According to the Lobien Realty Group (LRG), one of the fastest rising real estate consultancy firms in the country, the impact of COVID-19 on the Philippine economy, particularly in the real estate market, has been significant.
LRG reports that full-year GDP growth forecast this 2020 declined to -7.3%, but is expected to increase to 6.5% in 2021 based on Asian Development Bank’s reforecast. The country is projected to also run a budget deficit of 9.3% of GDP this year as revenues decline more aggressively than first anticipated.
LRG’s research shows that the e-commerce sector will most likely account for 25% of GDP growth in 2020 as more people become dependent on online services to access essential goods. The Philippines’ inflation is forecasted to reach 2.4% in 2020 and 2.6% in 2021 as global oil prices stabilize (this is within the target range of 2.0%-4.0% of the central bank). Employment opportunities offered by different sectors, meanwhile, helped decrease the unemployment rate from 17.7% in April to 10.0% in July.
LRG provides a more detailed assessment of the effect of COVID-19 on the Philippine real estate industry as it accounts how different property sectors are currently doing.
The Metro Manila Office Outlook
There is currently a 6.4% vacancy of office spaces across all Metro Manila business districts. In the 3 rd quarter of 2020, supply of office space in Metro Manila totals 739,312 sqm while available supply amounts to 343,317 sqm. which means 54% of all office spaces in Metro Manila remain leased. 3 million sqm. of office space supply are presently in the Metro Manila pipeline. The average rent of these spaces stands at Php 1,190/sqm.
BPOs lead the demand drive for office space in Metro Manila representing approximately 32%, Gaming demand drive is around 29%, while other industries comprise about 38% of Metro Manila office space demand drive.
The BPO industry reported FTE growth of 5.3% from 2016-2018 and projects 6%-7% FTE growth for the period 2019-2022. In 2019, recorded take up of office space by BPOs was 330,000 sqm. and total revenue was US$ 26.3billion. According to a survey presented by the IT & Business Process Association of the Philippines (IBPAP), the BPO industry has been growing to improve productivity since the beginning of the COVID-19 quarantine from 50% in April, 73% in May, 81% in June and 90% in July. In the same IBPAP survey, out of 75 respondents which represents 24% of the total IT-BPM headcount, 47% are still positive that they will see some growth in 2020 amidst the pandemic, 35% anticipate flat growth, while 18% expect to see some reduction in growth.
Co-working spaces are envisaged to be a growing feature of the new normal in workplaces. Startup companies, freelancers, entrepreneurs and digital nomads, and remote teams drive demand for co-working spaces. At present, there are 110 co-working spaces in Metro Manila. Total co-working spaces amount to 350,000 sqm representing 9,786 total workstations available as of September 2020.
The Provincial Office Market Outlook
There is a 16% vacancy rate of office spaces across all provincial business districts. In the 3rd quarter of 2020, total supply of provincial office space is 293,325 sqm. while available supply is 238,766 sqm., which means only 20% of existing provincial office space is leased. Average rent is Php 620/sqm. for these office spaces.
Townships have become trendy locations for offices. Having residential, entertainment, civic, recreational and office spaces located close to one another appeals to many companies looking for leasable office space. Presently, there are 80 Township sites across the Philippines and 60% of them can be found outside Metro Manila.
Called Next Wave Cities, these locations outside the metropolis are considered alternative investment hubs as they promote country-wide improvement, create job opportunities and stir up economic activity in the regions. These 10 New Wave Cities are Baguio City, Cagayan De Oro City, Dagupan City, Dasmariñas City, Dumaguete City, Lipa City, Malolos City, Naga City, Sta. Rosa City, and Taytay Rizal.
