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The Philippine real estate market has proven to be resilient in this time of health crisis, and continues to thrive amidst many sectors being crippled by the pandemic. Several businesses across the country continue to adapt to the new normal, putting in place practices that will ready them for future financial crises and pandemics.
In this episode of Lamudi Academy: Expert Talks, Sheila Lobien, Chief Executive Officer of the Lobien Realty Group, shares her insights on how COVID-19 has affected the commercial real estate sector and how businesses are adapting to the new normal.
The Impact of COVID-19 on the Philippine Economy
Since the last quarter of 2019, the COVID-19 pandemic has affected people’s health and various industries all over the world. “When you look at the top ten countries [affected by the pandemic], a bulk of them are main tourist destinations.” She also mentioned that COVID-19 has resulted in the collapse of the airline, booking, cruise, and hotel industries, with many of these services shutting down due to the lack of guests checking-in and acquiring such leisures.
Lobien also discussed that many countries forecast a decrease in their gross domestic product due to the ongoing pandemic heavily affecting their tourism industry. As for the Philippines, government consumption growth fell from 12% to 7.1% during 4Q2019. After President Duterte placed Metro Manila under enhanced community quarantine last March 16, various sectors have experienced a decline in their growth, such as private investments and imports.
“In the real estate market, we don’t have data yet to show that the prices of land or properties have already gone down, primarily because in the last two or three months, there were very few transactions, if not, probably no transactions at all.” Just like the other sectors, the real estate industry will continue to experience a contraction in its growth as the COVID-19 pandemic continues to affect the Philippines.
Office: Market Outlook
GDP Growth Rate vs. Office Rental Rate
“I always believe that the office market is one of the best barometers of the economy because once these office spaces are built and taken, that means jobs are created in the market. [Shopping, dining out, and other forms of spending] will fuel the whole economy,” Lobien said.
Recent data on the office market showed that crises such as the Asian financial crisis and the global financial crisis caused office rental rates to drastically decline, followed by a sharp decline in the Philippines’ GDP. However, the data also revealed that a year or two after these financial crises happened, demand for office spaces and rental rates have increased, especially after the global financial crisis where the Philippine economy experienced robust and steady growth.
But from 4Q2019 up to 1Q2020, there has been a decline in the demand for the office market due to the ongoing COVID-19 crisis. “As of [2020, office spaces being supplied out there] are being taken but the next few months will be another update depending on how the market will move,” said Lobien.
As a whole, the Philippine economy may be sensitive to political, natural, and global financial risks, but it is also extremely resilient as proven by the bouncebacks of the country’s GDP after the major financial crises. Likewise, the Asian Development Bank has forecast that the Philippine GDP is expected to rebound to 6.5% in 2021 from a decline of 2% in 2020 due to COVID-19.
GDP Construction Percentage vs. Office Supply
Lobien stated that the office market is very strong since many investors are into the construction and the property market. Data by Lobien Realty showed that 2011 and onwards was a period of growth in the office supply despite the financial crisis that happened in 2008. “The Philippines is a very resilient country and the [property] market itself is quite resilient.”
The BPO sector was also seen to be very resilient. “When things went wrong in the USA and in other parts of the world, and they started to look at saving costs, they looked at the Philippines as an option to outsource accounting back-office, voice, and call-center,” said Lobien, emphasizing that BPO industries are one of the pillars of the Philippine economy, other than OFW remittances, and the tourism industry. Even during the quarantine periods, the BPO sector remains one of the most competitive sectors and continues to have a high demand for office spaces.
Metro Manila Supply Analysis
As of 2020, the office vacancy rate in Metro Manila is 4.6% which is very low and an indicator that the economy and the office market are very good and doing well. Lobien mentioned that when you look at major central business districts across Metro Manila, most of the buildings and offices are fully-leased and have very few vacancies.
“Out of the 900,000 square meters of office space that entered this year, 40% of it was leased. So the first quarter of this year was healthy,” said Lobien. She also mentioned that the average rent from last year to this year is steadily increasing. The average rent for 1Q2020 is Php 1,175 per square meter, an increase from 1Q2019’s Php 1,110 per square meter.
Lobien also talked about the office supply pipeline wherein developers still have a very good pipeline in terms of building and providing new office spaces for 2020. She also mentioned that there will be a decline in the square meters provided by the office market. “[I think that decline is good] because if there will be a slight decline in demand, then the supply will just be enough to be absorbed in the market and the supply out there will be taken [by the continuously growing industries such as BPO, IT, POGO, healthcare, and traditional offices].”
