The Philippine property market in 2023 is projected to experience sustained return of demand for all key sectors, including retail, hospitality, industrial, and office, with more expansion activities in the provinces, according to a leading property management consultancy firm.

Rick Santos, chairman & CEO of Santos Knight Frank (SKF) projected a rosy outlook for Philippine property this year following a positive Q4 2022 performance.

Based on the SKF data, retail occupancy in Metro Manila already nears pre-pandemic level, while warehouse rents jumped by 15 percent end 2022 to become the highest in Southeast Asia, while there are 2,692 new hotel rooms expected in the metro until 2024.

The contestable office sector nonetheless is also expected to show net positive growth despite vacancy rates not ebbing at double digit. But office occupiers are going to the provinces such as Iloilo, Cebu and Clark for their second and third sites.

With huge layoffs among tech companies and cost cutting measures amid high inflation, global firms are pivoting to the Philippines and India for outsourcing.

Morgan McGilvray, Senior Director for Occupier Services at SKF said the office sector is still a tenants’ market despite overall office stock of 10.4 million square meters as of end 2022 as against net absorption of 117,485 sqm only.

“2023 is positive for office market for the Philippines,” he said noting that Bonifacio Global City has the biggest occupancy rate with 2.3 million sqm followed by Makati with 1.8 million sqm and Quezon City with 1.3 million sqm. The Bay Area office spaces have higher vacancy rate because of the absence of POGOs.

But the return to office policy of the government and is putting pressure on lease rates, he said.

SKF data showed that logistics rents in Metro Manila have gone up 15 percent, the second highest among Asia Pacific countries. The highest growth was Sydney with 22.8 percent increase in rent.

Santos noted that the industrial, logistics, and warehouse sector has always been a bright spot in Philippine real estate. As markets recover from the pandemic, greater activities in construction, manufacturing, and e-commerce industries are driving demand for storage, he said.

The data center sector is also seen as the next source of growth in demand this year with the Philippines being touted as next destination.

“We expect more leasing activity this year as a result of greater outsourcing requirements from developed economies, the availability of quality office space, and companies adjusting their work setups. While we will continue to see some downsizing of footprints for Philippine headquarter companies, we still expect to see an overall net positive take up in 2023 driven mainly by the BPO sector,” McGilvray said.

He noted that the difference in occupancy between PEZA-accredited and non-PEZA-accredited buildings was already nearing parity by the end of 2022. Buildings accredited by PEZA have registered a 16 percent average vacancy rate versus non-PEZA, which had 19 percent average vacancy at the end of 2022.

In 2023 and beyond, SKF expects BPO tenants that were once restricted to PEZA-accredited buildings to consider a wider pool of options for their next office space.

There is also premium for green buildings, which continued to be more resilient in their occupancy level than non-green buildings. In fact, SKF said that LEED-certified office buildings registered an 11 percent average vacancy and P1,090 average asking monthly lease rate versus 24 percent vacancy and P942 asking monthly lease rate in non-LEED buildings.

The resilience in green buildings is boosted by corporate multinationals, which have always looked for high-quality buildings since ten years ago. “Now, these same firms often have ESG (environment, social, governance) targets as well, which require them to not only be in green buildings, but also to find landlords that can help the firms achieve sustainability objectives,” he said.

The government’s work-from-home (WFH) policy on IT-BPM operation will continue to impact demand for office space. In early January, PEZA said a total of 452 registered business enterprises involving 1,325 IT-BPM projects were endorsed to the Board of Investments.

The move to allow WFH has enabled IT-BPM companies to find harmony in designing their work setups. In general, SKF predicts that companies in 2023 will re-assess their hybrid work experience, its impact on productivity and employee wellbeing, and adjust their requirements for office space, accordingly.

McGilvray further noted of two trends. The first one is sustained positive net absorption wherein more office spaces being leased than being vacated or given up.

“But by the third quarter of 2022. We saw positive net absorption again in the office market. It got even stronger in the fourth quarter of 2022 and we expect it'll be even stronger still in the first quarter of 2023. And then to 2023 as a whole will be very positive for the Philippine office market,” he added.

The second trend is an optimistic provincial outlook as companies are looking to go out to the provinces, including BPOs with more headquarters out to the provinces. “So, it's not just Metro Manila anymore. It's not just Metro Cebu anymore, but provincial locations such as Iloilo, which has been quite popular for a while now. Also Davao is coming on very strongly. We're seeing a lot of activity in Bacolod recently as well. And then Clark, which has always been a popular provincial destination, so the demand is not all concentrated in the tier one cities anymore,” he said.

For the retail and hospital, SKF said these are the fast-recovering sectors. Santos said the Philippines’ 7.6 percent GDP growth in 2022 was already the fastest in four decades, driven by a 6 percent increase in consumption. “This trend supports the robust demand for retail space,” he said.

Already, mall occupancy level across Metro Manila was close to 93 percent by the end of 2022. Mall occupancy was at 96 percent in Q4 2019 before the pandemic.

With 2.65 million international tourist arrivals to the Philippines in 2022, the return of travel also comes as hotel construction developments across the country continue.

Between this year and 2024, SKF estimates approximately 2,692 new hotel rooms to be delivered in Metro Manila alone.