PHILIPPINES REAL ESTATE MARKET OUTLOOK 2021: A COMPLETE OVERVIEW

Posted on December 6, 2020 by Marcus Sohlberg

Philippines has become one of the hotspots for foreign property buyers in Southeast Asia. With
favorable demographics and an increasing middle class, Metro Manila has undoubtedly seen the biggest
interest.

Foreign corporations move to the region, setting up offices and operations in places like Cebu and
Davao, where labor costs are low.

With that said, the COVID-19 had a profound impact on real estate markets all over the world and the
Philippines was not an exception. Yet, this might result in a rebound in 2021.

Topics covered in this article:

The Property Market in Previous Years

How did the market perform in 2020?

How will Philippines’ real estate market perform in 2021?

What is driving the demand for real estate in the Philippines?

The Property Market in Previous Years

Philippines real estate market has grown at an exceptional rate in the past years, following the path of
the country’s economic growth, starting from 2010.

Looking at the office market, over 70,000 new office spaces were added to the Manila business districts
in 2017, breaking a new record. Still, the vacancy rates remained low and at around 5%.

Despite seeing reduced economic growth in the first nine months of 2018, the office market performed
well with a healthy supply.

At the same time, analysts believed that rents would rise steadily and by 8% annually until 2021.

The Market Remained Stable in 2019

Analysts forecasted a slow-down throughout 2019, but the market remained resilient. Many are certain
that the real estate market will remain stable, even in the case of a global economic downturn.

Chinese companies, especially tech and gambling companies have opened plenty of new offices in
Manila in the past years.
These offshore gaming firms had a big impact on the exceptionally low vacancy rates in Manila’s central
business district, despite the increase in supply.

Not to forget, there’s been a continuous rise of Chinese investors, driving the demand for property and
pushing prices upwards.

The companies don’t only buy or rent office space in business areas like Makati, but also buy residential
properties for their employees.

Business Process Outsourcing (BPO) is also an important pillar of the economy and one of the country’s
fastest-growing sectors. Numerous foreign companies target the Philippines’ young and English-
speaking talent pool.

The industrial property market is expected to see strong growth at the same time as the need for
flexible workspaces, such as co-working spaces, will increase significantly in the coming decade.

The Residential Property Market

The residential property market was stable and prices continued to rise before 2019. According to
Colliers, the average price for 3-bedroom luxury condominiums rose by more than 15% in 2018, to USD
4,371 per square meter.

The market outperformed all previous years since 2013. Having said that, we’ve seen issues with an
oversupply of units and high vacancy rates in certain areas.

According to JLL, the increased demand for residential units mainly come from young local professionals,
upgrading families, and High-Net-Worth-Individuals (HNWIs) from overseas.

We also see increasingly high remittances from Overseas Filipino Workers (OFWs).

Looking at condominiums, around 20,000 units were completed in the second quarter of 2019 with
most of the supply allocated to Taguig and Makati. Pasay City will also see much growth until 2021
thanks to the increased investments in Bay City.

From 2019 to 2021, Colliers International Philippines predicts that 8,300 new condominium units will be
built yearly, amounting to 142,000 units by 2021. That’s a 33% increase compared to 2017.

In addition to Manila, we also see increased activities in emerging cities outside of Metro Manila,
including Cebu, Iloilo, and Davao. Firms now outsource to other parts of the Philippines.

This will most likely have a positive impact on the local residential markets in the long-term.
Manila Property Prices

Property prices have increased much in Manila over the years. Below you can see the year-on-year price
increase for 3-Bedroom Luxury condominiums in Makati from 2013 to 2018:

2018 – 15.55%

2017 – 10.4%

2016 – 9.95%

2015 – 13.43%

2014 – 7.11%

2013 – 14.37%

Overall, prices increased by 5.7% on average nationally in 2017, where we saw the highest increase for
duplex houses, followed by condominium units. Prices for single-detached/attached houses fell slightly.

There was also a considerable difference in price increases in the NCR (National Capital Region) and
areas outside of the NCR. In NCR, residential property prices increased by 8.8%, but the price increase
was merely 3% in the rest of the country.

In 2018, luxury home prices increased by 11.1% year-over-year on average, the largest growth rate
among 100 key global cities.

