MANILA, July 30, 2021 – Leading diversified professional services and investment management firm Colliers released is much-awaiting Q2 2021 Philippine property market reports. Covering the months of April, May, and June 2021, the reports take a look at the performance of the office, residential, hotel, and industrial sectors for the second quarter of the year.

Office: Turning a corner

Colliers believes that office market recovery will primarily hinge on vaccination progress and the further easing of mobility restrictions.

New office space absorption continued to be led by outsourcing and traditional firms that implemented a mix of rightsizing, consolidation, expansion and relocation strategies. Among the traditional firms that occupied new office space during the period include e-commerce, logistics, telco and lending companies.

Government agencies also took up space in new office towers during the period.

Moving forward, Colliers believes that rebound in deals and rents will be anchored by the government’s
vaccination program.

Colliers encourages landlords and tenants to:

  • Determine the optimal level of split operations and execute these plans for a safer working environment
  • Implement flight-to-value and flight-to-quality measures
  • Explore fully fitted and flexible workspaces for tenants’ immediate space requirements

Transactions in Q2 up 154% YOY; inspections rising

In Q2 2021, office transactions in the capital region reached 84,700 square meters (911,400 square feet), up 154% from the 33,400 square meters (359,400 square feet) recorded in Q2 2020 as occupiers expanded and implemented flight-to-cost and flight-to-quality measures. Ortigas CBD led office transactions during the period with 26,200 square meters (281,900 square feet) or 31% of total transactions in Q2 2021. We believe that lower base rents while offering good quality buildings contributed to the higher office space absorption.

Colliers has observed that outsourcing and traditional firms led office space take-up in Q2 2021. In our opinion, these firms are likely to lead office space absorption in the next 6 to 12 months as the government accelerates its vaccination program across Metro Manila.

In Q2 2021, we recorded about 26,500 square meters (285,100 square feet) of deals from outsourcing firms.

BPO companies such as Alorica and TaskUs expanded their office footprint in Quezon City, one of Metro Manila’s outsourcing hubs. Meanwhile, traditional firms accounted for 56,900 square meters (612,200 square feet) of office deals, or 67% of total transactions in Q2 2021. Some of the notable transactions from the traditional sector include the Energy Regulatory Commission (ERC) a government agency and China Harbour Engineering.

Colliers has observed that occupiers with upcoming lease expirations are taking a more cautious approach such as shorter or flexible leases to tide them over the next 1 to 2 years of uncertainty. Outsourcing firms have also been taking up spaces in multiple sites near the residential communities of their employees.

Space occupied by POGOs down to 6%

Meanwhile, from a peak of 1.34 million square meters (14.4 million square feet) of office space occupied or 11% of Metro Manila’s office stock, POGOs only occupied 790,000 square meters (8.5 million square feet) as of the end of Q2 2021, or only 6%.

Q2 2021 new supply up 148% YOY

In Q2 2021, Colliers recorded the completion of 142,400 square meters (1.5 million square feet), up 148% from the 57,400 square meters (617,600 square feet) recorded in Q2 2020. The buildings completed during the period are Glas Tower in Ortigas CBD and Worldwide Plaza in Fort Bonifacio.

In 2021, we project new supply to reach 847,600 square meters (9.1 million square feet), down from our previous forecast of 878,200 square meters (9.4 million square feet) as developers avoid overbuilding to prevent further increases in vacancies and correction of rents. Developers have become more prudent in their supply strategy to ensure that new supply matches actual demand as they await recovery.

From 2021 to 2025, we project the annual completion of 621,300 square meters (6.7 million square feet) of new office space, down 3% from our Q1 2021 projection of 642,700 square meters (6.9 million square feet). We expect Quezon City, Bay Area and Ortigas CBD to account for 47% of the new supply during the period.

Gradual rental recovery

Average office rents dropped by 3.9% QOQ in Q2 2021. Colliers believes that Ortigas CBD will likely continue to attract traditional occupiers and some outsourcing occupiers due to submarket’s discounted rents. The availability of new office space should also allow occupiers to consider Ortigas CBD for their expansion and consolidation plans. Meanwhile, we see a further correction in lease rates in other submarkets such as Makati Fringe, Quezon City and the Bay Area due to increasing vacancy.

In our view, the recovery in the office leasing demand will be positively impacted by the successful Covid -19 inoculation and the implementation of the newly passed CREATE Law and its IRR.


