Office and residential leasing activities are expected to remain subdued over the next 12 months on extended work from home arrangement and the holding of national elections amid a continuing subdued market.
Janlo de los Reyes, JLL Philippines head of research and consultancy, during a webinar said that shifts and policy landscape over the next 12 months may influence movement in real estate.
“With the PEZA (Philippine Economic Zone Authority) WFH memorandum extended up to March 2022, subdued leasing activities for the office and residential sectors may continue,” he explained. “The national elections may also dampen leasing and investment activities across the board as investors may slow down in their decisions and activate again when the market stabilizes.”
For occupiers, many are pushing office re-entry timelines to 2022. “Many are still uncertain about their space requirements in the next years, with some already piloting hybrid work setup, and this will push a lot of the leasing decisions up until the fourth quarter, or even next year,” he continued.
Supply will peak mostly in 2022 for most the sectors, with anticipated new stock of 714,000 sqm for office, 535,300 sqm for retail, and 6,300 rooms for hotel.
“It’s still going to be a continuous fluid environment that the real estate market will be in. Flexibility and agility, which has been a recurring theme across different sectors, will serve as key instruments in treading uncertainties in the market,” De los Reyes said.
To add to this, JLL Philippines’ Vice Chairman Joey Radovan highlighted the crucial role of strategic advisory.
“Market uncertainties have made tactical approach to corporate real estate very challenging because capital commitment is not an option at this point. In JLL, we work with clients to develop a long-term portfolio strategy to identify opportunities, understand the challenges and risks, and find data-driven real estate solutions. This strategic advisory approach helps them proactively and strategically prepare, have a sense of certainty and stability, and avoid drastic decisions if the market further deteriorates,” Radovan concluded.
In its report, real estate services and consultancy firm JLL Philippines said that office and residential lease activities slowed down in the third quarter this year following the implementation of enhanced community quarantine in August.
JLL said that while the first half of the year saw growth in office take-up, this slowed to 72,000 sqm in Q3 2021 (-35.7 percent year-on-year).
JLL, however, noted that despite lower take up and increasing vacancy, overall rentals hold steady. Average monthly rent in Metro Manila in Q3 was around P1,082 per sqm, the same rate from Q2, but 5.6 percent lower compared to the same quarter last year, which was at P1,147 per sqm.
Makati and Taguig still registered the highest average monthly rent at P1,324 and P1,244 per sqm, respectively, while Manila has the lowest at P637 per sqm. However, all these remain below pre-pandemic levels.
“Some landlords are allowing negotiation flexibility to find a win-win arrangement between them and the occupiers to navigate the current market conditions,” said De los Reyes.
The condition of the office sector has led to continued weak residential lease demand in Metro Manila due to the spike in COVID-19 casesand continued WFH arrangements, especially with BPO (business process outsourcing) employees allowed to work from home. BPOs have been one of the main demand drivers of the office sector pre-pandemic.
Sell side for residential condominiums, however, remains resilient, with the luxury pre-selling market recording a 0.5 percent take-up increase q-o-q.
Meantime, De los Reyes said that the logistics sector continues to be a bright spot in the country’s real estate landscape, and there is also a continued rising interest for industrial spaces.
“The logistics and industrial sector now has a significant share in terms of the space volume due to demand from e-commerce, third-party logistics, and manufacturing by FMCGs (fast-moving consumer goods), especially with the holiday season and sales promos,” explained de los Reyes. “Interest in data centers also continues to pick up, adding to the increasing volume of industrial transactions and requirements.”
Within the logistics and industrial domain, 37 percent of inquiries are for logistics spaces, 49% for FMCGs’ manufacturing, and 14 percent for data centers within the Greater Manila area, with typical requirement usually ranging from 1-2 ha.
The retail sector saw slower store closures and stable take-up in Q3 ahead of the holidays. Average vacancy rate went down to 6.1 percent from 6.7 percent in Q2. Despite the improved take-up, current vacancy rates remain elevated compared to 3.7 percent in the same quarter last year.
“We still see a lot of unoccupied spaces within malls in Metro Manila, but among the take-ups, the food and beverage (F&B) segment continues to lead new store openings,” said de los Reyes. “Local brands are also faring better than foreign brands in terms of space take-up.”
Rentals in retail, like the office sector, also reflect flexibility by landlords, with around 10 to 15 percent discount given to occupiers.
Flexibility is also the name of the game for more hotels as more operators are trying to diversify their catchment growth and drive demand.
In Q3, 61 percent of hotels were used as quarantine facilities, 19 percent remained non-quarantine facilities, while 20 percent became multi-use (only partially quarantine/non-quarantine). Of this 20 percent, 63 percent are upscale and luxury developments, one of the most affected segments in the hospitality sector.
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Article was originally published in Manila Bulletin and written by Bernie Cahiles-Magkilat.
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