ALTHOUGH the property sector is expected to rebound in 2021, the Lobien Realty Group (LRG) believes recovery will take a longer time even though the country has negotiated with the foreign suppliers for the supply of the vaccines.
“We have to be cautious. Recovery will take a long time. Office occupancy rates are almost 20 percent down when the pandemic struck. Moreover, the exit of some Philippine offshore gaming operators [POGOs] affected the office space market which also left a huge vacancy in the housing market,” said LRG Chief Executive Officer Sheila Lobien in a recent webinar.
“The speed and magnitude of the real-estate recovery will also depend on the national government’s ability to roll out the vaccines and rebuild the economy through the government’s monetary and fiscal policies as embodied in the Bayanihan to Heal as One Law,” Lobien added.
Meanwhile, Jones Lang Lasalle Philippines projected a “subdued real-estate market in early 2021 with recovery beginning middle to late in the year.” “We can expect market practices that were adopted under the pandemic such as focus on safety and well-being, technology adoption and digitalization, and flexible work arrangements to become part of the norm. Logistics, data centers, tech and security companies, as well as the REIT market are the potential growth areas for the real-estate industry,” said Janlo de los Reyes, head of Research and Consultancy, JLL Philippines.
BPOs leading the way
As expected, the business-process outsourcing (BPOs) companies will be in the forefront of the recovery period as it will lead the demand drive for office space in Metro Manila representing approximately 41 percent. Meanwhile, gaming demand drive is around 16 percent, while other industries comprise about 43 percent of Metro Manila office space demand drive.
The BPO industry reported full-time equivalent (FTE) growth of 5.3 percent from 2016-2018 and projects 6-percent to 7-percent FTE growth for the period 2019-2022. In 2020, BPOs office take up was 143,000 sq m and total revenue was $26.2 billion. The IT & Business Process Association of the Philippines (IBPAP) indicated in a survey the BPO industry has been growing to improve productivity since the beginning of the Covid-19 quarantine from 50 percent in April, 73 percent in May, 81 percent in June and 90 percent in July.
The online gaming/POGO industry has occupied a total of 1.03 million sq m of office space since 2016. Currently, POGOs share to total leasable office stock to date stands at 9 percent.
Coworking spaces
LRG said coworking spaces will be a regular fixture in the new environment as it is poised to be the setup in the new workplace. Further, the coworking model suits best start-up companies, freelancers, entrepreneurs and digital nomads, and remote teams drive demand for coworking spaces. At present, there are 110 co-working spaces in Metro Manila. Total co-working spaces amount to 350,000 sq m representing 9,786 total workstations available. The Global Flexible Office Market is projected to grow at a compound annual growth rate (CAGR) of 18 percent from 2020 to 2027. The Asia-Pacific region is considered the fastest-growing region within the global flexible office market due to the rise of coworking centers and other styles of flexible office spaces.
Impact of Covid-19 on office rental rates
The Covid-19 pandemic had an impact on the rental rates in the office space market. “LRG forecasts that there will be a 25-percent to 30-percent rental rates decline starting 2021. 2020 rental rates computations have not reflected the decrease due to the POGOs’ contractual agreements of about a year’s worth of security and advance deposits which protected the landlords’ rent income during the lockdowns and despite the numerous lease pre-terminations,” Lobien said. Moreover, the lockdowns, the flight of many of the POGOs and the prevailing economic situation in 2021 as a result of the Covid-19 pandemic are expected to increase office space vacancy rates and soften office demand in 2021.
The provincial office property market
In his presentation, LRG Chief Operating Officer Jericho Linao said townships have become cool 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,” he said. At present, there are 80 township sites across the Philippines and 60 percent of them can be found outside Metro Manila.
Linao said there is an 18-percent vacancy rate of office spaces across all provincial business districts. In the 4th quarter of 2020, total supply of provincial office space totals 269,711.60 sq m while available supply is 219,184.69 sq m, which means only 19 percent of existing provincial office space is leased. Average rent is P 630/sq m for these office spaces.
The residential property market
Around 24,000 sq m of residential units are expected to be launched to the market in 2021, while condominium take-up is expected to amount to 36,000 sq m according to Lobien. Based on the 2020 condominium pre-selling data on percentage of take up, 3 percent of condominiums priced below P3 million, 11percent of condos priced between P3 million and P7 million, 45 percent of condos priced between P7 million and P15 million, and 41 percent of condos priced above P15 million were taken up in 2020.
“It will be a slow but sure recovery year for real-estate companies, particularly for the office and residential property markets,” Lobien underscored.
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