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Given the coronavirus crisis and community quarantine measures in place, Lamudi continues to support real estate professionals through its online platforms. Lamudi Academy, for one, holds its learning sessions on the official Facebook page. For the past two months, the Training and Development team has published Surviving Broker Business in the time of COVID and Broker Central.
Still true to its mission to empower more brokers, the Lamudi Academy launched a new webinar series called Lamudi Academy: Expert Talks, where local real estate thought leaders discuss industry news and trends, especially those concerning the global health crisis. Last week, in the first episode, Joey Bondoc, Senior Research Manager of Colliers International Philippines, graced the show, discussing real estate trends and opportunities worth taking advantage of after the quarantine period.
Here are some of the highlights of the episode:
Macroeconomic Overview
Considering the impact of the pandemic, economic analysts and credit rating agencies project a slower growth for the country in the next quarter of 2020. As a result, the gross domestic product (GDP) target of five to seven percent is no longer achievable, according to Bondoc. The remittances of overseas Filipino workers, a major contributor to economic growth, saw an increase of 7.3 percent in January 2020. But Bondoc shared that there’s an estimated drop of about $3 to 6 billion in remittances this year, considering the recession in other countries and lay-offs OFWs may experience.
The property market, however, shows some positive trends. Mortgage rates are down to five to seven percent, compared to the twenty percent before. This is especially promising, moving forward, since it will spur demand for real estate investments, according to Bondoc.
Real Estate Trends
Office
On the supply side, there’s a slower turnout of office spaces, given the halted construction operations, as well as social distancing measures. According to Bondoc’s report, the new supply dropped by 26 percent in 2020. The demand likewise dipped.
“For the first quarter of 2020, we saw slower transactions for office space,” Bondoc pointed out. He added, “Some companies that were initially looking at occupying office space for three to five years have stalled those expansion plans and now, taking a wait-and-see stance.” As a result, there are:
- Higher vacancy rates. To be specific, Bondoc estimated a 5.5 percent rate this year. From 900,000 sqm of office space being occupied, only 300 to 450,000 sqm will be taken up because of the sluggish leasing activity brought by the pandemic. Back in 2009, during the global financial crisis, the vacancy rate was 8.6 percent in the office market, shifting to 5.5 percent in 2010.
- Reduced lease rates. The office lease rates during the global financial crisis were down by 14 percent, bouncing back in 2010 and growing by five percent. In the current crisis, Bondoc expects office lease rates to dip by 17 percent.
In terms of Manila’s position in the property cycle, Bondoc said that it’s in the “denial” stage, in which there’s an imbalance in terms of supply and demand, causing a decline in rental value.
Once the market conditions improve, however, the outsourcing firms are likely to lead the recovery in demand for office space, according to Bondoc. In the first quarter of the year, outsourcing companies held 37 percent of the space, offshore gaming operators occupied 32 percent, and traditional occupants, including financial agencies, insurance companies, and government offices, took 31 percent.
Looking at the performance of these sectors in the last years, Bondoc shared these insights:
- On outsourcing firms. Historically, there was a 47 percent decline in office take-up during the global financial crisis. It took six to nine months for BPOs to recover and start leasing again after the downturn. Bondoc shared that for the crisis today, recovery may take a little longer, about six months to a year after the virus is contained.
- On offshore gaming companies. In 2016, only eight percent of office space was occupied by these firms. It grew significantly through the years, reaching 37 percent in 2019. Throughout this period, over a million square meters have been occupied. The challenge in rousing up demand again is the travel restrictions imposed on foreign nationals running these companies.
In summary, the coronavirus pandemic has affected the office sector in these aspects:
- New supply in 2020 to drop by 26 percent
- Possible GDCP contraction (-1 percent) in 2020 and slower growth in 2021
- Delay in long-term occupancy decisions for tenants
- Inspection activity to decline
- Vacancy rate to increase
- Slower expansion from POGOs
Residential
Similar to the office segment, slower completion in the residential sector due to work stoppage is likewise likely, Bondoc said.
