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The estimated average (gross) rental yields of offices in the third quarter of 2021 remained at 6.3%. On a year-over-year basis, rental yields have fallen by around 40 basis points from their level in the third quarter of 2020. As the global economy recovers, the resulting restrictive monetary policy adjustments will further compress rental rates. average returns in the market. In addition, C&W Research estimates that growth in capital value will initially be tempered in the core markets (i.e. core CBDs) of Metro Manila. On the other hand, it will rekindle interest in long-delayed capital market transactions halted due to the COVID-19 pandemic.
Overall residential prices continue to show a downward trend as the effects of the COVID-19 crisis continue to weigh on demand, in addition to a very high baseline compared to last year’s data. In the second quarter of 2021, the Residential Property Price Index (RREPI) of the Bangko Sentral ng Pilipinas (BSP) fell for the second consecutive quarter by 9.4% year-on-year, compared to a decrease of 4.2% year-on-year in the first quarter of 2021. Residential properties in Metro Manila posted the fourth consecutive quarter of contraction of 18.% year-on-year in the second quarter of 2021 with the poor performance of single-family, condominium and row residential properties , while no new bank loans for duplex housing were granted and reported to the central bank during the same quarter. Growing 0.8% year-on-year in the last quarter, properties outside of Metro Manila also saw a decline, albeit modestly at 0.6% year-on-year in the second quarter of 2021. Demand for Residential condominiums have yet to pick up as it marks its fourth straight quarter of falling prices along with falling prices. demand for properties in Metro Manila.
The country’s net foreign direct investment (FDI) inflows reached USD 1.26 billion in July 2021, an increase of 52% year-on-year and the highest level in 19 months as the local and global economy shows signs of recovery. In the second quarter of 2021, the Philippine economy finally ended the five quarters of pandemic-induced recession after recording double-digit growth of 11.8% year-on-year, driven by a massive rebound in gross capital formation which grew 75.5% year-on-year; and modest improvement in consumer spending which grew 7.2% year-on-year. However, the reimposition of the more restrictive enhanced community quarantine (ECQ) status from August of this year due to a spike in the number of infections caused by Delta, would have undermined the economic performance of the third quarter of 2021. The capital The nation has since moved to “granular lockdown” in September, allowing the economy to continue reopening while aiming to curb the rate of COVID-19 transmission.
In addition to the prolonged restrictions on mobility, rising unemployment and faster rising prices are expected to continue to discourage household spending, vital for the recovery of the consumer-led Philippine economy. The unemployment rate stood at 8.1% in August, worse than the 7.7% recorded in July, as companies were forced to suspend their operations again when they returned to the ECQ. The inflation rate has remained above the government’s 2-4% target range for the past nine months, standing at 4.8% in September, which is slightly below the 4.9% d ‘a month ago. At the same time, the overall price level is expected to remain high against the backdrop of anticipated increases in global oil prices.
The fragile state of the economy could benefit greatly from additional budget support, through more effective containment efforts that will allow more business activities to resume. Meanwhile, the record policy rate will likely persist through 2021 despite rising inflation to maintain support for an economic rebound. In the medium term, however, the local economic recovery could be hampered by rising inflation and interest rates, while the global economy similarly recovers. Tight monetary policy can slow economic recovery, but could be a good cushion to stop too much liquidity and get banks to lend.
The global spread of the highly contagious variant of COVID-19 Delta has also severely affected the economic performance of various countries in Southeast Asia, leading to lower economic forecasts in the region. While a slowdown in economic growth is expected by the end of 2021, a recovery is expected by 2022, provided that the recurring spike in the number of infections due to the slow deployment and very uneven vaccination schedule in the region is managed effectively.
Companies are advised to review their respective workplace strategy to strengthen and identify future real estate needs in order to take advantage of the flexibility offered by multiple owners and operators. Occupant companies need to work on planning for long term occupancy trends that will be able to attract / inspire employees and talent to return to physical office spaces.
Meanwhile, the investment opportunities that will take advantage of the accelerated digital transformation with the prevalence of hybrid working arrangement and the growth of the online economy are on the bright side in the short to medium term.
The delayed resumption of full commercial activities continues to push the vacancy rate in the office sub-sector upwards, while the average demand rate edged down, with major office operators mainly in the CBDs keeping their asking rents. before the pandemic. Leasing activities are expected to remain under control in the short to medium term, as stricter and more refined tax rules for the Philippine Offshore Gaming Operator (POGO) sector are likely to drive out some gaming operators, leaving the segment to resurge. of office buildings strongly influenced by the dynamism of the outsourcing sector.
The ongoing restrictions will continue to push a number of traditional retailers to different online platforms as a means of dealing with the challenges of the pandemic. The transition to the online space will help boost retail vacancy rates as the entry of new retailers is constrained by the uncertain business environment.
The resilience of the industrial sub-sector needs to be further strengthened by the resumption of manufacturing and international trade activities, in addition to the increased activities of e-commerce and other fast-growing consumer goods businesses that increase the demand for warehouses. modernized and cold stores. storage facilities.
As the pandemic progresses, the shift in demand from residential condominiums in densely populated business districts to mid-priced properties in Autonomous Communities in outlying areas of Metro Manila will continue to be observed. C&W Research noted, however, that several large developers are already lining up new vertical residential development launches, in anticipation of a pick-up in demand in the medium term.
Budget accommodation and extended stay hotels benefit from the increased appetite for travel as a result of less stringent domestic travel regulations and flexible working arrangements that allow remote working from tourist destinations.