Metro Manila’s condo and retail sectors amid COVID-19

Last week, I discussed the impact of COVID-19 on the Metro Manila office market and how the continued implementation of the government’s “Build, Build, Build” program amid the pandemic could help support the growth of the Philippine real estate market. .

We have been receiving many inquiries about the Metro Manila residential market and how developers and investors have been responding to disruptions in the domestic market. Apart from this, another interesting property segment to dissect is the retail sector. What segments can prosper in the midst of the pandemic? When will retail demand recover?

Not everything is pessimism for the Philippine real estate sector, since there are opportunities in the midst of uncertainties.

Condo market: softer demand in 2020, recovery in 2021

According to Colliers International Philippines data, only around 1,670 new condominium units were delivered in the first three months of the year, the lowest completion number recorded in the last six quarters.

For this year, Colliers expects a slowdown in completions due to work disruption following the implementation of Enhanced Community Quarantine (ECQ) in Luzon. As an example, work interruption has delayed the completion date of a pair of residential towers to the second quarter of 2021, from an earlier target in the fourth quarter of this year. We now expect delivery of approximately 10,900 units by 2020, below our initial estimate of 14,700 units.

This downward adjustment in the new offering should moderate the increase in vacancies in the secondary residential market, which covers entire units.

Interruption of work in March and April is also likely to have a ripple effect on Metro Manila’s residential supply through 2022. While we see completions recovering in 2021 at 7,900 units, we see stocks in the capital region by the end of 2022 they reach only approximately 155,730 units, below our initial forecast of 158,290 units. About two-thirds of new supplies from 2020 to 2022 will be in the Bay Area.

Economic recovery, low interest rates to support the rebound The positive thing about the residential market is that we no longer see the mortgage rates of between 19 and 21 percent that were seen during the Asian financial crisis. Interest rates remain low, and a more aggressive reduction in the coming months should help fuel demand in the real estate market.

This is particularly important, especially once market sentiment improves starting in the third quarter of 2020 and cumulative residential demand begins to begin in early 2021.

Change brick to click

Colliers believes that even with a partial ECQ lift on May 16, most Metro Manila consumers are likely to limit spending to the essentials, including food, drugs, and food and beverages (F&B) for delivery. The continued implementation of social distancing measures by the government is likely to result in a calibrated and gradual opening of commercial spaces in the capital region. Given the profile of upcoming retailers in 2020, Colliers estimates that only about 50 percent of the new leasable space to be completed in the next 12 months will be absorbed, increasing the Metro Manila vacancy to 12 percent by the end of 2020 from 10 percent in late 2019.

Remittances

Studies citing data from the Asian Development Bank, Bangko Sentral ng Pilipinas and consumer research firms pointed out that more than 90 percent of remittances received by Filipino households are spent on basic necessities like food, which fuel retail consumption.

Some economic analysts have revised downward their remittance forecast for 2020. This is likely to erode purchasing power and consumer confidence. BSP data showed that remittances are affected by financial crises. During the Asian financial crisis, remittances fell to $ 6 billion in 1999 from $ 7.4 billion in 1998. During the global economic crisis, growth in remittances slowed to 6 percent in 2009 after an increase in 14 percent in 2008.

In our view, the recovery in retail demand in 2021 depends on the rate of expansion of the Philippine and global economies.

The economic recovery, low interest rates may support the rebound.

Rethinking strategies

Physical shopping centers have felt the immediate pressure caused by the government’s imposition of an ECQ in Luzon and measures of social distancing due to the COVID-19 pandemic.

The ECQ forced shopping malls to close, and only stores supplied essential items such as groceries, medications, and food for open delivery during the ECQ. Colliers believes that social distancing is probably part of the new normal. Therefore, a significant number of physical stores are likely to remain closed for additional time.

However, traditional retailers are trying to take advantage of demand by expanding their online presence. Colliers expects more retailers to create their own e-commerce sites, use existing sites from major mall operators, or use popular social media platforms like Facebook and Instagram.

In our view, these expanded online strategies should also target the elderly, who are among the most vulnerable segments of the population during the pandemic, but are now actively adopting online shopping.

Social distancing measures have forced consumers to rely heavily on deliveries. Mall operators and retailers should consider partnering with delivery companies that have modernized their warehouses and efficient logistics systems to maximize their shift from physical to online sales.

In our opinion, mall operators, retailers, and condo developers should align their marketing efforts now to regain demand once market conditions improve. This is particularly important for the condominium market, where we saw that demand in the presale market exceeded supply from 2016 to 2019.

Not everything is pessimism

Moody’s Investors Service said the real estate sector is one of the sectors with low exposure to the COVID-19 pandemic. Meanwhile, the BSP has also stated that while the Philippine economy may contract 0.8 percent this year, economic growth may reach 7.8 percent in 2021.

Not everything is pessimism for Philippine property. There are opportunities in the midst of uncertainties, similar to what we saw during past crises. From the bitter experience of the Asian financial crisis in the late 1990s, Philippine developers learned the need to shutdown, and quickly, as they have demonstrated during the global financial crisis in 2008 and 2009. We must keep in mind Count these opportunities as we navigate these uncertain times.

Read below

EDITOR’S SELECTION

MOST READ

Do not miss the latest news and information.