LEECHUI Property Consultants (LPC) said the office market contracted in the first quarter due to the impact of the new coronavirus disease 2019 (COVID-19).
LPC, however remains optimistic the sector will post a rebound in the second half of the year.
David Leechiu, LPC president, said the company’s monitoring for the period saw just 157,000 square meters (sq.m.) of new office transactions closed, 47 percent lower than the same period last year.
Leechiu said there is a chance the situation will stabilize between June and July for the market to close another 650,000 sq.m. of transactions starting August till the end of the year.
Leechiu said for 2020, the country can see between 800,000 and 1 million sq.m. of office space transactions, a potential drop of as much as 60 percent drop from 1.6 million sq.m. last year.
Leechiu said the COVID-19 pandemic also dragged available supply, with delays in construction reported, and the full-year new supply pipeline for the year just at 842,000 sq.m., down 43.87 percent from an earlier expected 1.5 million sq.m.
With COVID-19 impacting both supply and demand, Leechiu said the market will avoid a glut scenario and vacancy at a manageable level.
“Therefore rental prices will have to adjust in the next two to three months but then catch up in August,” he said.
Leechiu expects the strong comeback of the POGO (Philippine offshore gaming operations) sector once travel bans are lifted, with growth coming from all over Asia.
The Philippines is also set to benefit from increasing interest from multinational corporations based in China seeking to diversify out of that market.
“These corporations will now intend to set up disaster recovery centers in the country having observed through the success of the POGO sector that the Philippines can attract Chinese labor at a significant scale,” he said.
Leechiu said the market will also benefit from the “resilient demand from the information technology and business process management (IT-BPM) industry as multinational companies worldwide seek to aggressively cut costs and increase production in a climate of falling revenues.”
He however noted that the economic zone supply in 2020 “is grossly low” or “seriously deficient compared to the most conservative demand of the IT-BPM sector.”
“To support their potential growth, this industry needs to be supported by having more PEZA (Philippine Economic Zone Authority) zones throughout the country,” he said.
Colliers’ projection
Colliers International said the economy will grow at a slower rate in 2020 than originally expected due to COVID-19.
Citing the study of Oxford Economics, Colliers said the Philippines will likely grow by 3.9 percent this year from an original estimate of 5.9 percent, with a sharp recovery in 2021, growing by 7.3 percent.
“The retail sector has felt the immediate pinch brought about by COVID-19. Oxford Economics expects private consumption to grow by a slower 3.6 percent this year but with a rebound to 7.1 percent in 2021. This should benefit retailers and mall operators,” it said.
Colliers expects office vacancy in Metro Manila rising this year due to slower office space absorption from POGOs, but this should be tempered by take-up from outsourcing and traditional occupants especially once market sentiment improves by the second half of this year.
“Vacancy should be around 6.5 percent in 2020 assuming leasing activities pick up in the second half,” it said.
Colliers added a coordinated policy and monetary response from the government and the central bank is “likely to instill confidence in the property market before the end of 2020,” assuming the outbreak peaks in the first half of this year.
“Office landlords should maximize wellness features of buildings and strengthen property management capabilities while occupants should use this as an opportunity to negotiate long-term deals. Condominium developers should offer more flexible terms to investors and note that developers able to respond well to the pandemic are likely to be remembered by buyers once market conditions normalize,” Colliers said.
“Meanwhile, residential investors should cash in on better pricing due to lower interest and mortgage rates while mall operators should strengthen their e-commerce strategies,” it added.
Colliers also said developers should highlight property management as it is crucial to the health and safety of occupants and buildings, and offer more flexible terms to attract buyers.
Colliers expects the completion of about 14,720 new condominium units in Metro Manila this year.
