Editor’s note: This is the second of a two-part article by Colliers Philippines. The first article was published on Oct. 3. https://www.bworldonline.com/property/2023/10/03/549180/boosting-philippine-property-amid-a-skidding-economy-part-1/
SUBDUED CONDO DELIVERYMetro Manila office transactions in the first half of 2023 reached 306,000 square meters (3.3 million square feet), down 9% from the 324,000 sq.m. (3.5 million sq.ft.) recorded a year ago.
By the end of 2023, we expect new supply to reach 668,400 sq.m. We project the Ortigas central business district, Fort Bonifacio and Quezon City to cover more than half of the new supply.
From 2023 to 2025, we expect the annual delivery of 492,400 sq.m. (5.3 million sq.ft.) of new office space. This is half of the nearly 1 million sq.m. (10.8 million sq.ft.) delivered annually from 2017 to 2019, a period wherein completion and demand was positively influenced by the Philippine Offshore Gaming Operators sector.
The vacancy rate reached 18.4% as of the end of the second quarter. By end-2023, we expect vacancy to reach 21.2%. We attribute the potential rise in the vacancy rate to the substantial new supply likely to be completed in the second half, which we estimate at about 538,900 sq.m. (5.8 million sq. ft.).
While vacated spaces across Metro Manila have been on a decline, some occupants continue to rationalize office space due to various reasons such as non-renewal, pre-termination, and rightsizing.
Average Metro Manila office rents were stable in the second quarter of 2023. We have observed that submarkets with sustained take-up saw a recovery in rents.
However, business districts with substantial supply coming online in the second half 2023 as well as those with double-digit vacancies are likely to see further decline in rents.
The good news is that we are recording office space transactions even outside Metro Manila. At Colliers, we always recommend that developers continue to be on the lookout for opportunities to develop more office towers in major outsourcing hubs outside Metro Manila including Iloilo.
Property firms should further explore development opportunities in key growth areas and maximize the availability of skilled manpower and topnotch infrastructure.
TEMPERED REVENGE DINING, SPENDINGGiven a sanguine macroeconomic and consumer confidence outlook, Colliers believes that the retail sector will continue to grow, especially as the Philippine economy is primarily led by household spending. Malls continue to record high foot traffic especially during weekends and experiential retail is starting to recover lost ground.
Lease rates are starting to increase, that’s why retailers should be quick in locking in prime spaces in major business districts — from north to south of Metro Manila.
Meanwhile, given the growing interest from foreign retailers, Colliers recommends that mall operators seize the demand from these firms by taking into account their size and fit out requirements.
Online and offline shopping will continue to complement each other, which should compel mall operators and retailers to ramp up their omnichannel strategies.
Innovation will be the name of the game for several retailers, especially those that are trying to sustain heavy footfall and substantial level of spending per capita. Reactivation of activity and event centers is a must, particularly now that people are willing to go out and spend and participate in various mall events.
There is no doubt Filipino shoppers are back. Brick-and-mortar mall spaces are regaining their relevance as the Filipinos’ de facto public spaces, but online shopping remains in-demand. Hence, distribution points for large and popular retailers should be strategically located within and outside Metro Manila to cater to discerning buyers, especially those who prefer deliveries within 24 hours.
Interest in experiential retail is reverting to pre-pandemic level and presents a perfect opportunity for retailers and mall operators to diversify, differentiate, and eventually corner a greater fraction of the Filipino consumer base.
Joey Roi Bondoc is the research director for Colliers Philippines.