Metro Manila Average Rates and Land Values
Average rental rates and land values in Metro Manila are also moving up. Data shows that Makati and Taguig are the top cities that have the most rented office spaces and the highest rental rates, with Php 1,600 up to Php 2,000 per square meter.
Lobien also talked about the Bay City area wherein a large portion of POGOs and the gaming and entertainment industries are situated. “In the last four years, [the Bay City area] has jumped from just Php 600 per square meter to Php 1,500 per square meter. This is phenomenal because of the growing demand for the gaming industry,” she said.
Office Demand in Metro Manila (As of 2019)
As of 2019, the bulk of office spaces in Metro Manila was taken by the POGO industry, which totals to 396,000 square meters, or 36% of the pie. The demand for the office market in the POGO sector is due to the rapidly growing expansions of online gaming operators across Metro Manila
Since the introduction of POGOs in the Philippines in 2016, this sector’s demand for office spaces continued to increase. In just a span of five years, POGOs have occupied over 1.14 million square meters or 10% of the total office stock in the market.
In terms of outsourcing, the Philippines remains the top country in voice BPO and second to India when it comes to non-voice complex services. “I always believe that outsourcing is always here to stay because companies will always look for ways to cut costs and outsourcing your business and non-core staff is always the way to go to increase profit.”
Lobien also mentioned that non-voice services have the potential to grow in the Philippines, hence opening job positions in back-office accounts, architecture, accounting, engineering, and IT, among others.
With COVID-19 halting most industries and services nowadays, it is ironic that the pandemic has prompted the growth of townships in the Philippines. Lobien said that mixed-use environments where residents get to “live, work, and play” are the kind that is resilient during times like these.
As of 2020, there are a total of 80 townships in the Philippines and 60% are located outside Metro Manila. “Given the situation right now, [developers and companies] are looking into centralizing their operations so that when another pandemic happens, they will be ready and resilient, and business operations will continue and have minor disruptions.
Provincial Supply Analysis
In provincial business districts, 14% of the office stock is currently occupied. Lobien mentioned that there is a good office supply in business districts found in Cebu, Davao, Cavite, Laguna, Pampanga, and Bulacan, among others.
For the provincial supply of office stock, 1Q2020 has reduced to 266,063 square meters from 1Q2019’s 296,753 square meters. However, the average rental rates for 1Q2020 has increased to Php 606 per square meter from Php 551 per square meter of 1Q2019. This means that provincial business districts are also growing in terms of expanding BPO industries and in their demand for more office spaces.
Residential: Market Outlook
A supply of about 15,500 condominium units is expected to come in Metro Manila with the majority geared towards the middle market, which includes BPO workers, OFWs, and families looking for a residential area close to their workplaces.
However, it is forecast that there is a reduced demand for condominium units due to travel restrictions both locally and internationally, a decline in OFW remittances, and a sharp increase in local employment. On the other hand, this might be the right time to invest in a condo because price appreciation for the residential sector remains inactive and will depend on how the market will stabilize in the new normal.
A bulk of these condominiums are located in the Makati Central Business District, Bonifacio Global City in Taguig, Ortigas Center, Alabang in Muntinlupa, and the Bay City area. Makati and BGC are the top two areas that have the highest price per square meter and remain two of the most ideal areas to buy a condo unit.
GDP Growth vs. Real Estate Loans
“People and property developers are taking loans from the bank to invest in properties,” Lobien said, stating that when the property market is down, banks entice clients with housing loans in order for Filipino families to continue investing in their dream homes despite the pandemic.
Lobien furthered that real estate loans continue to increase despite the financial and health crises that hit the Philippines, saying “people and companies are borrowing to spend and build on properties for their business or for [housing purposes].”
She emphasized that despite crises and dips in GDP, real estate loans will remain constant as they cater to the need of people and companies to build, as well as contribute to the bounceback of the economy after these crises have lifted.
Tourism and Hospitality: Market Outlook
GDP Growth vs. Tourism Receipts
Out of all the industry sectors in the Philippines, it is the tourism and hospitality sectors that are most heavily affected by the COVID-19 pandemic. Just like the SARS pandemic that hit the Philippines from 2002 to 2004, tourism rates and revenues have plummeted as a result of travel restrictions brought in by the community quarantine. From a GDP growth of 6% in 2019, it nosedived to 2% as COVID-19 entered the Philippines.
The sharp decline of the tourism sector has also affected the growth of the hotel industry. “A lot of these hotels depend on the conventions, the groups, meetings, and bookings from guests. Because of the [COVID-19] crisis, the hotel industry is also experiencing a sharp decline in their revenues,” Lobien said.
The government forecast that domestic tourism may rebound once again after COVID-19 restrictions are lifted, although Lobien mentioned that bounceback will be slow and may fully pick up by 2021.
