Despite the controversies that the Philippine government has been dealing with for many decades, the country has been labeled as Asia’s rising tiger during the past two administrations—under the leadership of Benigno Aquino III and current President, Rodrigo Duterte. Although there are still plenty of social issues that needed to be addressed as they decelerate the country’s continuous economic growth such as poverty and unemployment, the Philippines has been gaining momentum over the years.
The Philippine economy has seen a significant growth in the past couple of decades as its average annual growth shot up to 6.4% during the 21st century compared to 4.6% from the previous decade. This improved the nation’s standing to being a lower middle-income nation.
In 2021, the gross national income per capita grew to $3,160 with further increases being expected. Indeed, the Philippines is slowly yet steadily emerging when it comes to economic growth. The country’s faster growth in the past couple of decades is being attributed to more infrastructure projects, strong leadership, and the fight for a clean governance.
Philippines’ Emerging Markets
Analysts have a positive outlook on the Philippine economy moving forward as the new generation of young professionals who knows how to communicate using the English language is about to enter the workforce. This looks good for the service sector which makes up to 61% of the country’s gross domestic product (GDP)—including the business process outsourcing (BPO) industry. BPO is undoubtedly playing a significant role in the overall economic growth of the country. Because of professionals who meet the necessary language requirements, the Philippines was able to grow BPO in the country and even became one of the fastest-growing sectors in the past two decades.
Remittances, which makes up around 10% of the country’s GDP, remains strong despite the global health crisis. The remittances by Overseas Filipino Workers (OFW) Filipinos have seen a substantial growth over the years. Also, it was observed that the jobs that Filipinos are getting abroad improved from low-end service jobs to more professional ones, which require higher education attainment and experience.
Overall, the forecast for the Philippines economy as the country recovers from the pandemic is mostly positive. More industries other than the ones mentioned above are also expected to experience growth—agriculture, manufacturing, and the Philippines’ real estate market.
Real Estate Market Outlook in 2022
According to property analysts, 2022 will be a year of recovery for the real estate market in the Philippines. A recent report from First Metro Securities Brokerage Corp. stated that the next year or two will be good for the Philippines’ real estate market. As the pandemic restrictions have been easing off and massive vaccination efforts have been rolled out, experts are seeing successful economic reopening because of better mobility and the Filipinos regaining confidence to face-to-face set-up.
Even before the pandemic started, the real estate industry has been identified as one of the Philippines’ emerging markets. Due to the development of more business areas in the capital region, the demand for laborers also increase which is both beneficial for office and residential real estate. Such scenarios are paving the way for the property sector to continue growing over the years. Also, real estate developers have been introducing more practical and affordable housing options which enables more people to avail of residential properties and eventually become homeowners. Overall, the forecasted growth for the real estate industry remains strong and steady for a long period of time.
Real Estate Market Report for Q1 2022
Reports on the performance of the real estate market have been made public as the first quarter of the year 2022 draws to a close. Colliers, a leading diversified professional services and investment management company, published the data for both office and residential markets along with some helpful recommendations for potential homebuyers, investors, and real estate managers.
The Office Market
The commercial real estate market has faced a number of challenges over the past two years. As one of the nations that has been under lockdown for one of the longest periods of time anywhere in the world, it took some time for commercial spaces to experience a growth in demand again. Offices were left unused since physical work set-up is not allowed for many months and even with the option to return to office, many still opted to continue working from home. Other commercial spaces used for businesses such as restaurants had to close down as well due to the restrictions when it comes to dining. The pandemic was surely was a bleak time for the office and commercial real estate market.
Finally, after two long years, the office market recorded a positive data in Q1 2022 according to Colliers’ report. Prior to the first quarter, the real estate market for office spaces did not perform well and got consecutive negative absorption for seven quarters. This performance is being attributed to both traditional and BPO companies along with their return-to-office mandates in full swing, and also some added supply with the newly built office buildings in the metro‘s business districts. For the next year, the forecast is that the absorption of office spaces will be supported by the economy’s recovery and transition to the post-pandemic world.
It was also noted in Collier’s report that office rents dropped by an average of 3.1% in Q1 2022. Moving forward, there is a projected slow recovery when it comes to lease rates which will start in 2023 as the demand from outsourcing and traditional firms continues to increase. Overall, the office rents have dropped by about 30% compared to its level prior the pandemic.
