The Philippine Real Estate Industry: A Q1 Report

Philippine Property Market

Real estate news and trends for Q1 2021

As COVID-19 cases continue to rise, the pandemic continues to take its toll on the Philippine economy, and unfortunately, the real estate industry is not spared and also continues to decline. Demands for office, retail, and residential spaces have dwindled as businesses downsize their operations with some completely closing down due to the economic and logistic difficulties brought about by the pandemic. However according to Colliers, recovery is expected by 2022 for office and residential spaces and by 2023 for retail spaces as the government continues its vaccine rollout.

E-commerce, outsourcing, and data centers – top players in PH office property market during COVID-19

Demand for office spaces in Q1 2021 was driven up by e-commerce, outsourcing, and data centers, but the surge of new COVID-19 cases halted the gains. Net absorption of office spaces remained negative at -52,800 square meters as tenants from traditional, outsourcing, and offshore gaming (POGO) industries continue to vacate office spaces. Most e-commerce firms, traditional occupiers, data centers, and POGOs occupied spaces in Ortigas CBD, Fort Bonifacio, and Quezon City in Q1 2021. However, it was also observed that outsourcing firms have started to relocate to areas outside Metro Manila due to less disruption in business processes as COVID-19 cases continue to rise in the capital region.

Experts project completion of about 641,200 square meters per annum of new office space from 2021 to 2025, and 47% of which would be in Fort Bonifacio, Quezon City, and the Bay Area. Rents declined by 3.7% while vacancies reached 11% in Q1 2021 due to non-renewal and pre-termination by tenants as businesses continue work-from-home setups. Vacancies in the Bay Area and Ortigas CBD are expected to increase due to increased supply over the next 12 months.

Recovery is expected by 2022 as the government continues its vaccine rollout. This is due to firms and industries having to continue downscaling their business until all employees have been vaccinated against COVID-19. Thus, office spaces would see increased rentals and decreased vacancies as 2022 enters. Meanwhile, firms from essential segments are expected to lead office space occupancies for the next 12 months.

Recovery sighted for PH residential property market

The demand for residential properties, both pre-sale and secondary markets, is still on a downhill as the pandemic continues. 4,145 units, all in the Bay Area, were delivered in the first quarter, and this would likely account for 74% of the expected 10,387 units to be completed this year. Moreover, rents further declined by 1.6% after a 7.8% correction last year which exceeded the 3.7% drop during the Global Financial Crisis. An increase in vacancies was also observed, from 15.6% in 2020 to 16.3 in Q1 2021. Prices further decreased by 2.5% after a significant decline in 2020 due to the impact of COVID-19. The decreased demand in office spaces also affected the demand for residential properties, especially from those working in the offshore gaming industry in the Bay Area.

Signs of recovery of the residential property market are expected as developers explore the viability of new project launches across strategic areas in Metro Manila. A factor that contributed to this is the government’s vaccination program which provided hope for the population. Starting 2022, vacancies are expected to decrease as the economy recovers, in which OFW remittances continue to be one of the major factors that drive up residential demand. On the other hand, prices and rents are expected to grow by 1.5% and 1.7%, respectively, as the government continues vaccine rollout and as demand for office spaces rebounds.

On other news, last March 26, President Rodrigo Duterte vetoed nine items in the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, one of which was the proposed adjustment on the VAT-exempt threshold on sale of low-budget residential property. In the bill, the threshold was increased from Php 1.5M to Php 2.5M for residential lots and Php 2.5M to Php 4.2M for houses and other residential dwellings. The President cited “prone to abuse” as the reason for the veto since properties could be divided into multiple lots so that individual prices would fall within the VAT-exempt threshold, Presidential Spokesperson Harry Roque explained.

Higher vacancy rates expected for retail spaces

No new retail space was completed from Q4 2020 to Q1 2021, yet about 291,100 square meters per annum of new retail space are expected to be completed within 2021 to 2024. Retail supply during this period would most likely be driven by malls within the Bay Area and Fort Bonifacio. Moreover, the retail industry for this year would most likely be driven by consumer spending on essential goods such as food and beverage, groceries, and medical services and less on non-essential goods such as family entertainment and clothing & footwear.

Retail vacancy in Metro Manila reached 14% in Q1 2021 from 12.5% in Q4 2020. This is mostly due to stores shutting operations in several regional and super-regional malls in NCR. Lockdowns and strict quarantine measures have forced physical retail spaces to cease operations as major mall operators report low-consumer traffic which are estimated to be around 50-60% lower than pre-COVID levels. By the end of 2021, vacancies are expected to rise to 16%, the highest since 2002. On the other hand, rents are projected to decrease by another 5% by the end of this year which is still a slight improvement from the 10% correction in 2020.

Bangko Sentral ng Pilipinas (BSP) has explained that adverse impacts on the economy and various industries are expected due to imposition of stricter lockdown measures in NCR, tighter credit standards by banks for loans to businesses and households, rise of inflation rate, and the inequitable distribution of vaccines against COVID-19.

Vice Chairman Roberto Claudio from the Philippine Retailers Association (PRA) has stated that the retail industry would experience a “soft” growth by about 10% this year as compared to last year which, however, would still be 20-30% lower than pre-COVID levels. By 2023, rents are expected to rebound by about 1% as the government continues its vaccine rollout and as retailers become confident to occupy physical mall spaces.


Colliers Property Market Report Q1 2021