“For 2020, we are now likely to see 11,000 condominium units all over the capital region, and that is significantly less than the 14,700 units that we initially estimated,” he added.
There’s no significant increase in the vacancy in the secondary market in the first quarter of the year. This refers to the units that were turned over already, and are currently available for sale or lease. Bondoc expects that the impact will be felt starting the second quarter, especially with the shutdown of operations of different companies.
Analyzing dips and spikes in prices in the residential real estate market, Bondoc shared the figures specifically during the financial crises decades ago. During the Asian financial crisis, prices went down by 14 percent in 1998 and nine percent in 1999, recovering with a growth of 24 percent in 2000. In the case of the global financial crisis, the market was less affected, posting a decline of 1.5 percent only in 2009, and then bouncing back to 2.1 percent increase in 2010.
“Our forecast for 2020 is that there will be a 15 percent drop for average condominium prices all over Metro Manila before a slow recovery in 2021 as well as 2022,” Bondoc said.
A 5.5 percent correction for condo lease rates is expected before recovering by two percent in the next two years.
Both developers and investors should watch out for certain economic indicators, which will affect condo rents, prices, and take-up. This includes:
- Unemployment rate. Local employment dictates the buying power of the market.
- Interest rate. The Central Bank will be keen on cutting down rates to encourage buying.
- Consumer confidence. Low consumer confidence often entails slower increase in condo prices, as well as take-up.
Price segments that will most likely be affected by the prolonged community quarantine measures are the mid-income (P3.2 to 5.99 million) and affordable (P1.7 to 3.19 million) segments.
In terms of the remaining inventory, the economic segment has three percent of the total units, the affordable segment has 32 percent, mid-income has 36 percent, upscale has ten percent, and finally, the luxury market has 19 percent. This high number of unsold properties explains why price changes would mostly occur in the mid-income and affordable segments.
In summary, the coronavirus pandemic has affected the residential sector in these aspects:
- Softer demand in business districts
- Low mortgage rates of between six to seven percent in 2021
- Total supply is 3,000 less than the previous estimate
- Pause in new launches for 2020
- Price and lease rates declining by 18 percent and five percent respectively
- 10 to 15 percent discount in pre-selling units, with mid-income segment seeing price changes
Retail
In the retail segment, Bondoc said that while food services are thriving, it’s important for operators to focus on constantly improving operations. “It’s no longer enough that you’re in food and beverage, where demand is really high, but you have to ensure that you have logistics in place, and you also have well-functioning delivery systems,” he shared.
He added that maintaining a good online presence is crucial in sustaining interest of consumers.
Identifying the retail segments most affected by the pandemic, Bondoc singled out spaces where people gather, namely cinemas and food courts. “One of our recommendations is that mall operators should rethink the density,” he shared.
Impact of Previous Crises on Philippine Property
To better understand the economic downturn brought by the pandemic, Bondoc showed the differences in the crises the country has gone through in the last decade. The Asian financial crisis, which involved currencies collapsing and interest rates soaring, the financial system froze. As a result, condominium prices declined to 14 percent and office rents dipped by 16 percent. It was in 2003 when the economy improved.
Meanwhile, in the global financial crisis, Asian countries weren’t so much affected. As a result, there was a quick, V-shape recovery. However, the BPO sector paused expansion plans. Residential transactions declined, but the values were maintained.
In the current pandemic, remittances from overseas workers are falling, the offshore gaming operations have stopped, and buyers aren’t able to maximize pre-sold units.
Bondoc outlined a few scenarios in the real estate industry after the pandemic:
- Social distancing observed
- Interest rates as low as they have ever been
- All sectors experiencing reduced demand or trade problems (off-shoring activities to increase, however, because of cost pressures)
- Supply tap turned off quickly
Positive that the real estate industry will recover from its losses, Bondoc harped on the Filipino homebuyer sentiment. “We’re still optimistic especially because for the residential market, owning a house remains an aspiration of every Filipino.”
Question and Answer Segment
- What trends and opportunities are we seeing outside of Metro Manila?
