Supply pressure will weigh down on recovery, but greater optimism can provide legs for market momentum in PH.
PHILIPPINES, May 18, 2022 – Investment growth in the Asia Pacific real estate sector continued in the first quarter of 2022 with volumes up 20% year-on-year. According to data and analysis published in the JLL Capital Tracker Q1 2022, $40.8 billion of capital was deployed via direct real estate investment into the region throughout the quarter. Increases in investment volumes were most pronounced in Singapore, South Korea, and Australia. Sector wise, retail and office performed strongly whilst logistics and industrial reported a moderated growth rise of 3.5% year-on-year.
“Investors continue to diversify when deploying capital across Asia Pacific, represented by a swing of investments into retail assets, continued support for the office market, and high growth in Singapore, Korea and Australia allocations. We are optimistic that the region’s real estate sector will withstand rising interest rates and growing uncertainty. We are still seeing intense competition for assets and maintain our projection of over $200 billion in direct investment into Asia Pacific for 2022,” said Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.
The Asia Pacific retail sector registered the largest growth in the first quarter of 2022 with investments rising by 39% year-on-year. Over $8.0 billion in capital was deployed into retail assets throughout the quarter as foot traffic returned after loosening of pandemic management policies in most markets.
Office remained the most popular sector in Asia Pacific measured by total volume, growing by 9% year-on-year to end the first quarter with $17.3 billion in direct investment. During JLL Philippines’ recent real estate market overview, Janlo de los Reyes, JLL Philippines’ Head of Research and Strategic Consulting said that there was a rebound in leasing volumes (from 75,713 sqm in the fourth quarter of 2021 to 132,385 sqm in the first quarter of 2022) in the Philippines, as occupiers push through with planned entry and expansion. IT-BPOs continue to drive leasing activity, while the rental market also remained stable.
Lizanne Tan, JLL Philippines’ Head of Office Leasing Advisory, added that a lot of companies had been assessing how to move forward with the return to office (RTO). She cited kinds of business and employee functions as some of the factors that organizations consider in their RTO policies.
Activity in the logistics and industrial sector rose 3.5% year-on-year but the pace of growth moderated with the sector only managing to garner $8.3 billion in capital deployed in the first quarter. The absence of large portfolio deals, and limited deal pipelines contributed to slower investment growth in the sector, despite broad interest from investors.
“E-commerce and logistics companies remain key sources of demand in Southeast Asia,” said Charlie McNaught, JLL Philippines Director for Logistics. There was annual rental growth of 2.1% in APAC during 2021, and SEA reached 3.0%. Across all markets, modern stock is the focus of occupiers as they try to modernize their portfolios. “Supply chain networks remain a key focus for occupiers as they shift from a just-in-time supply chain model to a just-in-case. This is essentially leading to more and larger warehouse requirements,” added McNaught.
McNaught pointed out that growth in prime stock, more focus on environmental, social and governance, larger requirements, multi-storey developments as well as the emergence of Grade A logistics parks are the medium-term key trends that could be expected in the Philippines real estate sector.
Hotel transactions remained resilient, reaching $3.1 billion as more hotels changed hands with investors attempting to buy at bargain or to convert underperforming hotels into living product. JLL expects the sector to rebound further in 2022, forecasting $10.7 billion transactions for the full year, up 15% on 2021.
According to JLL research, investors are sitting on over $50 billion in dry powder and have demonstrated in the first quarter their confidence in spreading capital across geography and sector. In the coming months, momentum will shift towards logistics and industrial as supply comes to market, and funds will increasingly focus on income resilient sectors.
In the Philippine hospitality sector, sustained leisure and pent-up business travel buoy occupancy, with room rates now 5.8% higher than the previous quarter, but still below pre-pandemic levels.
Three main points contribute to the improving outlook towards the end of the first quarter of 2022. First, is the increasing RTO, second is the figure for COVID-19 cases in March 2022 is 97.6%, lower than January 2022. Lastly, the forecasted GDP growth for 2022 (according to figures from the ADB, WB and IMF) is at 5.7% to 6.5%. de los Reyes also said that the supply pressure may weigh down on recovery, but greater optimism could provide legs for market momentum.
JLL has been operating in the Philippines about 5.3 million square meters of real estate with a workforce of over 1,200 employees. With more than two decades of local expertise working hand-in-hand with its global legacy, JLL provides to the Philippine real estate market an unparalleled synergy of services with a strong commitment to achieve real estate ambitions through future-ready approaches. For further information, visit www.jll.com.ph
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The article was originally published in JLL and written by Aleine Lagasca and Jikka Defiño.
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