Philippine Property Market Updates: Adapting to the Pandemic
COVID-19 has undoubtedly disrupted the economy, and the real estate industry is barely recovering from the losses incurred. Recent reports on the property market have shown that office, residential, and retail spaces have seen a decreased demand during the past year, but recovery is sighted for 2021. Moreover, the current market has forced property developers to reassess strategies to better deal with the struggles brought about by the ongoing pandemic. For investors, fret not as here are some recommendations given by Colliers to help you cope with this situation:
- Blend and extend
Tenants should take this opportunity to use a blend-and-extend strategy or to negotiate lower rents in exchange for longer-term commitments. Landlords should be amenable to this idea since the office leasing market nowadays has dwindled. Moreover, this should be an opportunity for landlords to lock in key tenants and clients from industries who thrive amidst the pandemic.
- Tenants to take advantage of opportunity to negotiate
Given the likely increase of new supply to be completed this year, tenants are encouraged to maximize their budget by negotiating lower rates, longer lease terms, and other forms of concession such as delayed escalation of rents, rental deferment, fit-out financing, longer fit-out periods, and other incentives. For those companies with long-term lease plans, transferring to higher quality buildings in major business districts at a discount should be considered to maximize the opportunity.
- Diversification in location
Landlords are encouraged to consider viable alternative locations outside Metro Manila such as in Bulacan, Pampanga, Laguna, and Iloilo to capture demand from firms outside the capital region.
- Short-term options to assess post-pandemic operations
Firms taking a wait-and-see and assessing post-pandemic options should consider short-term leases. This approach can help them cope during the uncertainty in the following 1 to 2 years. They can choose to renew short-term or sign up in flexible workspaces to minimize capital and operating expenses.
- Further explore joint venture and luxury projects
Developers are encouraged to explore partnerships with foreign firms to maximize opportunities in the market. As of the end of 2020, the average take-up in luxury projects reached 85% despite the higher price. Given the potential demand and being the least affected during an economic slowdown, more luxury projects are expected to be launched in the market, and these are likely to include joint venture developments.
- Consider fringe areas for new developments
Developers should consider underdeveloped areas for new developments such as in Mandaluyong and Alabang-Las Piñas areas since data showed that 70% of the respondents in a survey conducted last February 2021 plan to develop a property in these areas in the next 12 months. Moreover, these areas accounted for 21% of total take-up for mid-income to luxury projects in 2020.
- Innovative pricing and promos
Investors planning to buy a property should watch out for discounts and promos in both the secondary and preselling market. Given the decline in demand for residential properties, developers have started offering promos such as split or no downpayments, lower reservation fees, and free items such as appliances, furniture, and gadgets to further attract buyers.
- Constantly monitor key demand drivers
Developers should monitor the pandemic situation in countries which are major sources of OFW remittances such as the United States, Saudi Arabia and Singapore which account for 50% of the total. This is because of the fact that OFW remittances continue to drive demand for affordable to mid-income condominiums in Metro Manila. Thus, developers will likely continue to cater to families of OFWs.
- Smart malls and aggressive use of online platforms
Developers should take this opportunity to maximize the use of technology and consumer analytics. Since retail spaces have seen a decrease in utilization due to the pandemic, shifting to online platforms is the way to go to cope with the situation. Moreover, developers should explore the viability of deploying consumer-assisting robots and cooperate with app developers to better capture consumer preferences and regularly send personalized content.
- Be more flexible to retailer requests for concessions
Mall operators are encouraged to accommodate tenants’ calls for concessions and revise lease strategies, especially as we see brick-and-mortar retailers who continue to struggle with sales and consumer traffic for the rest of the year. These may include lower CUSA (Common Service Usage Area) fees, lower base rent, and other incentives. This is because the COVID-19 situation has forced tenants to go for a wait-and-see mode and look for opportunities to reduce expenses in this time of uncertainty.
- Alternative dining options and conversion of retail spaces
Mall operators should consider converting and repurposing their outdoor spaces into al fresco dining areas to comply with the government’s mandated rules on dining in restaurants. On the other hand, for non-dining retail areas, health protocols shall still be highlighted.
Colliers | Colliers Quarterly | Property Market Report | Q1 2021 | Philippines. (2021, April 30). Colliers. https://www.colliers.com/en-ph/research/colliers-quarterly-property-market-report-q1-2021-philippines