How did the market perform in 2020?

The property market took a big hit due to the COVID-19 crisis which resulted in diminished tourist
arrivals, travel restrictions, reduced OFW remittance inflows, unemployment, and business consumer
confidence.

Vietnam was the only country in the region that saw positive economic growth, while other countries
saw major contractions.

Below are some interesting numbers shared by Santos Knight Frank that has actively researched the
market throughout the crisis:

GDP: Reduction of -16.2% in Q2 2020

OFW Remittances: Down by -2.4% in August 2020 compared to 2019

Inflation rate: 2.4% (August 2020)

The country experienced the worst economic downturn in 30 years and with prices that fell by double
digits. However, there might be an upswing during 2021 due to an increased interest among Chinese
investors.
The Chinese are the main investors in Manila and 41% of all international sales of the large developer
Ayala Land goes to Chinese investors. Analysts believe that this might lead to rush-sales and purchases
among Chinese investors who look for discounted units.

Sales Fell Greatly in Q2 2020

Sales fell by -49% during the first quarter of 2020 and to merely PHP 1.5 billion (USD 30 million).

Both Megaworld and Ayala Land cut their capital spending in 2020 due to the lockdowns and economic
challenges.

While developers launched over 3,000 fewer units compared to 2019, tens of thousands of jobless
overseas workers have returned to the Philippines which puts further pressure on the market.

How will Philippines’ real estate market perform in 2021?

The Philippine Central Bank projects that we will see a strong rebound with a 7.8% growth in 2021.

But, the timeline of the distribution of COVID-19 vaccines, and when countries can open, will highly
determine how economies and real estate markets perform.

Looking at the analysis done by Colliers International, previous take-up rate targets are unlikely to be
met and will reach 300,000 to 600,000 square meters.

At the same time, vacancy rates will increase from 5.5% to 7%, and lease rates decrease by as much as -
17% in Metro Manila. The condominium market will face great challenges as well.

We’ve seen an overhang of condominium units especially in the Bay Area, Manila North, Quezon City
North, and Pasig City. This will most likely remain in 2021.

Thanks to the low-interest rates and mortgage rates, developers will hopefully be able to provide
flexible terms to buyers, which can help to support the condominium market in Manila.

What is driving the demand for real estate in the Philippines?

There are several reasons why the real estate market continues to grow in the Philippines. Having one of
the fastest-growing economies in Asia, I’ve listed some of the main drivers below.

1. Business Process Outsourcing

The Business Process Outsourcing (BPO) industry is one of the main drivers of the economy in the
Philippines. Thanks to its young and English-speaking talent pool, increasingly more foreign companies
turn to the Philippines when looking for outsourcing options.
The industry is predicted to double by 2020 and has grown exponentially. Firms from particularly the US,
the UK, and Australia invest heavily in this industry.

2. Continuous Supply of Flexible Workspace

The flexible workspace industry is here to stay and will grow tremendously in the Philippines and other
Asian countries in the coming decade. It’s said that 30% of all office space will be flexible work-space by
2030.

Colliers believes that the flexible workspace area will expand by 10% at a minimum in the coming three
years. Co-working spaces will not only cater to small companies and digital nomads, but also to
multinational and outsourcing companies that look for flexibility.

3. Increased Amount of Chinese Buyers

An increased number of Chinese buyers contributes to current and future growth. According to
Bloomberg, the gambling/gaming market has attracted around 100,000 Chinese workers to the Metro
Manila area since September 2016.

4. High Remittances from Overseas Filipinos

The Philippines is the third-largest recipient of foreign remittances in the world. Overseas Filipinos sent
additionally USD 3 billion to their families in 2017 compared to 2016.

With a depreciating peso, and with the increase in foreign remittance, many families now have the
purchasing power to buy and invest in the residential property market.

Summary

The Philippines’ real estate market has suffered hard in 2020 due to the COVID-19 pandemic and will
most likely be in recovery mode in 2021.

While prices have dropped by double digits, we also see reduced lease rates and take-up rates. Tens of
thousands of jobless overseas-working Filipinos have turned back to the country, which puts further
pressure on the economy.

Hopefully, the market will recover the earliest possible once the country opens its borders. In fact, the
country has seen impressive growth in the past years.

