No way to go but up

If you see some condominium construction projects on hold, then that is the pandemic finally taking its toll on the local property market.

In a just released report, property consulting firm Colliers International said that the second quarter of 2020 saw a lackluster demand due mainly to slow leasing by the POGOs or Philippine offshore gaming operators, as well as subdued take up from other key groups like overseas Filipino workers and local investors.

Supply of new units has likewise been down to zero. It noted that manpower shortage and social distancing measures in construction sites continue to hold back completions. Meanwhile, the rising number of unsold condominium inventory is also compelling developers to delay delivery, it added.

In its report, Colliers said that the condominium market is starting to feel the adverse impact of the pandemic and lockdown, with a drop in condominium completions and an appetite for both existing and pre-selling units. But this is just the beginning, as Colliers expects the full impact of the pandemic to become more apparent in the second half of this year.

The property consulting firm initially projected the completion of three projects with more than 1,100 units located in the Bay Area, Fort Bonifacio, and Alabang during the second quarter, but due to construction delays, the completion of these projects has been pushed back to the fourth quarter.

For this year, Colliers projects further slowdown in completions due to labor constraints and strict physical distancing measures implemented at construction sites. From an initial forecast of 10,940 units, it now projects the delivery of only 6,270 units.

Meanwhile, six residential projects located in the Bay Area and Fort Bonifacio that were originally scheduled to be completed by the fourth quarter of 2020 are now due to be delivered in 2021, it said.

In the same report, Colliers said that it recorded secondary residential vacancy of 11.8 percent in the second quarter of this year, making it the fifth consecutive quarter of rising vacancy, with the figure being slightly higher than the 11.3 percent posted in the first quarter. The secondary market covers ready-for-occupancy (RFO) units in key business districts across Metro Manila.

It pointed out that the secondary market vacancy has yet to take into consideration the greater impact of the pandemic and lockdown on residential leasing across the capital region, explaining that the strict social distancing measures implemented in condominium projects has affected leasing in major business districts, with some unit owners delaying inspections.

It said that vacancy rates could reach the mid-teens by end-2020, which should be indicative of the pandemic and lockdown’s deeper impact on the Metro Manila residential market.

Meanwhile, the impact of the COVID-19 pandemic on the secondary residential market was not yet apparent in the second quarter, but the latest economic indicators point to a more precarious condominium market for the remainder of 2020.

Colliers noted that overall, dampened demand in the market is resulting in a rising number of unsold condominium units in Metro Manila. It estimates that as of the first quarter of 2020, there are about 44,800 unsold condominiums in the primary market.

It added that the increase in unsold inventory is one of the factors likely to contribute to the softening of average condominium prices in Metro Manila in 2020. Colliers is projecting average prices to soften by 13.8 percent in 2020.

But an economic recovery in 2021 should boost demand. Colliers sees prices growing by a slightly faster 2.1 percent per annum from 2021 and 2022 from its initial estimate of 1.9 percent growth during the period.

Meanwhile, the forecasted economic contraction in 2020 can result in rents in major business districts dropping by 4.5 percent.

But as they say, there is no way to go from here but up.

An economic rebound should have a spillover impact on condominium leasing in the capital region. A revival of traditional and outsourcing business activities in Metro Manila should help prop up leasing by foreign and local employees, and should result in a 2.3 percent increase in lease rates starting 2021, it said.

In its report, Colliers said it projects a rental correction in 2020, but this should be tempered by a slower completion of new projects. Rents should start recovering in 2021 as leasing appetite in business districts improves. Vacancies, meanwhile, are expected to rise to 14.6 percent in 2020 from 11 percent in 2019 mainly due to slower take- up of units in core business districts. Vacancy should start falling in 2021 as demand from investors and end-users picks up.

Colliers also expects a correction in residential prices in 2020 due to subtle demand, adding that it sees a slow recovery in 2021, which should follow the U-shaped economic recovery path forecasted by economists.

By the end of 2022, it anticipates the capital region’s total stock to reach 151,570 units, noting that selected projects due within the latter part of 2022 have been pushed back to 2023 or 2024 as developers adjust their construction schedules.

Colliers has recommended that developers take advantage of the pick-up in demand by highlighting units located in integrated communities, implementing adequate property management, offering flexible payment terms to recapture demand, and monitoring OFW markets that drive take up for affordable to mid-income units, in particular the US, Singapore, and Saudi Arabia which historically account for about 50 percent of OFW remittances.

As for Metro Manila condominium developers, it said that they should also highlight both their vertical or horizontal residential projects outside of the capital region, as it observed steady demand for house-and-lot and lot-only projects in key areas outside of Metro Manila, including Pampanga, Cavite, Laguna, and Batangas despite the pandemic.

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