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The recent 7.2-magnitude earthquake in Cebu and Bohol last October 15 raises concerns regarding its impact in real estate. What are the effects on Bohol and Cebu's economy? How will it affect property values and rental rates? What can happen if the same earthquake hits Philippine capital Metro Manila? Though it is still too early to provide a detailed assessment of the full impact of the earthquake on real estate markets, here are possible implications:

Economic impact

  1. Loss on capital stock: The direct losses on the cities' infrastructure and capital stock amounts to approximately Php 75.15-million, according to the National Disaster Risk Reduction and Management Council (NDRRMC). 
  2. Slowdown in economic activities due to power shortage as well as network problems: Though most businesses are already up and running in metropolitan Cebu as of Oct. 18, majority of Bohol's power lines and phone networks are still down as the province sustained greater infrastructure losses, which include major roads and bridges.
  3. Decline in tourism: One of Bohol's major economic drivers, the tourism industry is likely to temporarily slowdown as the towns recover from the aftermath. Several of the area's heritage sites such as the historical limestone churches, view deck in the famous Chocolate Hills, as well as major connecting bridges have been destroyed by the earthquake. Cebu, however, might not experience a sharp decline as the area only sustained minor damages -- most of its commercial and industrial buildings only have "superficial" damage and its airport and seaport were not affected during the quake.
  4. Boost in capital expenditure due to rebuilding efforts: Both government and private spending is expected to increase in the next months as they rebuild and improve the buildings that collapsed during the quake, which can boost GDP growth.

Impact on the Real Estate Market

Office: Most of the office buildings and IT parks in Visayas are located in Cebu City, which did not sustain major damage. Demand for office space in the city might experience a temporary slowdown, though this is expected to return to its original rate in a few months as the city recovers. Rental rates in prime office spaces and buildings located in areas unaffected by the quake could increase as occupiers place emphasis on a building's earthquake resistance capabilities.

Residential: Occupiers are expected to be more careful when choosing a lot and/or building for a condominium or single detached home. They are likely to choose areas which are not directly above the fault lines and would place emphasis on a structure's capability to withstand quakes.

Hotels: Bohol's resorts and hotels, which are heavily dependent on tourists, are likely to experience sharp decline in the number of visitors. However, numbers are expected to stabilize once infrastructure in the province is rebuilt. Cebu, on the other hand, might experience only a slight decline as demand for space in the city from the growing BPO industry drives visitors to the area.

Companies locating in the Philippines need to have disaster recovery plans to mitigate risks such as earthquakes and other natural calamities. KMC Savills and KMC Solutions can help firms outsourcing or offshoring to the Philippines identify risks in certain locations to create a business continuity and disaster recovery plan responding to these risks.Contact us for a free consultation today!