THE OUTLOOK is upbeat for The Philippines’s real estate market this year, the World Bank (WB) said, noting the demand from the expansion of the business process outsourcing (BPO) sector and strong remittances.
In a special section of its Philippine Quarterly Update released on Monday, the Bank’s Manila office said a stable demand may be expected for both commercial and residential property this year.
The report cited the PricewaterhouseCoopers (PwC) and Urban Land Institute’s 2011 Investor Survey wherein a third of real estate experts still recommend “buying” for industrial/distribution, hotel, retail, and office properties throughout 2012 while almost half recommended “holding.”
“Office space demand is expected to be buoyant as the Business Processing Association of the Philippines projects a 20% annual increase in employment through 2016 translating to an estimated 300,000 square meters in new office space demand per year,” the report said.
The multilateral institution also cited a 2011 report by Colliers International, which said that in 2011, the BPO industry occupied about 40% of the 5.7 million square meters total office space in Metro Manila.
“Achieving full occupancy is much faster now as major BPO firms can easily occupy an entire building, which previously took about one year to fill,” the World Bank said.
The Washington-based lender also gave an optimistic outlook for the residential property market.
It noted that in terms of condominiums, also a third of the respondents in the PwC survey recommended “buying” while less than half recommended “holding.”
“The demand in the low-end to midrange residential property market has been sustained by remittances, while housing demand by BPO employees also contributes to the expansion of residential properties and even the luxury market in the case of BPO expatriates,” the Bank said.
“An estimated 60% of remittances directly and indirectly benefit the real estate sector, which includes mall operations,” it added.
The report noted, however, that the fast-tracking of construction of projects in the pipeline might raise vacancy rates and cause rental growth to slow.
“Beginning 2012 through 2014, an average of 470,000 square meters of new office spaces is lined up vis-à-vis an average projected take up of 250,000 to 300,000 square meters, which would result in higher vacancy rates and muted rental growth,” the report said.
It added that vacancy rate in the Makati central business district, for instance, has already started to rise to 4.1% in the fourth quarter of last year from 3.8% in the previous quarter.
In terms of residential property, the report said: “Massive supply of condominiums in the pipeline is beginning to outpace demand.”
It added that developers are beginning to respond to headwinds due to vast supply, noting that a major developer recently offered a discount of up to 40% on selected units to remain outsell competitors.
However, the World Bank said rental rates and property prices in the residential segment are generally stable and vacancy rates are steady at around 10% for the low and midrange market, adding that this indicates “strong underlying demand.”
Despite its upbeat outlook, the Bank said downside risks are still in place for the real estate market mainly due to oversupply relative to demand; a potential contraction in remittances due to adverse external developments; and upward pressures on oil prices, which poses risks to private spending growth. — Kim Arveen M. Patria
Source: BWorld Online