Manila property market may see a rebound in 2022

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The Makati central business district in Metro Manila. New office supply in the third quarter reached 156,600sqm in Metro Manila, up by 102 per cent year-on-year. PHILIPPINE DAILY INQUIRER

The Metro Manila office and residential property sectors are seeing the proverbial light at the end of the tunnel and will likely recover from pandemic-induced disruptions starting next year as the economy further reopens, according to property consulting firm Colliers Philippines.

The retail or shopping mall segment, on the other hand, could benefit from improved consumer traffic starting next year as mobility restrictions are eased and as the country’s vaccination numbers further increase.

However, mall vacancy rates could remain high with the influx of new supply in Metro Manila. A gradual improvement is projected starting 2023.

In its third quarter report issued on October 29, Colliers reported that outsourcing and traditional corporate occupiers continued to drive office demand in Metro Manila, albeit net absorption of office space would remain negative in 2021 with the influx of new supply. New deals are expected to pick up in 2022.

New office supply in the third quarter reached 156,600sqm, surging by 102 per cent year-on-year. More will open this fourth quarter in the Bay Area, Alabang, Makati central business district and its fringes.

Average office lease rates are projected to continue to decline due to subdued leasing and rising office vacancy, but a slow recovery starting 2022 is anticipated.

Office vacancy rate continued to rise to 13.9 per cent in the third quarter and is projected by Colliers to end this year at an average of 15.6 per cent as pre-commitment among occupiers of upcoming buildings remained muted.

“With the amount of supply coming in 2022, we see that the 15.6 per cent [vacancy rate] would still increase to around 17 per cent. But I think that that will be it. That’s going to be the start of the vacancy decline in line with the rebound of the market,” Colliers director Dom Fredrick Andaya said in a briefing on October 29.

Office tenants were urged to henceforth prepare for employees returning to the office, while also renovating space and assessing the optimal level of operations that could be split with work-from-home workforce.

Landlords, on the other hand, were urged to highlight value-added features alongside wellness and green building certifications.

On Metro Manila’s residential market, while average vacancy rates may continue to increase by the end of this year due to the delivery of new condominium units, Colliers expects this to recede in 2022, backed by office leasing recovery.

In the third quarter, vacancy at Metro Manila’s secondary residential space reached 17.6 per cent from 17.1 per cent in the second quarter due to new project completions. Colliers expects the vacancy rate to peak at 17.9 per cent this yearend, before slightly easing to about 17.3 per cent in 2022 and further to 16.9 per cent in 2023. Rental rates are likewise seen to pick up starting next year.

Colliers associate director Joey Bondoc said: “In our view, demand in both the preselling and secondary markets is likely to pick up on the back of an economic rebound, increase in vaccinations and further easing of mobility restrictions across the country.

“This confidence should also result in improved office space absorption in Metro Manila by the latter half of 2022 which should signal the gradual recovery of condominium rents and prices during the period.”

Compared to Colliers’ projected five-to-15 per cent drop in residential land values at the beginning of this year, Bondoc said these land values were now expected to stabilise.

In the retail segment, Colliers urged mall developers to be cautious of new supply coming in the next 12 to 24 months.

This 2021, retail vacancy continued to rise as brick-and-mortar retailers vacated space. Colliers projects vacancy to rise to 17 per cent in 2022 given constricted consumer spending and limited mall visits due to mobility restrictions, before a gradual improvement by 2023, according to Bondoc.

Shopping mall rents are projected to drop by five per cent in 2021, or at a slower pace compared to the 10 per cent decline in 2020. Rents are expected to rebound, albeit slowly, by 2022.