The key drivers are: Business Process Outsourcing (BPO) from multinational companies, demand from
Chinese investors and other foreigners, increased purchasing power among locals, increasingly more
remittances from overseas, and flourishing gaming industry.
Yields are some of the highest in the region and with a favorable business and visa regulations. You have
the option to apply for plenty of long-term visas, allowing you to stay indefinitely, with low
requirements.

THE STATE OF REAL ESTATE

By: Joey Roi Bondoc

Conducting webinars is now part of the new normal. On April 8, the Philippine Daily Inquirer conducted
a webinar entitled “The State of Real Estate”. I had a great time sharing the platform with Prof. Enrique
Soriano, Inquirer Property Section editor Tek Samaniego and Icon Executive Search managing director
Patt Soyao.

It was also an opportunity to present the preliminary findings of Colliers Philippines on the impact of the
pandemic on the Philippine property landscape. At Colliers, we do not just report what we see on the
ground—we also provide data-supported insights and recommendations.

An interesting discussion even after the Inquirer webinar is the pace of recovery that we will see after
2020. The government’s economic departments as well as multilateral agencies and credit rating firms
are one in saying that the economy will significantly slow down in 2020. But projections on the pace of
rebound after 12 months differ. The common question is, will it be a V-shaped or a U-shaped recovery?

The National Economic and Development Authority (Neda) is looking at negative 0.6 percent to 4.3
percent growth in 2020 due to the COVID-19 pandemic. The Finance department is looking at a “zero to
possibly negative 0.8 percent” economic growth. Meanwhile, the Asian Development Bank is projecting
a 2 percent GDP growth this year, slower than its initial 6.2 percent forecast, but a faster one in 2021 at
6.5 percent.

Testy 2020 for residential

Another interesting point during the webinar was the pace of deceleration and acceleration of
residential prices during the last two major economic debacles—the Asian financial crisis in 1998 to
1999 and the global financial crisis (GFC) from 2008 to 2009.

Historical data from Colliers Philippines showed that residential condominium prices fell by 14 percent in
1998, and by 9 percent in 1999 before accelerating by 24 percent in 2000. The decline was softer during
the GFC when prices dropped by 2 percent before rising by 2 percent in 2010.

Colliers sees residential demand in Metro Manila softening in 2020 due to the adverse impact of the
COVID-19 pandemic. If the virus is contained in the first half, we may see market sentiment improving
starting the third quarter and a recovery in demand and supply in 2021. Among the major concerns for
the residential sector are unemployment, business and consumer confidence, and OFW remittance
inflows. On the supply side, the work stoppage due to enhanced community quarantine (ECQ) will delay
project completions.

As mentioned during the webinar, now is the right time for developers to touch base with their clients.
In our opinion, proactive developers are likely to stand out when the pandemic wanes, similar to those
who stood out after the Asian and global financial crises. For developers, they should still highlight their
property management measures, preparedness and sanitation measures to avoid viral infection and
transmission.

We encourage developers with substantial supply of ready-for-occupancy (RFO) units to explore more
creative leasing schemes. In our opinion, developers should explore leasing out condominiums as shared
units for business process outsourcing (BPO) employees, as living in dorms near their workplaces has
become an integral part of companies’ business continuity plans. This should complement our projected
rise in co-working facilities as we cope with the new norm.

Developers with township projects should also highlight the convenience of being in an integrated
community. Will it be easier for unit owners to buy their essentials? Does the integrated community
have a clinic? Given the new normal we are seeing now and the social distancing measures being strictly
implemented, these are going to be among the primary concerns of unit owners moving forward.

Office: Coping with the new normal

Colliers sees higher office vacancy in 2020 due to a slowdown in leasing activities following the
pandemic and lockdown in Luzon. Economic analysts are expecting a recovery in 2021 and this should
support expansion of business activities and leasing deals.

Another topic I raised for the office segment was that the government’s directive to implement
alternative work schemes should encourage occupiers to accelerate the adoption of modern technology.
In our opinion, firms should effectively communicate cloud computing strategies to their employees to
minimize disruptions from the abrupt switch to remote working. Tenants should also consider
implementing a flex-and-core strategy or a mix of traditional and flexible workspaces. With some
occupiers wary of closing long-term deals, we see the viability of leasing out a seat or two in a co-
working space.