Tourist Arrivals vs. Hotel Annual Supply (Number of Rooms)
Since 2014, the hotel industry of the Philippines has consistently gone up, with the demand for hotel rooms going up with the number of tourists arriving in the country. “This [growth] is due to the strong economic fundamentals that the Philippines has had for the past decade,” Lobien said.
With the coronavirus pandemic affecting the Philippines in 2020, a large number of hotel rooms are not being utilized, therefore leading hotel operators to repurpose their assets. “Developers are either offering these to the POGOs or to the BPO industry to house their employees during the lockdown for special rates. Meeting and convention rooms are being repurposed into short-term office [suitable for] call center industries to address the social distancing requirement.”
While hotel facilities and spaces are currently being converted into temporary office rooms, co-working spaces, and residences for employees, data by Lobien Realty showed that hotel operations will gradually resume once the crisis is lifted, and will most likely bounce back by 2021.
Logistics: Market Outlook
COVID-19 has increased the popularity of online shopping and many industries and merchants have shifted to e-commerce platforms for their businesses. As social distancing remains a crucial aspect of doing transactions, more purchases and banking transactions are being done online. The logistics market also saw huge gains.
Lobien mentioned that the logistics sector is forecast to be a thriving industry that boasts of a growth rate of 8.2% to 8.8% from 2018 to 2024, becoming a trillion-peso industry by 2023. However, she also pointed out that the Philippine logistics market still has a lot of room for growth “because the current infrastructure is not that strong yet.”
As of 2018, the Philippines is ranked 60th out of the 168 countries in the Logistics Performance Index by the World Bank. Lobien emphasized that the logistics market of the Philippines still needs improvement in terms of telco, or how fast information is relayed through Internet speed and stability, and in being mobile whether by air, sea, land, inter-island, or intra-island.
Real Estate, Renting, and Business Activities by Region
A bulk of the transactions made in the logistics or warehousing industry are concentrated in Metro Manila, followed by CALABARZON. Lobien mentioned that because 90% of the office market is within the metro, a lot of the logistics facilities are located within, or very close to Metro Manila, namely in Laguna, Cavite, Valenzuela, Pampanga, and Bulacan.
She also emphasized that CALABARZON and Central Luzon are areas where the logistics market will thrive because these are close to Metro Manila where the majority of online shopping and transactions happen.
The New Normal: Business as Usual
After the lifting of the community quarantine, people are gradually moving towards the new normal where social distancing, sanitizing, and working from home are deemed part of people’s lives. With this, Lobien talked about real estate growth in the Philippines, as well as the changes various businesses have to make in the new normal.
Build, Build, Build to Continue
Being a real estate professional, Lobien highlighted the importance of the Build, Build, Build initiative of the government because this project is crucial for both government and private sectors, but it also invests in various infrastructure projects and employs people to build on these pipelined developments, the data connectivity, and transportation modes. “[Supporting the government’s Build, Build, Build project] will slowly start [the economy] again,” Lobien said.
To date, the government has approved the resumption of the construction of:
- Cavite-Laguna Expressway (CALAX)
- The CAVITEX enhancement
- Skyway extension, and
- LRT Line 1 extension
The government also has a total of 75 flagship projects that include 6 airports, 9 railways, 3 bus rapid transits, 32 major roads and bridges, 4 seaports, 4 energy facilities, 10 water resource projects and irrigation systems, and 5 flood control facilities.
Lobien noted that if the Philippines will be competitive in terms of its infrastructure, investors and companies will be encouraged to put up shop in major business districts in the Philippines and invest in other development projects as well.
Health and Safety Expenses will Increase
Due to the ongoing COVID-19 pandemic, health and safety precautions in facilities and companies will become more crucial. Many property developers are looking into increasing sanitation and improving wellness facilities for future residential developments to cater to the health and safety demands of future buyers and renters.
To date, the Bayanihan Heal As One Act has allowed the government to realign a budget of almost Php 275 billion approved for 2020. This budget will be allocated for financial assistance to affected workers, continuous operations of public and private health facilities, the accommodation of health professionals, the adequate distribution and proper storage of medical supplies and relief, and the accreditation of testing kits.
The increase in the budget for improving health, cleanliness, and safety aspects of residential and office sectors will be helpful in keeping residents and office goers safe and healthy. Likewise, this will also help in bolstering economic growth without compromising social distancing, and in readying the Philippines in case another pandemic or crisis hits.
Lobien shared the near-term expectations of the Lobien Realty Group in terms of how the economy will move in the next few months:
- POGOs will stay and continue to occupy office spaces within and outside Metro Manila, with a possibility of mixed-use developments such as those in Cavite and Clark, Pampanga.
