Page last updated at 09:09 CST6CDT, Thursday, 09 July 2020 PH
Although housing is not strictly considered a consumer item, but rather as an investment in the measurement of Gross Domestic Product, this may be the place to briefly discuss the prospects for the demand for housing in the next year or so. As mentioned above, social and economic housing (prices per unit ranging from P800,000 to P6 million) will take a hit. After almost three months of lockdown, the target market of these units, the middle-income households (average monthly income P20,000 to P60,000) have suffered serious deteriorations in their savings. They will most probably defer any decision to purchase a housing unit, whether a detached residence or a condominium unit. Although I assume that many of these households will continue to receive remittances from their relatives working abroad, they will prioritize expenditures for food, medicine and health services, education, utilities, digital devices and services, and payment of bills. Purchasing a new residence will be postponed at least for the next two to three years.
A possible exception would be decisions of upper middle income households to acquire a residential unit that will prepare them for the new normal in which mobility will continue to be limited even if the pandemic has been put under control. I am referring to the great convenience of having a home in a district that offers easy access—either just a short ride away or within walking distance—to key establishments, institutions, offices, business centers; and even to retail, dining and entertainment centers. These are phrases taken from an article by Amy R.Remo (Philippine Daily Inquirer, April 25, 2020) describing the benefits of the integrated mall lifestyle pioneered by SM Development Corporation (SMDC), which took centre stage during the two months of the Expanded Community Quarantine in which millions of people in the entire island of Luzon were obliged to stay at home. It became such an advantage for residents in the various SMDC projects who were able to secure their basic needs within the lockdown environment. In addition, since work-from-home (WFH) will be a major component of the new normal even after a vaccine has been discovered, some families from the upper middle income sector would prefer to stay in a community where work, life and play are integrated. There are, of course, other real estate developers that have achieved a similar integration of these diverse aspects of daily life, locating their projects in major Central Business Districts (CBDs) close enough to transport hubs, providing the residents easy access to essentials, and for those who still have to work out of home, to their respective workplaces. As an added convenience, there are now child learning centers (pre-K to 12) that are being located within these integrated communities so that the benefits of home schooling and some structured classroom teaching can be blended.
As regards the entire real estate sector that comprises not only residences but also offices, retailing outlets, hotels and logistics/warehousing, a recent briefing given by the property consulting firm Colliers International Philippines describes a gloomy outlook, except for the structures required by the booming supply chain industry as e-commerce is given a big boost by the need for social distancing. As reported by Doris Dumlao-Abadilla in The Inquirer (April 30, 2020), Colliers projects that as a result of the COVID-19 crisis, land values in Makati City would decline by 10 percent by the fourth quarter of 2020 from P858,000 per sq. m. in the first quarter of the same year. In Bonifacio Global, land values will fall also by 10 percent from P827,700 per sq.m. in the first quarter, while land values in the Bay Area and Ortigas are projected to decline by 15 percent and 5 percent, respectively from P390,000 per sq.m. and P354,200 per sq.m. in the first quarter. The larger decline in the Bay Area can be explained by the expected slump in POGOS due to travel restrictions although the Philippines continues to be a top choice among locators given a supportive regulatory environment.
Office leasing rate in the National Capital Region is predicted to decline by an average of 17 percent in 2020, while office vacancy rate is projected to rise to 5.5 percent from 4.4 percent in 2019. The increase in vacancy rates has been moderated by a big drop in new office stock as projects are either halted or delayed. For the residential sector, supply is expected to drop by 19.7 percent. However, the slump in POGOS will result in an increase in vacancy rate in the National Capital Region to 15.2 percent in 2020 from 11 percent last year. Condominium capital values are projected to drop by 14 percent this year. For 2021 to 2022, Colliers sees residential values growing at a much lower 1.7 percent compared to its earlier bullish forecast of 12.4 percent. As we discussed above, the price correction in the residential segment will happen most in the middle-income segment as a result of loss of jobs arising from the pandemic. In the retail property sector, rental rate is projected to decline by 5 percent in 2020, before recovering in 2022 at a measly 1 percent growth. Vacancy rate is seen to peak in 2022 at 12 percent as more shopping malls open to the public.
A more bullish forecast was given by a leading real estate executive, David Leechiu. He is optimistic about the BPO-IT industry demand for real estate products. He sees the sector recovering in 2021 as both the Philippines and the US shall have adapted to a new normal. As hard evidence, he reports that one of his biggest brands clients just gave his property consulting firm a requirement of 4,000 seats to be concluded before September 2020, implying a requirement of 20,000 to 30,000 sqm. of office space. In his view, the global recession that will surely take place in the next year or so will compel the industrialised countries in the West to offshore more jobs to such cities as Bangalore, Manila, Cebu and Clark. As a sign of the strength of the BPO-IT sector, he reported that 95 % of office rents were still collected in April 2020 despite the fact that many of the offices remained unused because of the lockdown. He sees POGOS making a strong come back as soon as travel bans are lifted. We may even diversify our market by attracting online gaming from India.
Since social distancing will be for a long time part of the new normal, recovery from the pandemic will actually lead to a bigger demand for office space. Companies with 1,000 workers normally used in the past 6,000 sqm. With the lockdown, only 40 to 50 % were on site, another 25% worked from home (WFH) and the other 25 % were just on standby because they could not work from home. Once the lockdown is totally lifted, many companies may continue to practise social distancing so that they will need 9,000 to 12,000 sqm This will automatically lead to increased demand for office space. This bullish forecast would be moderated if WFH is permanently adopted by many of the BPO-IT enterprises for at least some of their workers who reside in areas with strong internet connections. Mr. Leechiu does not think that WFH is a serious threat to the real estate office sector for socio-cultural reasons. This, however, remains to be seen.
Two very exciting prospects have to do with the opening of new markets from abroad. The first has to do with China-based customer service operation owned by western companies that will diversify and open new centers in the Philippines. This will be a new demand driver leading to the importation of Chinese workers to live and work in the Philippines, similar to what happened in the POGO sector. He expects these workers to belong to a higher social profile than the POGO workers. There will thus be the consequent additional demand not just for office space but also for the residential, retail and tourism sectors of real estate. The other prospect for increased demand for real estate products and services will come from the Japanese who will rediscover the Philippines after the pandemic. Because of the crisis in health care that came with the Coronavirus, the Japanese will have a longer-term strategy to consider the Philippines for retirement, customer care operations and health care.