According to the results of the most recent survey conducted by the Bangko Sentral ng Pilipinas, the business sector's optimism about the Philippine economy decreased, but consumer optimism increased (BSP). The confidence index (CI) of the Business Expectations Survey (BES), according to Redentor Paolo Alegre Jr., head of the BSP Department of Economic Statistics, fell from 35.4% in the second quarter to 26.1% in the third.
On the other hand, the Consumer Expectations Survey (CES) revealed that it also decreased, from -5.2% in the second quarter to -12.9%. According to Alegre, business firms' outlook for the third quarter of 2022 was less hopeful due to greater inflation, rising fuel prices, a fall in sales and demand, the depreciation of the peso, and the ongoing COVID-19 public health danger. Alegre claimed that customers were more gloomy as a result of a quicker rise in the cost of goods, increased household expenses, poor income, and a shortage of jobs and family members who were employed. However, he claimed that customers will be more upbeat in the fourth quarter of 2022 and the following 12 months.
Due to rising international oil prices and the US Federal Reserve's contractionary monetary policy, the Philippine currency is depreciating against the US dollar. In mid-July, the peso was trading at PHP 58 vs the USD, which was its lowest level in nearly 17 years. However, despite the sustained return to normalcy and strong fundamentals that are anticipated to offer adequate safeguards for upcoming monetary policy tightening, the economic outlook is seen to remain positive.
Investor sentiment is expected to be dampened by the recent market volatility in the short to medium term as investors carefully evaluate risks amidst shifting macroeconomic and financial market conditions.
Risks to asset sectors like office and industrial that have intermediate to long-term leases are increased by the inflation rate's sustained, unchecked growth. In the short to mid-term, reduced consumer spending may have a negative impact on the recovery of residential and retail real estate.
However, additional cap rate lowering across property sectors is anticipated over the long term with the correct measures being applied by the BSP at the right time to moderate inflation increase and minimize economic harm. This will probably encourage purchasers and investors to re-allocate their portfolios and diversify them in high-growth real estate investment economies, including the Philippines.
Since the second quarter of last year, the Philippines' GDP has been increasing year over year, reversing five consecutive quarters of economic contraction during the height of the most severe COVID-19 lockdowns two years ago. The low base in 2020 helped the GDP increase at a rate of 12.1% in the second quarter of 2021. Growth rates of 7% in the third quarter and 7.8% in the fourth quarter of last year, which coincided with a gradual economic reopening, were in its wake.
The economy expanded faster than anticipated in the first quarter of this year (8.2%), but at a slower rate in the second quarter (7.4%), as rising global commodity prices brought about local spillover from the protracted conflict between the United States and Russia.
The Bangko Sentral ng Pilipinas (BSP) has already increased the policy rate by a total of 175 basis points so far this year to 3.75 percent in order to curb inflation, which has averaged 4.7 percent in the first seven months or above the 2-4 percent target band of price increases deemed manageable and conducive to economic growth. Increased bank loan interest rates may restrain borrowing and investment by both families and corporations. According to the BSP, inflation has not yet peaked and won't likely start to decline until beyond this year's fourth quarter. In 2022, the panelists of FocusEconomics predicted an average growth rate of 4.9 percent.
OFFICE
Undoubtedly, the increased mobility has increased the number of businesses starting up again in physical workplaces. The Information Technology and Business Process Management (IT-BPM) business, which continues to draw potential new entrants who express interest in locating to the country by early 2023, supports the office sub-sector. During that time, there was a recent upsurge from offshore gambling companies, while it was still below the peak levels. But as they try to reevaluate their future real estate occupancy tactics, some current occupiers are reassessing their real estate footprints.
RETAIL
As customers resume their mall-going habits, foot traffic in retail malls has increased noticeably, rising to roughly 70% of pre-COVID levels from only 50% last year. However, it is believed that the recent increase in the cost of necessities such as food and shelter, as well as the rise in benchmark interest rates, are eroding consumer purchasing power and may cause a drop in retail sales in the short to near term.
INDUSTRIAL
In Central Luzon, notably in Tarlac, Laguna, and Batangas, new industrial spaces are still being built in response to the persistently rising demand for e-commerce fulfillment and distribution centers. The recent influx of warehouses, cold storage, and logistical facilities in these crucial locations reduces the pressure on industrial rent to rise sharply, while local and international data center companies are anticipated to fuel future expansion.
RESIDENTIAL
Since building activity has fully resumed, the supply of pipelines is expected to expand dramatically. However, increases in benchmark interest rates could reduce the long-term supply of residential projects by adding to the cost of capital for real estate investors and developers. While this is happening, demand for residential developments may decline as new potential purchasers may delay demand in the short to near term due to rising mortgage rates.
HOTEL
Foreign visitor arrivals are growing slowly two years after the pandemic began, while domestic visitors' growing confidence is increasing occupancy rates, especially in well-known tourist areas. Although the mood is more upbeat, the hotel and lodging sector will still have to deal with global market risks including sporadic international border controls and geopolitical conflicts on a large scale.