- The BPO sector will continue to expand in provincial cities and business districts to ensure business continuity in case a pandemic hits in key areas and lockdown is prolonged.
- Mixed-use and township developments within and outside of Metro Manila will continue to be the preferred location for residences, recreation, and places for work. Schools are also proposed to be built within townships to cater to professionals who have families.
- PEZA buildings outside of Metro Manila, such as those in the Visayas and Mindanao, will be considered by locators to shock-proof their developments and operations. The government’s Balik-Probinsya program hopefully will support this location strategy of companies putting up operations in the provinces.
- Demand for house and lot developments will increase due to mid- to high-level executives, expatriates, and families with kids realizing the health risks posed by densely-populated residential areas. Bigger living spaces with gardens will help weather lockdowns and utilize social distancing without compromising comfort.
- An increase in health and sanitation costs will be allotted by office, residential, and retail space owners, as well as firms in property management. Expenses on cleanliness and sanitation will be crucial for the new normal.
Will we still rely on the BPO industry when work-from-home arrangements are becoming the new norm?
Lobien said that while many BPO industries tried to put their operations purely in work-from-home schemes, these arrangements might not be suitable for all aspects of the BPO sector. “They still need to have work-in-the-office schemes for critical accounts, such as for the banking and insurance industry. [Working from home] might pose security issues in these accounts so the office component in the BPO sector will stay.”
“I still believe that the office market and the BPO sector are here to stay and will still grow,” Lobien said. She also stated that the BPO sector cannot implement a 100% work-from-home setup due to the unstable Internet connectivity in the Philippines. Another challenge for the BPO sector is providing laptops and Internet connectivity to their staff working from home, as well as housing skeletal workforce, to ensure continuity of business, which can be costly for the company in the long run.
Likewise, the outsourcing industry will remain relevant because many companies will look for ways to cut costs by outsourcing employees from other countries and increasing revenue.
With the GCQ, will we see demand from foreign workers start pouring back into the country or will they slow down?
Lobien stated that for foreign investments and workers to start coming back to the Philippines, “timing will be very important.” Nowadays, people’s priorities have changed, in the sense that they buy food and necessities more than anything else. With the residential sector heavily affected by COVID-19, Lobien said that they don’t see any spikes in demand in the next few months.
This is why developers are enticing their clients with longer payment terms or special terms just so that clients will buy. “It’s not going to be easy. It will probably be the next two quarters until the confidence is back in the market,” she said, also noting that the confidence will only return once there is a vaccine.
How can e-commerce affect real estate?
Lobien highlighted that the mall industry will stay because Filipinos are mall-lovers, noting that malls in and out of Metro Manila continue to grow and expand. But with quarantine protocols halting social gatherings, people have shifted to e-commerce platforms to do their shopping.
Along with the growth of e-commerce is the growth of the logistics and warehousing industry. “Since the logistics and warehousing industry is growing, they will take up properties in and outside of Metro Manila and put up warehousing facilities there.” With more people resorting to online shopping and contactless transactions, demand for warehousing facilities will spike to cater to growing e-commerce platforms.
Lobien also noted that while several retail shops and restaurants remain closed due to the pandemic, smaller food stalls and shops utilizing delivery will be the trend in the new normal as part of adhering to sanitation, reduced exposure, and social distancing.
Are you optimistic that the real estate industry can recover quickly?
Being optimistic and realistic at the same time, Lobien reiterated that the confidence will come back to the market when a vaccine is available. “The Philippines as a country and us Filipinos have seen many disasters and calamities. Business continuity plans have always been part of the DNA of companies here in the Philippines.” But because COVID-19 was an unprecedented pandemic, many industries halted operations while others shut down.
However, Lobien believes that the Philippines will recover due to the outsourcing industry and the government’s Build, Build, Build initiative that will jumpstart the economy. These two sectors open up job opportunities for many and spike up demand for more office spaces to be taken and used. “When there is money to spend, then that will fuel the economy, and the economy moves.”
Lobien also said that health and cleanliness are crucial in the new normal. “A lot of companies right now show their people they care. You have to have that balancing act between the economic well-being, and the health and welfare of your workers.”
To end the episode, Lobien said that real estate is always a safe place to invest in because real estate is part of the basic human need, whether it is shelter, food, or work. While COVID-19 has affected the office, tourism, and warehousing sector, the people’s need to work, find temporary residences, and transact online has ushered in windows of opportunity for the property market to continue thriving and adapt to the changes of the new normal.
Learn what thought leaders today think about the industry in light of current situations in the next episode of Lamudi Academy: Expert Talks. Stay updated by checking Lamudi’s official Facebook page.
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