The first part of this article can be found here https://tinyurl.com/yoz38fo5
HOTEL: PRIMING THE PHILIPPINES AS A REGIONAL MICE HUBThe reinvigorated hotel sector remains as one of the most vibrant property segments in the country. Foreign arrivals are likely to breach the Tourism department’s target for 2023 while the domestic market continues to lift occupancies and daily rates. The return of business travelers and in-person corporate events have also been propping up the demand for meetings, incentives, conferences & exhibitions (MICE) facilities.
Colliers believes that the bolstered leisure sector will continue to expand given the record-high supply of new keys in 2023. Stakeholders should seize opportunities by building more MICE facilities to maximize the return of in-person events; developing more homegrown hotel brands or acquiring foreign ones; and aligning programs and offerings with the Tourism department’s refreshed strategy.
By the end of 2023, Colliers projects average occupancy in the capital region to reach 65% partly driven by holiday spending as well as year-end MICE activities. Metro Manila occupancy is now near pre-COVID level. In 2019, average occupancy peaked at 70%, before plummeting to 20% in 2020 due to COVID disruptions arising from mobility restrictions.
In our view, the leisure sector is one property segment likely to benefit from the government’s push to improve transport infrastructure. The expansion and modernization of international and regional airports should support developers with a hotel footprint across the country.
INDUSTRIAL: MANUFACTURING LOCATORS TO BENEFIT the INDUSTRIAL SECTORThe Philippines recorded record-high investment pledges in the first half of 2023. This is a positive for the Philippine industrial sector as these projects are likely to take up industrial space and warehouses in the next 12 to 24 months. Industrial parks in central and southern Luzon continue to entice investors and the continued expansion of developers’ industrial footprint should further boost the Philippines’ competitiveness as a manufacturing hub in Asia.
Colliers is cognizant of the government’s efforts to entice more investors. In our view, there should be a strong public-private partnership in attracting more foreign investments. Developers should assess the requirements of potential industrial locators and remain aggressive in offering concessions to raise industrial space absorption within their facilities. Industrial parks should also feature township components, including residential and commercial developments.
In our view, masterplanned communities that offer industrial spaces and warehouses will remain attractive given the pavement of roads, cheaper utility costs, as well as customization of warehouses and related facilities.
Meanwhile, we see Central Luzon rising as a viable alternative industrial location. Among the firms that recently announced plans to expand in the region include Shera Building Solutions in Teco Industrial Park in Pampanga, Envirotech in Clark Freeport Zone and StBattalion in New Clark City in Capas, Tarlac.
In our view, the modernization of Clark International Airport and the completion of the proposed Subic-Clark Cargo Railway will likely support the expansion of industrial activities in Central Luzon. Definitely for industrial activities there is nowhere to go but up — north!
Colliers believes that the expansion of industrial spaces in central and southern Luzon is a plus, especially for manufacturers that are planning to open facilities in the Philippines. This is particularly important for the foreign manufacturers that the Marcos administration is luring to establish plants in the country.
OFFICE: FLIGHT-TO-QUALITY AND SUSTAINABILITY DOMINATES OCCUPANTS’ LEASING STRATEGYMetro Manila recorded a marginal rise in office vacancy due to the completion of new office buildings and spike in vacated spaces in the third quarter of 2023. Colliers continues to record deals from traditional and outsourcing firms, implementing a mix of flight-to-quality and flight-to-cost measures.
For the first nine months of the year, office transactions outside Metro Manila recorded flattish growth, with Cebu, Pampanga, and Laguna cornering the bulk of closed transactions. Going forward, we see greater opportunities for expansion in key areas outside Metro Manila as occupants maximize the second and third tier cities’ skilled talent pool and improving infrastructure network.
Colliers encourages occupiers to continue complementing their workplace strategies with flexible workspace options. Landlords should remain active in offering high quality buildings at a discount to enable tenants to implement flight-to-quality measures. Landlords should also continue implementing innovative programs to further support their tenants’ return-to-office (RTO) initiatives.
Based on Colliers’ third quarter 2023 data, several companies implemented flight to quality/cost strategies. Among these are traditional and outsourcing firms that took up spaces in Fort Bonifacio, Makati central business district (CBD), and Ortigas CBD. These firms took advantage of a market that remains tenant-leaning and maximized the opportunity to lease new, high quality office spaces in major business districts at lower rents.
Colliers believes that given the prevailing market conditions, opportunities remain for tenants to implement flight-to-quality strategies at a lower cost due to decreased rents brought about by the pandemic. In our view, now is an opportune time to secure space in locations with substantial supply of new and quality office spaces. Given the current stock of vacant spaces and new office towers to be completed in the next 12 months, we encourage tenants to consider office spaces in Fort Bonifacio and Ortigas CBD. Occupiers may also consider flexible workspaces in their flight-to-value strategy. Colliers encourages occupiers to review their real estate strategies ahead of lease expiry to take advantage of high vacancy in the market, especially with our still elevated forecast for 2023 and 2024.
In our view, sustainable and green buildings will remain attractive especially among major multinational and outsourcing firms. These office towers will account for an estimated 56% of new office buildings from 2023 to 2025, further expanding the options of tenants across Metro Manila.
Joey Roi Bondoc is the research director for Colliers Philippines.