Philippines 4th least transparent real estate market in Asia-Pacific

The Philippines went down three places to 45th out of 89 markets in the 13th edition of the Global Real Estate Transparency Index by real estate consultancy firm Jones Lang LaSalle and LaSalle Investment Management.

The JLL Global Real Estate Transparency Index is based on a combination of quantitative market data and information gathered through a survey of the global business network of JLL and LaSalle across 89 countries and 151 city markets.

The biennial index generates the composite score by incorporating 256 different factors spread across six subindices and then scaled from 1 to 5, where 1 means a market has total real estate transparency.

With a score of 2.95 out of 5, the Philippines is the fourth-least transparent real estate market in the Asia-Pacific region.

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Source: Business World

Could a ban on POGOs hurt the property market?

Amid the Alice Guo saga and continued raids on illegal Philippine offshore gaming operators (POGOs), calls to completely ban these enterprises have been gaining political traction. But from an economic perspective, could a ban on POGOs hurt the property market that it once caused to thrive?

In the short term, a ban on POGOs will certainly still bite, but the office and residential sectors no longer seem as “ultra-dependent” on the industry as it was before.

“The question there is how dependent are we, the market, on them? Today, the amount of square meters that they’re taking up is negligible compared to the take-up they had [before],” Leechiu Property Consultants commercial leasing director Mikko Barranda told Rappler.

Data from Leechiu Property Consultants (LPC) show that POGOs now make up less than 11% of total gross demand for office space in the country, which is already lower than the nearly 16% in the first half of 2023.

Industry share of office sector

Based on gross demand for office space in square meters

It’s also a far cry from pre-pandemic figures when POGO operations were at its peak. At one point, POGOs were a main driver of leasing demand in Metro Manila. Barranda said that in 2019, POGOs made up “easily a quarter” of demand for office space – around 300,000 square meters or 7 to 8 times what they have today.

All that changed after the pandemic hit. POGOs packed up their operations and workers fled the country, leaving offices empty in their wake. In the third quarter of 2020, office vacancy rates in Manila climbed to 7.1%. At the time, POGOs vacated 277,000 square meters of space, leading to P1.4 billion in office rent losses.

By October 2022, LPC estimated that the figure had ballooned to a total of 630,000 square meters of vacated POGO office space since the onset of the pandemic in the first quarter of 2020.

Even as the pandemic sizzled down, China was slow to ease travel restrictions. Meanwhile, the Philippine government under the Marcos administration began to crack down on POGOs and tighten regulations. This meant that many of the POGOs that initially fled when the pandemic hit never returned.

The effect of all this? A ban on POGOs would “still be a dent,” the property expert said, considering that they still account for about 75,000 square meters in gross demand for office space. However, much of the “shedding” of POGO office space has already happened, leading the market to recalibrate around their absence.

For instance, the DoubleDragon Plaza in the Bay Area used to predominantly cater to POGOs. The 11-story office complex had over 130,000 square meters of leasable space that could have been at risk of sitting empty. But LPC observed that the property has successfully pivoted to serving government and private sector offices.

“Because their [POGOs] take-up has been negligible, it’s good to also reassess that we’re not ultra-dependent, meaning the market’s still good because other demand drivers are helping the market,” Barranda said.

But the POGOs that have remained within Metro Manila – largely concentrated around the Bay Area in Pasig and Parañaque – seem to be going strong. Unlike in previous quarters, no POGOs terminated their office space leases in the second quarter of 2024. Some even expanded into other buildings in the Bay Area.

Still, Barranda described POGOs as “similar to any other business now.”

“They need to grow, they take space. But unlike before where they were taking space speculatively – meaning they will lease an entire building and then find a way to fill up that building – now they take space according to what they need,” Barranda said during Thursday’s media briefing.

Moving forward, it seems unlikely for POGOs to make a major comeback in the office market anytime soon. LPC’s live demand data – which combines inquiries, site inspections, and ongoing negotiations – show that only a few POGOs are looking for new office spaces. Of the 298,000 square meters of live demand in Metro Manila, 51% of that is from traditional companies, 41% from IT-BPM companies, and just 8% from POGOs.

And unlike the previous administration, the government under Marcos is no longer extending a welcoming hand to POGOs. National Economic and Development Authority Secretary Arsenio Balisacan argued that the Philippines may be better off without POGOs, since its social costs outweigh the billions in revenues that the sector brings in.