Implementation of optimal level of split operations and safe working environment

Colliers believes that companies planning to return to the office post-Covid should consider reconfiguring their spaces to comply with the government-mandated health and safety protocols. These include adjusting density per employee by implementing hybrid working models (e.g., flexible workspaces, mix of work-from home and on-site). Meanwhile, the inclusion of more spaces for focused work while also having breakout collaborative zones should result in improved wellness, staff morale and productivity. We recommend that tenants incorporate these options into their post-Covid office leasing strategies.

Flight to cost and flight to quality

In 2020, Colliers noted that average office rents have declined by about 17%. In our opinion, tenants should keep an eye on new buildings completed in selected CBDs offering discounts ranging from 6% to 20%. As office leasing demand remains subdued due to Covid, we recommend that occupiers be on the lookout for Prime and Grade A buildings especially for long-term leases which are likely to be a bargain in 2021. Meanwhile, landlords should be quick in securing occupancy by offering concessions such as flexible lease terms, rent-free periods, partial termination options, delayed escalation and fit-out financing.

Explore fully fitted and flexible workspaces

Occupiers looking for available spaces in the capital region should look for fully fitted spaces as these provide lower capital expenditure (CAPEX) costs and attractive rents compared to a standard office lease. This allows landlords to secure high levels of occupancy of their office buildings amidst a tenant’s market. We also recommend tenants to explore the viability of flexible workspace and ser viced offices for their immediate space requirements.

Tax reforms to support outsourcing firms’ expansion

The implementation of CREATE should clearly outline the taxes that outsourcing firms should pay as well as incentives that they should enjoy. The CREATE law’s Implementing Rules and Regulations (IRR) should provide clearer guidelines for firms planning to invest in the Philippines. The reduction in CIT from 30% to 20% or 25% provides enough incentives for foreign companies to operate in the Philippines and for domestic enterprises to revitalize their businesses.

Residential: Ready to launch

Colliers expects a recovery in residential demand in 2022 on the back of a rebound in office leasing; macroeconomic recovery; sustained remittances from Filipinos working abroad; competitive mortgage rates; and a pick-up in business and consumer sentiment. An accelerated vaccination program across the Philippines should support these factors and encourage more businesses to reopen and expand.

In our view, the projected recovery in residential completion in 2021 partly indicates a rebound of the secondary residential market in Metro Manila. Colliers believes that an aggressive delivery of new condominium units is crucial especially for a supply-driven market like Metro Manila.

Aside from lining up more launches to maximize pent up demand, developers should be aggressive in utilizing online platforms and improving amenities by incorporating co-working spaces to cater to the market’s discerning preferences.

Condominium completion to grow by 200%

Colliers expects the completion of 10,061 new units in 2021, about 200% higher than the 3,370 condominium units completed in 2020. We anticipate the delivery of about 7,500 units per annum from 2021 to 2025, with about 73% of upcoming supply still likely to be in the Bay Area and Fort Bonifacio.

Bay Area overtakes Makati CBD

As of Q2 2021, Colliers has recorded about 28,718 condominium units in the Bay Area, overtaking Makati CBD’s 28,551 units. At present, the Bay Area has the second largest condominium stock in Metro Manila, next to Fort Bonifacio which has 39,505 units.

Demand in fringe areas picking up as demand outstrips supply

Colliers has also observed a recovery in take up of pre-selling condominium units in the fringes of central business districts. The demand in the peripheral areas has outstripped supply since 2018. For instance, in 2018 about 45,200 units were launched while 49,200 units were taken up. In 2019 41,000 were taken up with 40,200 new units launched. Colliers saw the same trend in 2020 with 32,700 units bought in the pre-selling market against 29,100 units launched. Among the top fringe areas in terms of take up from 2018 to H1 2021 are Makati Fringe, Manila-North, and Manila-South.

Vaccine to inject much needed boost

Vacancy in Metro Manila’s secondary residential market increased further to 17.1% in Q2 2021, up from the 16.3% recorded in Q1 2021. Vacancy increased across all submarkets. The Bay Area recorded the highest vacancy of 23.8% partly due to the amount of new supply. Slower take up from offshore gaming firms due to Covid-induced travel restrictions contributed to the subdued demand for residential units across the Bay Area.

Colliers expects take-up to gradually pick up starting H2 2022 due to our projected recovery in office leasing complemented by other recovery enablers. Cash remittances from overseas Filipino workers (OFWs) reached USD11 billion (PHP528 billion) from January to April 2021, up 5.1% YOY. OFW remittances are among the primary drivers of residential demand in the country, particularly projects that are within the affordable to mid-income price segments.

