Demand for house and lots continues to rise

Demand for house and lot units continued to increase in the second quarter of 2021, as end-user buyers prefer the low-density environments afforded by these developments, according to Cushman & Wakefield.

The rise in demand for house and lots was in contrast with the continued weakness of other segments of the real estate sector. 

Cushman & Wakefield said that at the end of second quarter, overall Prime and Grade ‘A’ office vacancy rates in Metro Manila rose by 157 basis points (bps) quarter-on-quarter to 12.2%, with most major markets demonstrating double-digit vacancy rates. 

Office space absorption levels remained in the negative territory, showing that the impact of office space leavers and increasing space rationalization initiatives still outweigh the level of new transactions in the market. There are also large office spaces made available by some companies moving into newer buildings, the relocation transactions for which were done pre-pandemic.

Tetet Castro, Director and Head of Tenant Advisory Group at Cushman & Wakefield, said, “While we saw some key transactions within Metro Manila in the first half of the year, there are still notable exits, downsizing, and even cancellation of reserved floors, which contributed to the continued increase in overall vacancy rate. With the vaccination program being expanded to cover more sectors of the workforce, it is hoped that the renewed confidence in going back to the office will translate to demand as early as the second half of 2021.” 

Following the downward adjustment in the asking rent of a few more buildings, average office rents in the Manila market continued to slide down further on a quarter-on-quarter basis. Several landlords outside the major CBDs continued to provide more flexibility in the headline rents. Average asking rents in Metro Manila was recorded at P1,066/sq.m./mo in second 2021, down by 1.5 percent from P1,082 recorded in the same period last year. 

The average rents in Mandaluyong City, despite showing a stable rental figure quarter-on-quarter, exhibited the highest year-on-year decline of 8.7%.

Claro Cordero, Director and Head of Research, Consulting & Advisory Services at Cushman & Wakefield, said, “Corporate tenants looking at upgrading into quality office space accommodation can take advantage of the window of opportunity while market rents remain soft. The short-term outlook on rental growth is that rents in major CBDs are likely to bottom out by the end of the year. The industries likely to benefit from this trend are companies engaged in logistics, fast-moving consumer goods, technology firms, and data centers.”

The advent of a hybrid work setup (where employees spend part of the week working in the office and the other part working from home or in a third location) will shore up demand for office space in the emerging business districts in the peripheries of Manila; and will further temper rental growth in the mid-term.

Cordero said, “For the office sub-sector, the pandemic continues to cause completion delays that also help keep vacancy rates from ballooning further with the still tamed demand for office space. The sub-sector is also bolstered by the rapid expansion of crisis-proof industries such as logistics and e-commerce companies. These companies do not only require additional space for warehousing facilities outside Metro Manila but for presence in major CBDs, as well. The resilient global outsourcing demand will spearhead the recovery of office space demand. To ensure its growth post-pandemic, the IT and business process management (IT-BPM) industry need more consistent set of business incentives and prioritization in the ongoing inoculation program."

On a positive note, the increasingly prominent e-commerce activities, which generate a growing need for enterprises to integrate data-driven operations, attract local and regional data center players to the Philippines to cater to the demand for a highly secured storage facility for big data.

While the overseas Filipino (OF) remittances – a major driver of the residential sub-sector – have shown improvements in the recent months, the demand for mid-end residential condominium is expected to remain weak in the short to medium term, especially for developments located in Metro Manila, as the market takes a cue from the stable business and economic environment. 

On the other hand, demand for house & lot (H&L) units continues to increase, as end-user buyers prefer the low-density environments afforded by these developments.

As for the recovery of the retail sub-sector post-pandemic, it may hinge on achieving herd immunity through vaccination to renew consumer confidence and encourage increased footfall. Nonetheless, the uncertain business environment and the ongoing restrictions continue to suppress new retail developments and retail space demand from retailers.

The hospitality sub-sector is also seen to partly benefit from the emergence of hybrid and more flexible work arrangement that fuel pent-up demand from employees who wish to work remotely into hotels, as they seek a better work environment and improve work-life balance.

Cordero said: “Key property players and developers have firmed up plans to list in the real estate investment trust (REIT) market. These planned listings are seen to shore up and infuse fresh financial capital to gear the real estate sector towards a long-term growth path.”

The compression of (gross) office property yields continued, as average yield rates in Metro Manila are down by 40 bps from its year-ago levels. The continued downward movement of the key policy rates by monetary authorities is supportive of increasing the level of real estate investments and the further growth of capital values in the Philippines.

“[A]s the situation further improves and investor sentiments recover, we can expect the pentup demand from investors to move towards core and more expensive assets located in the CBDs, forcing a repricing of weaker assets outside the core areas. This will further lead to recovery in market activities, as the level of transactions becomes more fluid,” Cordero said.


“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.” 

-Franklin D. Roosevelt

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