Metro Manila’s real estate market to continued to flourish in the first quarter of 2019 despite the headwinds that the Philippines’ economy experienced last year.
“Despite the highs and lows in the Philippine economy and business environment, the Philippine real estate market stayed on course with Metro Manila remaining the core area in the country for property investments,” real estate services firm Jones Lang LaSalle (JLL) the Philippines said in its report. Even though the country’s average gross domestic product (GDP) growth rate in 2018 fell to 6.2 percent from the 2017 average GDP growth figure of 6.7 percent, the Philippines remains one of the fastest growing economies in Asia, next to India, China, and Vietnam.
“The business environment has been steady, supported by the continuous entry and expansion from investors. This is evident in the office sector with supply increases and continuous rental growth in (the first quarter of 2019),” it noted in its report.
The office space, residential, and retail segments of the property sectors in Metro Manila continue to experience increases in terms of demand, alongside those located in emerging real estate hotspots such as Davao and Pampanga.
Gaming firms drive real estate uptick
During the first quarter of 2019, the JLL Philippines report credited offshore and outsourcing businesses for driving the demand for office spaces, adding that these firms accounted for 51 percent of the total leasing volumes during the first three months of this year. Online gaming firms, also known as Philippine Online Gaming operators, accounted for 27 percent of the total office spaces that were leased in the first quarter.
The demand for office spaces likewise spiked the growth of the residential and retail fronts of the country’s property sector. According to JLL Philippines, high net-worth individuals remained as the major drivers for residential condominium purchases in the luxury segment of the real estate industry. The retail segment, on the other hand, remained robust, thanks to the growing demand for retail spaces by the food and beverage industry, which maintained its position as the contributor to retail space leases, particularly those located in the more established shopping and recreational hubs in Metro Manila.
With a sustained macroeconomic environment projected over the next few years, the country’s property development sector is expected to continue to enjoy a few more remarkable years of significant growth. This is especially true for property development firms who have already made headways in Metro Manila and those who have set their sights on the real estate sectors of some of the country’s emerging areas such as Davao, Cavite, Pampanga, Cebu, Iloilo, and Bacolod.
Robust demand for office spaces
The influx of offshore and outsourcing firms into the country over the past several years is credited for creating a robust demand for office spaces not just in Metro Manila’s central business districts but in other emerging property hotspots across the archipelago.
According to JLL Philippines, majority of these offshore and outsourcing enterprises accounted for 51 percent of the total office space leasing volumes in the first quarter of 2019 alone.
A sizeable amount of office spaces that were taken up during the same period came from online gaming firms. They contributed 27 percent of the total office spaces leased during the first quarter of this year. Flexible workspaces also helped pump up the demand for office spaces, majority of which are foreign firms that have established their first hubs in central business districts across the metropolis but have since then expanded to other key business districts.
Data gathered by Lamudi, show that 29 percent of those who used their portal inquired about office spaces in Metro Manila during the first quarter of 2019 while 44 percent asked about office-related properties in Pampanga and 36 percent zeroed in on Davao del Sur.
JLL Philippines noted that the healthy demand and performance of this segment could also be attributed to the growth of rental properties, with those in Makati City commanding the highest monthly rental value due to the presence of premium quality buildings, robust office space demand, and accessibility. The influx of investors from mainland China, especially those involved in POGOs, has contributed to the growth of commercial office activities in both Paranaque City and Pasay City, where the Bay Area is located.
Condos, apple of property boom’s eye
As the demand for the office market increased, so did the demand for residential condos. This is particularly true in the Bay Area, where majority of the foreign investors are from mainland China and whose primary investment interests are in online gaming operations. “The influx of Chinese investors propped up residential property prices in the Bay Area with investors buying multiple units, with some leasing out to employees from POGOs,” noted JLL Philippines.
But the main drivers of growth that fuel the leasing demand for high-end and luxury residential condos come from members of the expatriate community, many of which are key executives of several outsourcing and offshore firms, multinational companies, multilateral development institutions, international organizations, and foreign embassies.
This is reflected by the growing number of property developments in Bonifacio Global City in Taguig and in Makati City’s central business district. Property projects in other key business centers and those situated in fringe areas of central business districts also benefited from the increase of property prices in main real estate hotspots. Those fringe areas, in a way, have become ideal locations for possible future residential investments.
According to JLL Philippines, high net-worth individuals were mainly responsible for the growth of residential condominium purchases in the luxury segment, with some of them purchasing those properties for investment purposes while others for their own use. The leasing market for the mid-range segment of residential condos, on the other hand, were largely driven by Filipinos whose workplaces are in central business districts. These renters use those condo units as their halfway homes on weekdays to avoid being stuck in traffic during the rush hour.
Makati’s central business district maintained its dominance in commanding the highest rents due to the presence of luxury developments, while Pasay City came in second as landlords took advantage of the robust demand from POGOs and tenants from these firms, who typically do not negotiate on rents.
Reasonably optimistic
JLL Philippines is optimistic of the real estate sector’s sustained growth, particularly in the office sector and the continuous growth of office space rentals and leases, largely because the Philippines’ steady business environment is supported by an influx of foreign and local investors who have already began expanding their operations across the country.