Investments in commercial property in the Philippines provide many chances for individuals to explore vast opportunities in real estate that extend beyond the housing sectors. It likewise offers advantages and the potential for attractive returns. However, individuals must be careful when assessing the market before choosing to invest in particular commercial industries, as there are certain points to be aware of. Listed below are some of the pros and cons of commercial investment that should be kept in mind before making such commitments.
Pros of Investing in Commercial Real Estate
1. Large Consumer Market
The Philippines has a population of over 117 million individuals, creating a favorable environment for various commercial sectors, including retail, hospitality, and office spaces. It is also known for having a robust economy with a growing middle class and a young workforce. The avid consumer market produces an attractive opportunity for commercial real estate investments, as demand for these properties is ever-increasing, providing chances for rental income and potential appreciation in property value. The office market is a positive example, where it is forecasted to reach a net absorption of 228,000 sq.m. in 2023 to fit the needs of healthcare, logistics, telecommunications, finance, government, and shared service sectors (Colliers).
2. Diversification and Income Generation
Commercial real estate investments can offer diversification benefits to an investment portfolio, as the types of properties that classify as such are vast, multi-functional, and will evolve with the consumer market. These spaces range from office buildings, retail spaces, healthcare facilities, hotels and resorts, industrial warehouses, and more—all essential to the fast-growing economy of the Philippines. By choosing from this variety of sectors, the investors can ideally spread their risk across multiple opportunities. In any such case, these properties may provide income streams via renters or tenants, making it a reliable source of cash flow for the investor.
3. Favorable Regulatory Environment
The Philippine government has implemented various initiatives and incentives to attract local and foreign investments in commercial real estate. These include tax incentives for real estate developers and investors, streamlined business registration processes, and special economic zones that offer preferential treatment for businesses. The supportive regulatory environment contributes to the overall attractiveness and ease of investing in commercial real estate in the Philippines.
Cons to Investing in Commercial Real Estate
Market Volatility
The commercial real estate market in the Philippines is subject to fluctuations and economic uncertainties (as is any other market or sector). Cases have occurred wherein changes in government policies, shifts in market demand, and immersions in global economic conditions have impacted property values and rental rates. Markets may also change based on the category of investment made, as diversification paves the way for multiple consumer targets that behave differently depending on their respective trends. The COVID-19 Pandemic is one instance that has uniquely affected the sectors across all real estate investments, and the country continues to improve its conditions from it. Therefore, investors must be aware of these risks and subsequently prepare themselves for potential market volatility.
Property and Tenant Management
Managing properties within the Philippine setting requires an understanding of the practices and regulations which are unique to each commercial sector (offices, food service establishments, hospitality, utility, etc.). Moreover, these investments rely on tenants for rental income, and monitoring such can also be challenging. Finding reliable property managers, dealing with tenant issues, and maintaining properties can be time-consuming and costly. Improper management of such can lead to periods of vacancy and result in lost rental income and additional expenses related to advertising and tenant search. It is crucial to have a strong property management strategy in place to mitigate these challenges.
An Emergence of Online Alternatives
The growth of e-commerce has led to a shift in consumer preferences, as shopping online across multiple media platforms has provided more access to options for product purchasing. It affects the retail sector and those investing in its commercial properties, as some firms have opted to abandon physical stores in favor of a digital market front. This has led to an opportunity for adaptive reuse and redevelopment, where vacant retail spaces are renovated into mixed-use developments, office spaces, or even fulfillment centers for e-commerce companies. While this can help repurpose commercial real estate, it may also require significant investments and changes to abide by local regulations.
In summary, there are beneficial points to investing in commercial real estate, as this develops a diverse portfolio with profitable returns. However, proper planning and management are needed to ensure that the investment is sustainable and can adapt to the needs of the market.