Also, the pandemic highlights the need for businesses to revisit their business continuity plans. Aside
from adopting modern technology and implementing a flex-and-core strategy, tenants should also scout
for viable alternative sites outside Metro Manila or Luzon to diversify operations and mitigate work
stoppage. Tenants may consider Cebu, Iloilo, Bacolod, and Davao.

From the bitter experience of the Asian financial crisis, Philippine developers learned the necessity to
turn off the supply tap quickly. This was demonstrated after the global financial crisis during which
supply dropped to about 203,000 sqm in 2010 from 478,000 sqm in 2008 and 541,800 sqm in 2009.
Even with a less diversified office market in 2010, the Metro Manila office sector turned around quickly
post-crisis, posting a 5.6 percent vacancy in 2010 from 8.6 percent in 2009, the highest recorded since
the global economic meltdown.

More brick-to-click strategies

Malls felt the immediate pinch from the government’s imposition of an ECQ in Luzon and social
distancing measures due to the COVID-19 pandemic. The ECQ forced malls to close with only the stores
supplying essential items such as groceries, medicines and food for delivery being exempted.

Colliers believes that social distancing will likely be part of the new normal even if the government lifts
the ECQ on May 1. Hence, a significant number of retail shops are still likely to be closed by then. But
these brick-and-mortar retailers may tap the demand by expanding their online presence. Retailers may
create their own e-commerce sites, utilize existing sites of major mall operators, or use popular social
media platforms such as Facebook and Instagram.

In our opinion, the recovery of the property sector in 2021 hinges on the pace of expansion of Philippine
and global economies.

STATE OF REAL ESTATE: PRIMER FOR 2021

By: Vaughn Alviar

“Change is not afraid to disrupt and unsettle what is believed to be established, even the seemingly
optimistic future of the real estate industry for 2020.”

This was how Enrique Soriano III, executive director at Wong+Bernstein Advisory, summed up his talk on
Jan. 22 at “State of Real Estate: A Clear Vision for 2020,” a well-attended forum organized by Inquirer
Property.

“The sector has been on an extended run for 10 years, and anything that goes up must come down
soon. It is just a matter of time,” he added.

Boy, was he right. The COVID-19 pandemic sabotaged an upward trajectory for the real estate industry.
The sector ground to a halt in March and is getting its bearings only late in 2020.

In “The Real State of Real Estate: Primer for 2021,” moderated by Inquirer Property editor Theresa
Samaniego, Soriano reunited with Richard Raymundo, managing director of Colliers International
Philippines, who had also spoken at the Jan. 22 event.

Contrasting with the in-person Manila Polo Club event, this primer was a virtual event filled with
instructions to weather a downturn and capitalize on opportunities.
Pogo departure

One striking change was the departure of a once-vibrant Philippine offshore gaming operator (Pogo)
industry, which virtually “dried up,” according to Raymundo. What abruptly raised real estate values in
the past years now leaves a vacuum in Metro Manila.

The departure of Pogo workers from the capital left 154,000 sqm in office spaces, with bulk of the
vacancies in Quezon City, the Bay Area and Alabang.

Vacancies are expected to more than double from 4.3 percent last year to 9.1 percent as this year winds
down, according to Colliers. Aggravating the low uptake was a business climate that was largely “wait-
and-see” plus a business process outsourcing (BPO) industry that allowed work-from-home
arrangements for 60 to 70 percent of the workforce.

As new spaces open, vacancies are forecast to go up to 11.6 and 12.1 percent for 2021 and 2022,
respectively.

The Pogo exit also adversely affected residential spaces, noted Raymundo. “The higher office vacancies
mean there’s less demand for condos, residential, in these business districts.”

Demand, vacancies

In the beginning of the year, Colliers projected a 7.5-percent annual growth from 2020 to 2022, mainly
because of Pogos. However, take-up may drop by 7.7 percent in 2020, while for the next two years,
growth may be slow at 2.5 percent. Metro Manila vacancies may reach 15.3 percent by end-2020. In the
first nine months of 2020, developers launched only 16,000 residential units in contrast to last year’s
49,000.

