The revised guidelines on Real Estate Investment Trust (REIT) in the Philippines boosted investment sentiment for the property sector, with the office segment the most attractive asset class, according to real estate services and consultancy firm JLL Philippines.
In its latest research, “Philippine Real Estate Investment Trust: A Bright Spot in the Next Normal,” JLL said the commencement of the REIT market in the country was well-timed and a much-needed development.
“We believe REITs are one of the country’s future bright spots and will play an important role in jumpstarting the economy from the adverse effects of the pandemic and will promote growth in the real estate sector. REIT will provide a cheap funding source for developers, raising fresh capital for finance future projects, which in turn will ramp up construction activities and employment,” said Janlo de los Reyes, JLL Philippines head of Research and Consultancy.
Among the asset classes, the office segment is the most attractive due to its relatively stable outlook and resilient rental growth rates moving forward, JLL said.
The office segment’s substantial growth over the years due to the demand from outsourcing firms and the online gaming sector, as well as the possible future office space demand from foreign investments, will make it an attractive asset class for REITs.
“As the government targets to reopen the economy and increase the operational capacity of businesses, we expect demand to improve in 2021 and potentially normalise in 2022,” said Luis Zarcal, assistant manager for Research and Consultancy. “We remain confident that traditional offices and O&O (offshoring and outsourcing) firms will spearhead demand post-lockdown. We may also see increased demand for office spaces outside Metro Manila, such as Cebu and Davao, for potential business continuity plan site locations.”
Zarcal said foreign investments diversifying manufacturing operations outside China could drive demand for office space, as these companies would need to set up headquarters for backend support.
JLL added the under-penetrated industrial/logistics space is another attractive segment for REITs.
It said electronic commerce could scale up the demand for quality warehousing spaces to cater to the growing market of e-commerce.
While the short-term prospects for Philippine REITs may be weighed down by weaker than expected economic and real estate performance, JLL said the medium- to long-term outlook suggests a huge potential to transform the local real estate landscape.
“We believe that the REIT market will be the invisible hand that will guide the Philippine real estate market to develop into a more mature market, through transparency and competition,” Zarcal said.