We also see the ramped-up vaccination program buoying residential demand as this is likely to spur an accelerated reopening of businesses and absorption of office space. The inoculation efforts should contribute to a recovery of investor sentiment as the government aims to achieve herd immunity by Q1 2022 which should inject a much-needed boost to the country’s residential sector.

Rents and prices to recover

Colliers saw a further correction in prices and rents in Q2 2021, declining by 3.2% and 1.7%, respectively. Due to an anemic demand for residential projects, prices and rents have been consistently declining across all Metro Manila submarkets since Q2 2020 when prices and rents declined by 6.1% and 2.1%, respectively. While we anticipate a continuous drop in prices until the end of the year, gradual increase is likely to begin in 2022 as take-up slowly recovers. Colliers expects a 2% average annual increase in rents and prices from 2022 to 2025.

In an attempt to lift demand in the pre-selling market, we have observed select developers offering discounts and promos to potential buyers. Aside from extended and attractive payment schemes, developers are also ramping up their marketing strategies by offering freebies such as appliances, gift certificates, and vouchers.

We continue to see an uptick in the demand for affordable to mid-income properties near transport hubs. Innovative payment schemes and proximity to infrastructure projects have also lured investors to acquire residential units in the fringes of major business districts.

On the other hand, demand for mid-income to upscale house and lot (H&L) properties outside the capital region have also been increasing as Filipino families start to prefer larger spaces and gravitate towards less dense communities in key urban areas in northern and southern Luzon.


Line up projects in time for market recovery

Colliers encourages developers to start lining up projects in anticipation of a market rebound in 2022. In Q2 2021, projects within the mid-income to upscale price segments accounted for 95% of total take-up and we expect developers to continue launching more projects from these price segments. Colliers is already seeing more aggressive completions of residential units across Metro Manila, and we project a ramped-up launch of new projects beyond 2021. Colliers is starting to see the green shoots of recovery led by an improvement in Covid vaccination; the government-forecasted economic rebound in 2021; continued construction of key infrastructure projects within and outside Metro Manila, as well as some completed infrastructure projects; sustained remittances from Filipinos working abroad; and our projected pick up in office leasing in 2022. Developers should be proactive in lining up marketing efforts to capture pent up demand beyond 2021.

Maximize the use of online platforms

Colliers encourages developers to maximize their presence on social media and other online platforms to inform potential buyers and investors of their upcoming projects and their schedules. An increased online presence should also help investors stay updated of the recent developments of their properties. With mobility restrictions imposed for Covid, developers ought to organize virtual showrooms and expositions showcasing their property offerings and the investment opportunities available. Aside from virtual expositions, we also recommend developers make transactions more convenient and accessible by offering an online option for payments and other relevant processes.

Improve the amenities in upcoming projects

We believe that condominiums remain an attractive investment option for homebuyers. Colliers expects the completion of about 10,000 units in 2021. In order to increase competitiveness in the market and make properties more attractive to buyers, some developers have been incorporating features such as built-in fiber optic internet connection, videoconferencing and co-working areas, designated smart storage facilities for contactless parcel deliveries, and open recreational spaces which are suitable for gardening and wellness activities. In our view, developers should continue upgrading amenities to satisfy the discerning preferences of buyers.

Hotel: Local before global

Insights & Recommendations

Colliers sees a slow recovery for the leisure sector especially with domestic and international travel restrictions still in place and new Covid variants dampening sentiment and travel.

In our view, domestic travel will stoke the leisure sector first, particularly with the Philippine government’s thrust to improve hotel occupancies and revive local jobs. This is also in line with its goal of raising tourism’s contribution to the economy.

Colliers believes that hotel operators should continue tweaking their marketing strategies to maximize the sector’s recovery.

Hotel operators should implement trainings and refresher programs to maintain the highest levels of quality; provide flexibility in guests’ bookings; prioritize staff vaccinations; take advantage of incentives given by the government for hotels operating amid Covid; and adopt a multiple-use model to cater to both leisure and quarantine guests.

Historic low contribution to GDP

Foreign arrivals into the country slumped even further compared to 2020 arrivals. Data from the Department of Tourism (DOT) show that arrivals from Jan. to April 2021 reached 35,419, down 97% from the 1.4 million arrivals in 4M 2020. Under the tourism department’s Reformulated National Tourism Development Plan (RNTDP) for 2021–2022, DOT expects foreign arrivals to reach 500,000 this year before reaching between 2 million to 5 million by 2022. This is significantly lower than the department’s pre-Covid target of about 10.4 million arrivals in 2021.