“It may be a big number, but the cost, particularly the social cost of POGOs are quite high. We are trying to position our country as a legitimate place for business. We are trying to attract investors to come, tourists to come. The least that we want is to have a reputation that criminals are here, things like that,” Balisacan said.

“The social cost, the way we view at NEDA, may not be worth those revenues. Because if you succeed at generating those jobs anyway, we will get much more than what we lost,” he added. “There are a lot of other opportunities for the country, for the economy, and for our workers.”

POGOnomics: Weighing the costs and benefits of POGOs

POGOs disrupted Bay Area residential prices

When it comes to residential properties, it seems that those who were riding on the POGO phenomenon have already begun to cut their losses.

“While most of the investors who bought units to house the POGOs are local Filipino-Chinese investors, they have already started selling these residential units. It’s a large decline, and if the POGO sector starts to shrink further, then it will likely impact these locations,” LPC research and consultancy director Roy Golez Jr. said, specifically referring to the Bay Area, and parts of Alabang and Makati.

The exodus of POGOs has already disrupted rent and property prices in the Bay Area, where entire buildings were built and sold to investors looking to rent them out to POGO workers.

“The [rent] yields are all over the place. Near the casinos, better yield. Where there were POGOs before, bad yield,” Golez told reporters.

The business districts of Makati and Bonifacio Global City or BGC will be “largely impervious” to any changes to the POGO sector, Golez added.

Where is growth in property market coming from?

Even without POGO money fueling property development and leasing like in days past, LPC views the market as “resilient.”

Demand for the Philippine office market continued to grow in the first half of 2024, with a 24% increase in transactions compared to the same period in 2023. Occupiers are either expanding or relocating from old buildings to newer ones.

Growth in the office market was particularly strong in the information technology and business process management (IT-BPM) sector and government sector. Transactions for IT-BPM rose by 13% from first half of 2023 to first half of 2024, while leasing activity for government agencies increased by over sevenfold in the same period.

The historically POGO-dominated Bay Area is also continuing to diversify, with 68% of office leasing demand in the Bay Area coming from the government sector in the second quarter of 2024, according to LPC.

Sales for residential condominiums in Metro Manila also went up by 6.5% in the second quarter of 2024 after shrinking for the past three quarters. However, LPC still advises a “cautious stance” for condominium project launches in the metro, with developers still needing to address inventory concerns. Around 3% of ready-for-occupancy units and 21% of pre-selling units remain unsold.

More opportunities may also lie a stone’s throw beyond the National Capital Region, particularly in townships south of the metro near expressways. Listed below are the compound annual growth rate or CAGR of property prices in different townships in Cavite and Laguna, as gathered by LPC:

1. Forresta: 14.8%

2. Ciela at Aéra Heights: 11.4%

3. Southmont Lanewood Hills: 13%

4. Southmont Verdea: 7%

5. Maple Grove: 17.8%

6. Arden Botanical Phase 1: 20%

7. Arden Botanical Phase 2: 10%

8. Riverpark: 26%

9. Nuvali Arcillo: 7%

10. Rockwell South: 15%

11. 
    

“It’s indicative that the price growth for residential communities south of Metro Manila has been growing almost all in two digits,” Golez said.

Source: Rappler

PHL real estate poised for growth

Real estate services firm Cushman & Wakefield said it expects the Philippines to attract investments in the medium term despite global economic challenges.

The economic outlook for the Philippines remains buoyant compared to other markets, Cushman & Wakefield said in a statement on Thursday last week.

In the office sector, the firm cited the 2024 Global Cities Index by Oxford Economics, which featured nine cities from the Philippines out of 1,000 global urban economies. Some of these cities, such as Manila, landed in 256th place, Cebu ranked 436th, and Cagayan de Oro and Davao City placed 487th and 500th, respectively.

Cushman & Wakefield said that addressing weaknesses in the country’s regulatory policies and governance aspects would help improve the Philippines’ attractiveness for foreign investment, especially in regions identified as “next business process outsourcing hubs.”

Meanwhile, in the hospitality sector, Cushman & Wakefield noted that digitalization and experiential travel are among the major trends that will attract the tourism market.

“Given the presence of a young and highly urbanizing demographic profile of the Philippines, a more inclusive economic development will underpin the continued growth of the residential sector’s long-term demand,” the report said.

