for the BPO sector as this will give them lots of choices making the Philippines more competitive in terms of leasing rates versus India and even the US, which now becomes a Philippine competitor in the BPO sector.
The silver lining in the Philippine property market is the industrial and logistics asset class. SKF Chairman and CEO Rick Santos said “industrial and logistics will lead the recovery and renaissance” because of stronger e-commerce and vaccines requirements. There are also opportunities in data centers, cold storage, distribution centers, and cell towers, he said.
Even pre-pandemic, Santos said, lots of institutional funds and venture capitalists were already looking to invest in Southeast Asia in industrial and logistics and closely watching for capital flows into this sector. “That is very readable, very much a sunshine sector,” said Santos.
Kash Salvador, SKF director for investment and capital markets said that some asset classes have been repurposed into logistics, which is softening the blow when it comes to cash flow as property owners convert empty spaces for industrial and logistics uses.
Meantime, Jan Custodio, SKF senior director for research and consultancy said that hotels and other players in the hospitality sector have to repurpose citing the case of Shangri-La Makati, which is temporarily closing its doors starting February 1 this year because they could not sustain operations amid continuing very low occupancy rate.
“We see more hotels closing if they are not able to repurpose,” said Custodio to which Santos agreed citing the current guidelines of the Inter-Agency Task Force on the Management of Emerging Diseases on travels. Salvador also expects some hotels in the market to be up for sale.
Santos urged players in this sector, including operators of parking structures, to repurpose and reposition for other uses stressing there are other opportunities through partnerships with other players. “No time is better than now for developers and investors to work in partnerships,” he urged.
For the Philippine Offshore Gaming Operator (POGO) sector, which phenomenal rise just melted last year amid taxation concerns and the pandemic, is not expected to contribute much to the property market.
McGilvray said there has not been much movement and the POGO sector is poised for a negative absorption in 2021. Even with a favorable court ruling on POGO taxation, he said, operators will have a hard time in terms of staffing because of the travel bans. POGOs employ mostly Chinese nationals.
He, however, said that this also opens opportunities for non-Chinese POGO operators, including British POGOs.
Santos, however, advised property owners to go for band names and solid companies with good track record with long term plans in the country.
Overall, he said, there will be a convergence of the office and residential strategy as employees are slowly returning to offices.
The retail sector will continue to experience increased vacancy as the sector is highly dependent on the return of consumer confidence.