While international travel restrictions remain in place, the DOT is shifting its focus on domestic tourism where they expect the earliest recovery of domestic travel by 2022, when demand is likely to reach 90% of 2019 levels, or at worst by 2024. Hence, the DOT is projecting domestic trips to reach 36.5 million in 2021 and 84.8 million in 2022. This is lower than the record-high of 109.8 million domestic trips in 2019.

Data from the Philippine Statistics Authority (PSA) reveal that tourism’s contribution to the country’s GDP declined to a record low of 5.4% in 2020 from 12.8% in 2019. This is similar to the level recorded during the Global Financial Crisis (GFC) in 2009 when tourism’s contribution was at 5.9%.

Slow recovery in occupancy

Colliers saw hotel occupancy only slightly rising to 24% in H1 2021 from 20% in 2020 due to low foreign arrivals. This is despite the DOT allowing thirteen 4- and 5-star hotels in Metro Manila for leisure stays. In our opinion, hotel occupancies are still likely to remain below 30% by the end of 2021 as we do not see an uptick in international tourists for the remainder of the year.

In our view, the inclusion of tourism frontline workers in the priority group of employees to be vaccinated and the easing of quarantine restrictions in Metro Manila and key tourist destinations should help lift the local leisure sector, in line with DOT’s projections.

Supply to pick up starting 2023

From Q1 to Q2 2021, Colliers only recorded the completion of Kingsford Hotel Manila at the Bay Area with 529 rooms. This is slightly higher from the 375 new hotel rooms completed in H1 2020. In 2021, about 1,027 rooms are likely to be delivered with the Bay Area accounting for about 81% of the new supply.

From 2021 to 2024, we expect the delivery of about 1,880 new rooms per annum, lower than our initial estimate of about 2,100 rooms pre-Covid. Among the new hotels likely to be completed within the period include the 191-room Hotel Okura Manila, 200-room Pullman Hotel Manila, 389-room Ascott DD Meridian Park, 303-room Westin Manila Sonata Place Hotel and the 245-room Red Planet Hotel at Fort Bonifacio. Colliers believes that the delivery of new hotel rooms are likely to remain muted up to 2022 before rebounding starting 2023 once market conditions improve.


Highlight domestic tourism

Foreign arrivals continue to plunge due to the pandemic as international travel restrictions remain in place. Colliers believes that the DOT will likely continue its domestic tourism push by reopening more local destinations in the country. The IATF has recently approved interzonal travel for fully vaccinated individuals including senior citizens. Travelers are now only required to present their Covid vaccination cards in lieu of RT-PCR test results. Some of the destinations that currently welcome local travelers are Baguio City, Cebu, Siargao, Negros Occidental, Surigao, Tacloban, Virac and Cotabato in Mindanao. In 2021, the tourism department projects domestic tourism to reach 36.5 million, down from the record-high of 110 million in Colliers is optimistic that the rise in local travelers should help push occupancies of selected hotels across the country.

Prioritize Covid vaccinations for tourism workers

Colliers believes that hotel establishments operating as isolation or quarantine facilities should maximize the inclusion of tourism workers alongside medical frontliners in the A1 priority group for the Covid vaccine. Meanwhile, tourism workers employed under the transport, food, restaurant and accommodation industries will fall under the A4 priority group. In our view, the inoculation of employees from the hotel and restaurant sector is likely to hasten the segment’s recovery and capacity to increase hiring. In 2020, data from the Philippine Statistics Authority (PSA) show that Filipinos employed in tourism-related industries cover 11.6% of total employment, down from 13.6% in 2019.

Implement staff trainings and refresher programs

Hotel operators planning the reopening of their facilities should implement training and refresher programs to existing staff to provide efficient and seamless hotel experience for guests post-Covid. Trainings such as informing staff of the new guidelines and cleaning practices in common areas and hotel rooms, and proper food and beverage (F&B) etiquette (e.g., how to sanitize tables, cutlery and glasses, maintain sanitary food preparation). This allows hotel operators to safely operate while maintaining hospitality and adhering to social distancing protocols.

Provide added booking flexibility and concessions

The implementation of global travel restrictions due to the surge in Covid cases has brought uncertainty among hotel operators. Hence, we encourage hotel operators to provide flexibility on their guest’s bookings to generate loyalty. These may include free cancellations, flexibility in check-in and check-out times and room upgrades, and booking modifications 24 hours before arrival.

Adopt a multiple-use model

In our view, hotel operators should consider adopting the multiple-use model where they can accommodate both quarantine and leisure guests. The Department of Tourism (DOT) and the Bureau of Quarantine (BOQ) have laid out guidelines to ensure that hotels are complying with the government-mandated health and safety protocols. Hotels are tasked to show proof of sanitation and disinfection, have separate entrances and exits, common areas, check-in services, elevators and access points to be able to operate as a multipleuse facility.

