The coronavirus disease 2019 (Covid-19) pandemic has adversely affected the economic growth of many countries around the world, including those situated in the Asia-Pacific region, according to a research presented by the Lobien Realty Group (LRG), one of the fastest rising real estate consultancy companies in the Philippines.
China’s economic growth diminished by -0.91 percent because of the spread of Covid-19 during the first quarter of 2020. Both Indonesia and Singapore encountered economic growth reduction of -0.26 percent. As indicated by a report from World Bank, Southeast Asian nations like Thailand and Malaysia will need to strategize on how to manage their losses, while Vietnam could be fortunate enough that the decrease of its economic activity is just below average.
In the Philippines, the battle against Covid-19 has yet to be won as the enhanced community quarantine (ECQ) continues in Metro Manila and other parts of the country. Based on statistics, Metro Manila or the National Capital Region has the greatest number of Covid-19 cases, followed by Calabarzon (Region 4A comprising Cavite, Laguna, Batangas, Rizal and Quezon province) and Central Luzon (Region 3).
The impact of the Covid-19 pandemic on the Philippine economy has been significant. According to Oxford Economics, the projected growth of the Philippine economy would be down to 3.9 percent in 2020 from its original estimate of 5.9 percent. LRG reports that the Philippines’ real estate industry, in particular, has been seriously impacted by Covid-19 as the pandemic effectively put a stop to the operations of most businesses. These include Philippine offshore gaming operators or POGOs, which have been occupying 1.14 million square meters (sqm) of office space since 2016; the business process outsourcing industry (BPO) that had a recorded office take up of 400,000 sqm in 2019; and traditional offices that leased 370,000 sqm last year.
The Metro Manila office market
Available supply and rental rates in Metro Manila have gone up with total office supply growing by 900,000 sqm in 2020.Average rental rate has increased by 9 percent from P1,060 per sqm to P1,160 per sqm. A total of 900,000 sqm of new office space is set to be available in the market this year. As of March, 350,000 sqm has been leased out already by different business industries.
However, Covid-19 has slowed down the office market considerably, especially in Metro Manila. LRG said there is a certain decline in expansion of POGOs due to the travel ban imposed by the government and extended ECQ. Projected POGO office demand this 2020 is 200,000 sqm less as contribution from POGOs is expected to slip by $800 million, or about 0.2 percent of gross domestic product. BPOs, another hard-hit industry, may soon scout for alternative business locations in the emerging provincial hubs that offer more competitive rental rates and lower labor costs, and have become sites of new government infrastructure projects. Traditional offices, on the other hand, may also seriously consider work from home arrangements that can possibly lower their overhead cost.
LRG, however, predicts that there could be an improved demand for office space by 2021 at a minimum of 700,000 sqm across Metro Manila, provided the Covid-19 outbreak will be contained by the second half of 2020. The demand for office space will be revived towards the latter part of the year once existing and new POGO companies as well as BPO companies continue their growth all over the country. LRG said there may even be a stronger demand from the BPO sector as a result of global companies’ need to outsource their businesses while their countries battle the adverse effects of the pandemic.
Provincial office market
Currently, there is a 15-percent vacancy across all provincial business districts. A total of 257,000 sqm of new office space is set to be available in the provincial market this year. As of March, 36,000 sqm has been leased out already by different business industries. The average rental rate for provincial business hubs is at P606 per sqm, making it more affordable than Metro Manila.
The residential market
A total of 15,500 units are expected to be added to the residential supply of Metro Manila in 2020. Take up will likely soften due to international travel restrictions that affected both local and foreign investors. Majority of condominium units being constructed are geared towards the mid-end market (P6 million to P9 million). Prices in the secondary market are expected to decrease from its market value. Price appreciation will remain inactive depending on how the market will stabilize from the ECQ. Reduced demand due to travel restrictions from across different regions and local unemployment is likely to worsen sharply.
Prices of new and upcoming residential properties will remain at pre-ECQ levels. There is an opportunity for the secondary market to grow as less affluent property owners dispose their assets for liquidity.
The retail market
The retail industry is the most affected sector by the ECQ in Luzon. Consumer spending for essential goods has increased while non-essential goods and businesses are suffering due to sales revenue loss.
As a result, e-commerce will drive the consumer and retail industry for the majority of the year. However, shopping malls will gradually recover after the ECQ with more stringent measures on mall sanitation, mall personnel and customers’ hygiene and social distancing in place.
Tourism and hospitality market
Since the beginning of the ECQ, Metro Manila hotels immediately dropped its overall occupancy rate to 35 percent from 74 percent as of the third quarter of 2019. LRG predicted, however, that at post Covid-19, the tourism and hospitality industry will be revitalized but will most likely be governed by new regulations in terms of allowable capacity or number of guests for every given period. Top quality sanitation procedures will place a premium on an establishment and will be one of the critical selection factors of customers.
The pandemic has, undoubtedly, caused a considerable impact on the real estate industry but LRG expects the industry will recover in due time. With the united effort of the government, businesses and the people of the Philippines in the fight against the pandemic, Covid-19 will soon be a nightmare of the past. As long as the lessons learned from this adversity are not forgotten nor ignored, LRG remains optimistic about the future of the real estate industry and the Philippine economy.