Vacancies in retail is seen to reach 14 percent by yearend as stringent lockdowns closed businesses for
months. Colliers also found that foot traffic decreased by 30 to 50 percent compared to pre-COVID-19
levels.

Price adjustments

These drastic changes forced price adjustments across the spaces. For new contracts in offices, rents
now provide negotiating legroom of 15 to 25 percent.

Prices dropped in residential units, too. For luxury condos, a 13-percent price drop was recorded. The
affordable to mid-income projects have been sold at a 16- to 20-percent discount. Downpayments went
from 30 to 20 percent—or none. Developers extended payment terms, waived reservation fees and
provided rebates and other rewards.

In retail, developers have become lenient, providing 30-day grace periods on rent and up to 50-percent
drops.
Raymundo also noted a “most preferred” option: “A lot of the developers have waived the fixed rent
and are now helping their tenants with just the percentage of sales for their rental.”

Landmine of opportunities

This slowdown is a landmine of opportunities, noted Soriano. Harking back to his talk in January, he said,
“I’m not an expert in predicting events but I know I mentioned this in my slide: that real estate
organizations will need to make sure they have the right capabilities and qualities.”

“…*I+f you do not do your homework, then definitely you will lose out not because of the pandemic but
because of your own complacency,” he added. The sector must ride the digital wave “from
understanding buyers to digitizing sales to converting inquiries to transforming happy and engaged
homebuyers and tenants.”

The real estate industry should also mold itself into a human-centric business, selling experiences—not
four walls—to a customer base that has become more discerning and demanding because of the
lockdowns.

“The key is to engage buyers, dive deep into their expectations, stay close to them and anticipate their
needs… It’s no longer about aesthetics and how to conserve energy,” Soriano said. Among others, there
has been a growing desire for in-city homes with green spaces and homes in peripheral areas with larger
spaces, especially for workstations.

Looking at the current numbers, both experts noted that we’ve been through worse. Raymundo recalled
the 1997 Asian financial crisis, when prices and vacancies skyrocketed, and effects lingered for years.
Soriano admitted worrying about a “doomsday” looking at numbers from March to April. However,
conditions did not allow the stalemate to equal the Asian crash and the economic plunge leading up to
the People Power Revolution.

Recovery drivers

Logistics may lead the recovery in 2021, Raymundo said. The boom in e-commerce and delivery services
during the COVID-19 lockdowns could help ensure growth.

Residential spaces go second, Raymundo forecasted, basing on activity in the affordable market and the
“sweet spot” middle-income segment. At 25,000 units, takeup for the three quarters of 2020
overwhelmed the 16,000 units launched, an indication of good demand. Following in his listing are office
and retail spaces. The hotel sector could become a laggard.

Both panelists encouraged developers to launch products and test the market.

“From many that I had the opportunity to engage with, especially in Asia, yes the worst is behind us,”
assured Soriano. “Revenues are still far from pre-COVID-19 levels, but the signs are pointing north.”
“You don’t need a huge launch right now,” said Raymundo. “What you need is to get your product to the
right people, through the right channel. The ones who started pivoting through Facebook, Instagram,
who were very nifty on how they dealt with their brokers, they did very well.”

Embracing innovations

Calling real estate “one of the most low-tech industries,” Raymundo called on developers to embrace
innovations such as logistics, cloud-based touchpoints, payment methods and cybersecurity.

“You need a system that helps you up to the handover; documentation needs to be faster,” Raymundo
said. He also saw flexible payment terms as a must. These improvements foster loyalty and repeat buys,
factors that have contributed to resilient sales even amid recessions.

The World Bank estimates that the Philippines will enjoy a GDP growth of between 2.9 and 5.3 percent
in 2021. In the recovery that will ensue as the vaccine comes along, Soriano asked the sector to prepare
for a “pent-up demand” among consumers who had been cooped up for months. Businesses could
respond right now by familiarizing with the market, improving on efficiency and ensuring quality service.

Developers, Soriano and Raymundo also noted, cannot at any point forget brand equity, the assurance
that they are delivering trusted, high-quality products.

“For every pandemic, for every crisis, there are opportunities,” said Raymundo. “And the companies
that are able to spot these opportunities and capitalize on these quicker are the ones that come out
stronger and bigger eventually.”