Bondoc sees promising potential in locations beyond the capital region. “A lot of office occupiers are looking at diversifying outside of Metro Manila. They don’t want to be Metro Manila-centric because for instance, if there’s another pandemic or lockdown, and companies stop operating in Metro Manila, then they will be forced to completely stop their operations. But if they have sites outside Metro Manila, they can continue a part of their operations,” he pointed out.
This affects residential demand, according to Bondoc. He cited that prior to the pandemic hitting the nation, a lot more people are looking at condos and houses and lots in regions outside the capital region. This was brought by the national government’s push to decentralize activities, spreading economic opportunities to areas outside NCR, as the Build, Build, Build project takes off across the country.
“We believe that all this decentralization and infrastructure implementation programs will keep the property market afloat. It will help a lot of investors in terms of having more options in the market, and will help dictate the strategies of the developers even after this COVID-19 pandemic.
- Will foreign interest in properties return after the quarantine is lifted?
“While we’re likely to see a slower demand for 2020 both from our local, as well as foreign investors, we’re likely to see recovery starting 2021, especially if the market conditions start to stabilize during that period,” Bondoc said.
“Some institutional buyers from the Middle East and Southeast Asia are likely to continue buying condominium units once this pandemic is over,” he added. Locations outside Metro Manila are attractive to these investors, especially because these are less congested. Most are on the lookout for leisure-oriented house and lot units and condominiums located in a live-work-play community, according to Bondoc.
- Thanks to technology, we now have access to online payment and online reservations. Will these, along with leniency of payment schemes, help in boosting real estate after quarantine?
With social distancing measures in place, online payments will be the more common option for many buyers. “In fact, the Central Bank has been recording a huge scourge in terms of use of InstaPay and other online payment or selling platforms,” he said.
The property buyers especially benefit from these schemes, since it offers convenience, makes the process faster, and improves the buying or selling journey altogether.
- What does it mean for Manila to be in the “denial” stage? How were we categorized at the denial stage?
Bondoc clarifies that the denial stage is characterized by an imbalance in terms of supply and demand. “There’s a greater supply that we see now in the market and less demand because of softening of leasing activities,” he said.
What’s interesting about the current times is that developers in the capital region can quickly turn off the supply tap as they see a slower market demand. After the Asian financial crisis, according to Bondoc, developers limited completions to only 200,000 sqm of office space instead of the target 550,000 sqm during the next economic downturn in 2009. The move tempered the falling vacancy rate and rental values in Metro Manila, Bondoc pointed out.
- What signs are we looking for to move out of the “denial” stage and onto the next step?
“If market conditions improve starting the second half of 2020, then we will probably see more leasing activities finally materializing,” Bondoc shared.
He added, “When we look at the global financial crisis, it took occupiers six to nine months before finally completing their office leases. For 2020, it might take a bit more time. This pandemic and its impact on the economy is probably worse than the global financial crisis.” As mentioned, he projects six months to a year before companies start taking leases and office spaces.
“We’ll probably see growth in lease rates starting 2021,” Bondoc said.
- Will the adoption of Work-from-Home policies affect office and residential trends?
The work-from-home will affect the office segment even after the COVID-19 pandemic, in fact, forming a part in the new normal. “Some companies will look at implementing split operations. Half will be occupying traditional office space, half will be working from home or taking up flexible workspace,” he said.
For this reason, Bondoc sees greater demand for data computing, as well as the establishment of data centers across the capital region.
In effect, this change in the office segment influences the demand for residential spaces. Given the developers’ unsold units, many will be implementing creative leasing solutions. One thing that Bondoc identified is disposing of inventory to BPO employees.
“Part of the new normal is that some companies are trying to look for halfway houses for workers because they want their workers to be near their offices,” he said. He added that offering units that are in the fringes of Metro Manila will appeal to employees who want more affordable options.
Despite the challenges in real estate brought by the pandemic, there are opportunities in sight that can prove to be promising when harnessed right. Learn what thought leaders today think about the industry in light of the current affairs in the next episode of Lamudi Academy: Expert Talks. Stay updated by checking Lamudi’s official Facebook page.
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