Singapore-based travel booking service Trip.com noted a 54% increase in hotel bookings in the Philippines in the first quarter of 2024 buoyed by “impulse travel” as influenced by social media.

About 447,400 visitor arrivals were recorded in May 2024 by the Department of Tourism.

“Providing essential infrastructure to support manufacturing operations will help attract companies that are looking at reshoring and diversifying manufacturing operations further creating demand for industrial space,” the report said.

Household spending is dampened by the downtrend in the growth of remittance inflows, which increased by 4.6% year on year in peso terms in March, slower than the 5.3% growth recorded in February.

The report also noted that demand from global retailers is expected to remain soft as weak global sentiment persists.

HOTEL OWNERS, OPERATORS

Philippine hotel owners and operators are also bullish on the growth of the hospitality industry but wary of infrastructure limitations and the untapped potential of the Filipino workforce.

According to the Philippine Hotel Investment Outlook Survey, 89% of hotel owners and operators are optimistic about the hospitality sector’s prospects in the medium term. Respondents indicated that 95% of the 10,000 hotel keys in the industry foresee thriving conditions over the next three years.

At the Philippine Tourism and Hotel Investment Summit on June 21, George C. Aquino, CEO of Ayala Land Hotels and Resorts Corp., said the hospitality sector has significant growth potential, anticipating a steady increase in tourist arrivals over the next five years.

Department of Tourism (DoT) Secretary Christina G. Frasco said that in 2023, domestic tourism expenditure rose to P2.67 trillion, while inbound tourism expenditure reached P697.46 billion, which is on par with 2019 numbers.

Total tourist receipts also increased by 47.9% to P2.09 trillion in 2023, while total tourism investment reached P509 billion in the same year.

“We have quite the vast opportunities, from our beach markets, our lodge markets, to our urban markets…and it’s untapped. I think we’re presenting it in our infancy, as far as development,” Mr. Aquino said, noting the quality of Filipino hospitality workers.

Filinvest Hospitality Corp. Senior Vice-President Francis Gotianun said he is looking forward to tourism growth and the development of incoming airport infrastructure, highlighting advancements at Clark International Airport and Bohol-Panglao International Airport.

“The idea takeover that will be happening in September, I believe that things will improve, the accessibility of the country will improve,” he said, referring to the rehabilitation and turnover of the Ninoy Aquino International Airport to the private proponent consortium led by San Miguel by September.

Meanwhile, Robinsons Hotels and Resorts (RHR) Senior Vice-President and Business Unit General Manager Barun Jolly said that the country has 100,000 municipalities and cities with highly trainable workforces, decent infrastructure, and undiscovered landscapes.

He added that these places should be tapped to provide employment to the local workforce and attract customers to hotels that offer a differentiated, distinctive, but localized experience.

Mr. Jolly also mentioned the positive reception of RHR’s homegrown brands, agreeing with the sentiment of 39% of respondents who see the upper midscale segment emerging as the most attractive opportunity due to the surge of developer activity in second-tier growth cities and township developments.

Cleofe Albiso, managing director at Megaworld Hotels and Resorts, referenced the closure of Boracay as a cautionary example, suggesting that similar considerations should be applied to opening areas outside of the usual, such as Palawan.

ROOM GAP

The country should build 80,000 rooms to compete with regional hotels in Asia, said Philippine Hotel Owners Association (PHOA) President Arthur M. Lopez.

In line with this, Tourism Infrastructure and Enterprise Zone Authority (TIEZA) Assistant Chief Operating Officer Karen Mae Sarinas-Baydo said the agency recognizes the room gap in the Philippines as identified in the 2009 Tourism Act. She added that TIEZA has existing properties available for investment.

TIEZA is renovating properties like the Banaue Hotel and is interested in partnering with the private sector to introduce new designs, she said.

Mr. Aquino said that developers are optimistic but stressed the importance of infrastructure and public-private sector partnerships evolving alongside their plans due to lingering concerns.

Ms. Frasco said that the Philippine Hotel Industry Strategic Action Plan is set to launch soon, aiming to establish a framework for hotel infrastructure expansion and address current challenges and support systems.

This plan will encompass soft infrastructure, skill matching, digitalization, competitiveness, and measures to enhance the hotel industry’s resilience against headwinds and external shocks.

Source: Business World