Industrial sector: Hot on cold storage

Colliers believes that the industrial sector will thrive beyond 2021 as we see global economic recovery sustaining the growth of e-commerce, domestic manufacturing and the export sectors.

We expect developers to remain proactive in acquiring parcels of land that can be developed into industrial parks and in refurbishing assets to meet the demand for modern warehouses and cold storage facilities. We attribute the surge in demand to a continuously thriving e-commerce sector and ramped up Covid vaccination efforts across the country.

The demand for more warehouses and cold chain facilities should be driven by a lockdown economy and rebound in household consumption. In our view, the sustained flow of OFW remittances which help propel household consumption will also support the demand for more cold storage facilities. Oxford Economics projects that domestic consumption expenditure across Asia Pacific will likely grow by 6.2% per annum from 2021-2025.

Meanwhile, Colliers believes that the demand for built-to-suit warehouses will continue to be fueled by a thriving e-commerce and rising demand for fast moving consumer goods.

Overall, Colliers believes that the rebound in manufacturing and exports will continue to benefit the country’s industrial sector, especially the northern/central and Southern Luzon corridors. Among the areas likely to benefit are Cavite, Laguna, Batangas, Pampanga, and Tarlac.


Tap the demand for cold storage facilities

The growing preference for online shopping has been propelling the demand for warehouses and cold storage facilities specifically for perishable food items and other essential products. As the country accelerates its Covid inoculation plans, demand for specialized cold storage facilities for the vaccines and other pharmaceuticals is also likely to rise. To meet the growing demand, we encourage developers to consider expanding their assets to include cold chain facilities or to refurbish existing supply to include specialized cold storage features such as pre-installed chillers, increased floor load capacity, and higher ceiling heights. The Bureau of Investments (BOI) projects the revenue of the Philippines’ cold chain industry to reach PHP20 billion (USD417 million) by 2023 as a result of this thriving demand.

The Cold Chain Association of the Philippines (CCAP) projects the Philippine cold chain sector to grow 8%-
10% annually from 2020-2025.

Expand last mile delivery segments in fringe areas

Colliers believes that e-commerce will likely continue to drive logistics leasing demand beyond 2021 as more retailers shift to online platforms. A survey conducted by NeilsenIQ has shown that 67% of Filipinos are likely to continue online shopping even post-Covid. To reach more consumers and increase the efficiency of delivery services, we recommend e-commerce and third-party logistics (3PLs) firms to consider expanding their warehouses and delivery hubs in areas outside of Metro Manila such as Cavite, Laguna, Batangas, Bulacan, and Pampanga which are also prime locations for ecozones and upcoming residential projects.

Retrofit and renovateexisting facilities

Colliers believes that developers can further capture the rising opportunities in the industrial sector by
refurbishing their existing warehouse facilities to meet the demands of tenants. We recommend logistics
players to improve the specifications of their properties through advanced-technology features such as facility automation, artificial intelligence (AI) systems, and cloud-managed IT solutions. We also encourage occupiers to explore the adoption of sustainable alternatives such as the utilization of solar power to help reduce operational costs.

Consider divesting industrial assets into REITs

The Real Estate Investment Trust (REIT) industry in the Philippines is at an early stages but we see developers further utilizing it resulting in a more competitive and diversified REIT market. DoubleDragon has signed a PHP3.97 billion (USD82.7 million) deal with Jollibee Foods Corp. to create the Philippines’ first and largest industrial REIT. We encourage investors to further explore the viability of industrial REITs in the country. In our view, the industrial segment continues to record growth amid Covid, and we see it thriving beyond 2021.

Take advantage of government incentives

Even with Covid, the Philippines remains an ideal investment hub as investors continue to look at the country for their expansion plans. Government policies such as the recently enacted CREATE Law introduces incentives for investors which include extended income tax holidays. Department of Finance (DOF) classified industries based on their capacity to create more jobs and boost the country’s competitiveness. Industries involved in the manufacturing of medical equipment and supplies, export products, and electronic components and semiconductors are among the sectors likely to enjoy these tax incentives. Longer duration tax holidays will also be given to investments outside the capital r egion to spur more economic activity in the countryside. Colliers recommends investors of these industry segments to take advantage of the available incentives as they plan out their investment ventures in the Philippines over the next 3 to 5 years.

To download Colliers’ Q2 2021 Property Market Reports, click here:

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