Transitions and Uncertainties: Philippine Economic and Real Estate Outlook 2016 (Part 2)

Part 1 is available here.

The growth of the Philippine economy, for the most part, is expected to remain a bit impervious to the ongoing changes and volatility in the global economy. Although it faces a lot of threats and risks, sentiments toward its growth remain positive within the next one to three (1-3) years due to its strong underlying fundamentals. Aside from this, the ASEAN integration is also expected to stimulate various economic sectors and create further investment opportunities for the country.

Real estate is the biggest gainer from this positive sentiment, and this is expected to continue through the rest of 2016.

Office Market

Metro Manila's office market shows no signs of slowing down, as discussed in the latest Office Briefing released by KMC MAG. In the third quarter of 2015, Metro Manila saw its highest recorded take-up in history due to pre-leasing, reaching 231,412 sq m. As in the previous years, this demand is mainly driven by the ferocious take-up of the outsourcing industry and this is expected to continue well into 2016.

The biggest job provider in the private sector, the outsourcing industry's year on year industry revenue growth is currently at CAGR 27.7% over the past 10 years. In 2016, industry revenue is expected to increase further as the Philippines rises to the top spot of the BPO destination ranking in the whole world, according to US-based firm Datamark. Given this, we anticipate that 2016 will continue to be a landlord's market, and that vacancy and rental rates will remain stable despite the increase in supply.

This year, Bonifacio Global City (BGC) will absorb most of the demand since it is where most of the new supply will come from. BGC's rental growth might slightly ease and vacancies might also increase this year, but we believe it will soon stabilize as firms are forced to move here due to the lack of space in major CBD Makati.

Residential Market

2016 will be challenging for the residential market as rental growth and demand for mid-end and high-end units experience a slight slowdown due to oversupply. However, there is a massive opportunity for economic, socialized, and low-cost housing units as it is where most of the backlog comes from--the projected demand for these units from 2012-2030 is at 6.5-million households.

Retail Market

Private consumption remains as one of the strongest drivers of the Philippine economy, thriving on robust overseas remittances and the service sector. With the upcoming elections, we expect further boost in consumption during the first two quarters of the year, translating to higher sales and earning opportunities for the retail market. At the same time, the growing income of the Filipino household is also causing a shift in lifestyles. Filipinos, especially from the young, working middle-class, are quickly upgrading their preferences, thus opening more opportunities for new and existing brands to enter the market. Some developments to look out for this year include the opening of the Manila Bay Resorts Mall and the expansion of The Podium and Mall of Asia.

Hotels and Leisure Market

Despite the issues in airport infrastructure, domestic and foreign tourism in the Philippines continues its growth, boosted by the ongoing ASEAN integration as well as the thriving eco-tourism and IT-BPO industries. We see strong opportunities in the mid-scale and budget hotel segments. With the rising number of domestic tourism due to the growing income of the Filipinos, there is opportunity in developing better quality of supply for these segments outside of Metro Manila and, closer to eco-tourism hotspots such as Palawan, Davao, and Cebu. The development of the Clark area is also another opportunity to explore.

As for the luxury segment, prices may experience some downward pressure due to some supply coming online. While the increased competition may affect investors, the silver lining is that it makes the Philippines more competitive in the tourism sector, as its prices are currently higher compared to neighbors such as Thailand. The most-awaited luxury hotel development to become fully operational this year is the Shang at the Fort.