The Residential Market Outlook
For the period of 1995 until the 1 st quarter of 2020, the percentage of existing supply in terms of price range in the residential market was 45% for residential property in the Php 1.5 million-Php 3 million price range; 40% for a Php 3 million-Php 7 million priced residential property; 10% for Php 7 million-Php 15 million priced residences; and 5% for residential property worth above Php 15 million. Starting the 2nd quarter of 2020 until 2023, the percentage of residential property in the pipeline in terms of price range is 45% for Php 1.5 million-Php 3 million priced residences; 33% for residences in the Php 3 million-Php 7 million price range; 16% for properties in the Php 7 million-Php 15 million price range; and 6% for residential properties worth more than Php 15 million. According to the Bangko Sentral ng Pilipinas, residential property prices rose to 27.1% year-on-year in the second quarter of 2020, the highest growth rate recorded by the Residential Real Estate Price Index (RREPI) since it started in 2016. The “highest contributors” to the upsurge in housing prices were loans to buy condominium units especially in Metro Manila. Moreover, residential real estate loans (RRELS) in NCR were used by borrowers to purchase condominium units while RRELs in areas outside the metro were used to buy single detached/attached houses. This will fuel residential demand as buyers seek properties with low density, better amenities and facilities.
Here's a price listing of some key residential areas in Metro Manila:
District Current Values (PHP/SQM)
Makati CBD 350,000 – 400,000
BGC 300,000 – 350,000
Ortigas Center 250,000 – 280,000
Muntinlupa/Alabang 120,000 – 140,000
Bay City 230,000 – 280,000
Tourism and Hospitality Market Outlook
With the community quarantine and travel restrictions in place, the tourism sector has experienced one of the highest drops in revenues. But the government is looking at domestic tourism to pick up again once the COVID-19 restrictions are eased.
Logistics Market Outlook and the E-Commerce Industry
The Philippine Logistics Market is a thriving industry with a forecast of 8.2% to 8.8% Growth Rate for the Period 2018 – 2024. It is projected to be a Php 970 Billion to Php 1 Trillion Market by 2023. The country is ranked 60th out of 168 countries in the Logistics Performance Index of the World Bank (as of 2018).
LRG notes that there also has been a growing significance in the Philippines’ economy of E-Commerce. Revenues from the E-commerce market is expected to hit US$ 3,540million by the end 2020. Revenue is projected to have an annual growth rate (CAGR 2020-2024) of 18.4%, leading to a forecasted market volume of US$ 6,956 million by 2024. The market’s largest segment is Electronics & Media with a projected market volume of US$ 949 million in 2020. As E-commerce becomes the standard, e-payment services become likewise. Digital payment systems are now facing an important key role as companies and customers favor wireless payment system as one way to eliminate physical contact with people and items in the ways of the new normal.
Projections for the Future
LRG anticipates that the office market take-up within and outside Metro Manila will rebound because of projected lower rents due to global economic recession and increase in available supply. They also expect an increase in demand for space from BPOs as 50% of the BPO players are experiencing growth, with global companies seeking more cost leverage. LRG believes that temporary offices in co-working spaces and provincial operations will be part of BPO’s business continuity strategy; and for the landlords, this is the best time to take advantage of the low-interest regime.
LRG projects that the residential property market will have increased importance as work-from-home and online schooling become the default social distancing solutions of the government for companies and schools. LRG expects that an increase in demand for single detached homes and lots (outside of Metro Manila) and mid-to- higher end/low density condominium developments in the CBDs (closer to place of work) will be good opportunities for developers. LRG expects more township developments aimed at providing pandemic-proof work and residential lifestyles but insists that condominium units and dormitories within the CBDs will still have a market for employees who need to address transport and no-work/no pay issues.
For the Logistics/Warehousing market, LRG believes that the increase in e-commerce sales will be the main driving force behind the growth of the logistics and warehousing industry. Companies involved in FMCG, retail and E-commerce will be looking for the best warehouse locations to lower their costs and cut delivery time to customers, as the main customer base of many companies is still concentrated in Metro Manila and nearby provinces, preferred warehouse locations should be within Metro Manila, Pampanga, Bulacan, Cavite and Laguna.
Despite the devastating effect of the COVID-19 crisis on the real estate industry, LRG maintains that the property market remains resilient as it prepares for a resurgence in the post-COVID-19 era of the new normal.