2019 Manila Real Estate Forecast

Posted January 9, 2019

The Philippine economy is among one of the strongest performers in the ASEAN region, according to BMI’s industry review. Real GDP growth remains slightly the same from 6.9% witnessed in 2016 with a witnessed estimate of 6.3% in 2018. BMI attributes this to challenging business conditions and geopolitical risks. Despite the moderate downward reaction from President Duterte’s expansionary fiscal policy and bilateral trade with China, the Philippines remains to be a stable location for businesses in the ASEAN region, among others are international companies seeking to favor investment opportunities in a wide range of sectors.

Commercial Sector

As the economy looks forward to 2019, the market seems to be optimistic in the commercial sector. In response to President Duterte’s strategy of Build Build Build, there might be an increase in vacancies from a wide range of sectors, while demand seems to be on a stagnant low in 2019. Since vacancies are higher, rental costs tend to be increased as well. The Philippine commercial sector is also facing a challenge between e-commerce versus the traditional brick and mortar retail spaces. While retail spaces are increasing in vacancies, and are still in demand, it is reviewed that the e-commerce subsector has a slow penetration into the Philippine market due to poor infrastructure networks. This limits the appeal for e-commerce operators for expansion to the market. However, while this limitation is apparent, there seems to be an optimistic view for future penetration. Based on this analysis, there seems to be a demand focused on traditional warehousing facilities in preparation for the gradual introduction of e-commerce.

Office Sector

The strong growth of the Philippine economy among others in the ASEAN region gives a good impression from both domestic and international businesses for expansion. There seems to be a strong demand for Prime and Grade A office spaces. The office sector is one of the highest in demand due to the market’s English speaking labour force. BPO and offshore gaming are the outsourcing ventures that drive the growth of the market. While Build Build Build is the strategy of the Duterte administration, a bullish outlook might be expected caused by both domestic and foreign demand. The recently established TRAIN Law and tax cuts will also ramp up infrastructure demand. Data from BMI also shows that there is an estimated 900,000 sqm of office supply to enter the market annually until 2020. This outlook will cause great competition for office space within Manila and Makati, the two prime locations, therefore making it difficult to access the market.

Retail Sector

Luxury brands and modern western retailers are having a hard time to penetrate the retail market due to the low income bracket of the Philippine population. The market seems to manifest that Mass Gross Retail (MGR) and F&B (Food & Beverage) are the primary demand drivers that affect the retail sector. There might be a slow penetration for western retailers to access the market, since local developers are the dominant drivers in the economy. The driving factors from MGR and F&B in the retail sector led to an optimistic growth in household spending, an indicator of good consumer confidence in the market, especially since the TRAIN Law came around last January 2018. There is also an estimated 800,000 sqm of retail space to enter the market until 2020 (Arca South Mall and Aseana Mall). Rental increase is expected to slow as new supply reaches the market.

Industrial Sector

There seems to be a boost in demand in the industrial sector from MGR (Mass Gross Retail). The demand for lot rentals is expected to be at a steady pace for 2019. Warehouse spaces remain in demand as robust exports and imports necessitates the market. BMI shares that the rising operational costs of these warehouses might affect the long term outlook as this faces a challenge for domestic and international investors. The entrance of Alibaba is also expected; there is a strong confidence in the market that encourages great demand from global retail organizations—supported by President Duterte’s infrastructure program and fast implementation of supportive foreign policy.

Residential/Nonresidential

An expected long term growth supported by Philippine economic growth forecasts and favorable demographics will be the driving factor for more real estate development. With the ongoing development in this sector, there is also an existing construction for the expansion of urban transit making the market look more optimistic for investors. The sector will remain robust supported by public and private investments in real estate. While there is a notable increase in development, market growth is also indicative of its strong demand for future investment.

(Data gathered from BMI Research’s 2018 Real Estate Report.)