To increase demand in the office market, updated leasing schemes that are more flexible such as rent-free periods, longer fit-out periods, delayed escalations, and tenant improvement allowance are recommended attract more tenants or at least retain the current ones. The recent passage of laws aimed for economic reform is expected to bring a positive response from investors. With the country’s Philippines relaxed investment requirements, office real estate managers should take advantage and proactively seek new tenants especially from growing multinational firms.
Another factor that affects the return-to-office transition is the workers’ health-related concerns. Due to the pandemic, many people started to take care of their health and well-being better. More people also prefer to be in green and sustainable spaces nowadays. The office market can translate this to offering spaces that have green building certifications such as Leadership in Energy and Environmental in Design (LEED), Building for Ecologically Responsive Design Excellence (BERDE) or WELL. It is being projected that about 35% of the new office buildings in the next three years will be able to acquire such certifications.
Lastly, hybrid work set-up became the norm during the pandemic. An increasing number of inquiries for flexible workspaces have been observed as businesses include this requirement in their business continuity plans. More companies became open to temporary offices and plug-and-play set-up. This is why office real estate managers are encouraged to partner with service providers to be able to lease out vacant spaces even with short-term contracts.
The Residential Market
During the lockdowns and heightened restriction, many workers renting in business districts decided to migrate back to the rural areas since the work-from-home set-up has been implemented for most businesses. This caused a significant decline in rents especially in the business districts in the capital region. The housing rentals are yet to recover back to the pre-pandemic rates in areas like Makati, BGC, and Ortigas.
As the return-to-office set-up is now being mandated by many businesses, tenants are being encouraged to take advantage of the rental corrections in prime locations. As of Q1 2022, there was a slight increase in prices but are expected to grow by 2.7% at the end of the year.
Together with the recovery of the office real estate market, the vacancy in residential market is is expected continue receding up to 17.2% when the year ends. Currently, it is on 17.8% which is a very slight decline from the previous quarter which is 17.9%. The Fiscal Incentives Review Board (FIRB) already mandated a 100 percent on-site work set-up for outsourcing firms on April 1, 2022. This looks good for the real estate market, along with the expected return of expatriates in the country because of the more relaxed travel restrictions.
As for the demand in pre-selling units, a recovery is being observed but still below compared to the numbers before the pandemic. For the total new supply, there was only 560 units completed in the first quarter of 2022 but it is being projected that about 10,500 units will be delivered by the end of the year.
Overall, the positive outlook in the residential market is caused by the improved business and consumer confidence, and the recorded increase in remittances from OFWs.
Philippines’ Real Estate Market to Recover; Prices to Go Up
The Philippines’ real estate market underwent a boom from 2010 to 2018, with prices in central business districts such as Makati increasing by more than 132%. However, the market started to slow down in 2019 due to various economic factors, and eventually the COVID-19 pandemic. This caused real estate prices in the Philippines to drop by double digits in 2020.
Many experts believe that the market has not yet bottomed out, and that prices could continue to fall in the coming months. Nevertheless, the long-term outlook for the Philippines’ real estate market remains positive, and it is expected to recover once the pandemic has subsided.
Despite its slow recovery, the Philippines’ real estate market looks positive. It is not just the businesses, families and individuals are starting to look into homeownership once again with the economic situation gradually getting better. Claims by property analysts that real estate prices will continue to increase are helping a lot to push for more people to invest as soon as possible. The expected price increases will be a win for both homeowners and investors.
The global epidemic has had a substantial impact on the global economy. The majority, if not all, industries have been impacted and are in crisis. The excellent news is that the country is recovering, which is an indication that the Philippines is on the track to economic growth and development. Because the pandemic has not been declared officially over, the country is still vulnerable to another outbreak.
Now that these safeguards are in place, the country is better prepared to deal with another outbreak. The Philippines is on the mend, which is a good sign that the country is heading in the right direction in terms of economic growth and development.
Real estate has proven to be a steady industry for investors. The past two years was challenging but it was also a time for real estate developers to adapt to the changes and do massive transformation to continue being relevant in the field. This includes digitization of the selling process and keeping up with the technological advancements contrary to what was traditionally practiced in the real estate market. Soon enough the demand in housing and other properties is seen to take up with better system and processes.
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