The Philippines - Pearl of the Orient: ASEAN’s Emerging Hotspot

Brochure published by the German-Philippine Chamber of Commerce and Industry

"The Philippines. Dubbed as the Perlas ng Silanganan ­– or Pearl of the Orient – because of its rich natural resources, biodiversity, and strategic location in the heart of Southeast Asia and the Pacific.

This emerging economic hotspot boasts a bullish market that can bounce back fast – even from a crisis like the pandemic. With a strong workforce and a myriad of opportunities, let us tell you why you should consider this affable archipelago as an attractive business destination."

2021 Philippine Country Brochure

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Source: German-Philippine Chamber of Commerce and Industry

Commercial property price index to help ensure financial stability

The central bank’s upcoming commercial property price index (CPPI) will help it gauge the impact of the coronavirus crisis on the real estate industry and give the regulator another indicator to monitor in fulfilling its financial stability mandate.

“It is crucial to monitor the commercial property prices and the commercial real estate sector during this crisis and as we move towards the new economy is the adverse effects of the pandemic on the outlook for the real estate sector,” the Bangko Sentral ng Pilipinas (BSP) said.

The CPPI will include details such as the actual use of a commercial property and appraised land value. Its bank-level data will include indices for commercial properties within Metro Manila and their uses such as office, retail, mixed use, and commercial vacant lot.

The BSP announced in June that it will release its first CPPI within the year, which will be patterned after its quarterly residential real estate price index (RREPI).

The Philippines is one of 59 countries that release quarterly RREPI data. This came after experts, following the Global Financial Crisis, said some indicators in the property sector could serve as warnings for a potential economic downturn.

While the consumer price index is the main indicator considered by the BSP when setting policy as an inflation-targeting central bank, it said the CPPI will also help it ensure the financial system’s stability.

“A wide set of economic variables is also taken into account in the BSP’s policy-making decisions regarding the appropriate stance of monetary policy, with the view to maintaining price stability conducive to sustainable growth and employment. These include monitoring the trends in the Philippine property sector,” the BSP said.

The price index for the commercial real estate sector could also be used as “an indicator of macroeconomic activity; an input to socioeconomic policies such as monetary and financial policies, and a basis for investment decisions and cross-country comparisons,” the central bank added.

The CPPI would also help the BSP assess how its policies affect the real estate sector, it said.

“A loose monetary policy could encourage a shift of capital flows into the real estate, which in turn could exert pressure on real estate prices to rise,” the BSP said. “Conversely, a hike in policy rates lowers the value of asset holdings of individuals and financial institutions, it could potentially make credit financing more costly for both buyers and property suppliers.”

The Financial Stability Coordination Council in July said the commercial real estate industry is among the sectors that will see a significant change in the “new normal” due to work-from-home and health protocols.

Officials noted that the exodus of foreign workers is a growing concern as they mainly drove demand for office space before the pandemic. They also noted the need to retrofit existing spaces and improve ventilation in order to comply with physical distancing and health protocols.

Residential property prices declined in the first quarter, mainly dragged by the lower costs of condominium units and duplexes due to weak demand amid the crisis. The RREPI was down by 4.2% year on year in the January to March period, the steepest decline recorded since the index was launched in 2016.

Source: BusinessWorld

Despite COVID Concerns and Inflation, Global Commercial Recovery Continues

According to CBRE's 2021 Global Midyear Market Outlook, the global economic recovery has begun to hit its stride in most regions, with workforces in many countries planning to return to the office in the second half of 2021. In addition, commercial transaction activity is increasing, and strong gains are now being forecasted for investment in sectors including industrial & logistics and multifamily, worldwide. COVID-19 variants, rising global debt and the possibility of sustained high inflation are the key risks to the economy and commercial real estate over the next 12 months. Still, CBRE forecasts that the economic momentum from pent up-demand, government stimulus and reopening will eclipse those factors. CBRE foresees peak growth in gross domestic product for the Americas and Asia Pacific (APAC) this year, led by the U.S. at a 7.1 percent gain and China at 8.2 percent. Europe is predicted to reach its strongest GDP growth in 2022, which will help to sustain the fast-paced global recovery. Globally, the industrial & logistics and multifamily sectors have already recovered from the recent downturn, and the recovery for the office, retail and hotel sectors will progress over the next two years. "The global recovery is well underway, but it will take several years for some sectors to approach or return to their pre-crisis levels," said Richard Barkham, CBRE Global Chief Economist and Head of Americas Research. "Concerns about inflation likely will cause some market volatility, but we anticipate that central banks won't need to raise interest rates in the next 12 months. This will support economic growth for the next two years and create a positive environment for commercial real estate." Here is a recap of CBRE's report predictions for each major global commercial property sector: Capital Markets

The recovery for global real estate investing and lending will gain momentum in this year's second half and into 2022. CBRE predicts that global investment volume will increase by 23 percent in 2021. Income returns will remain stable and capital values will return to pre-crisis levels this year, possibly resulting in higher total returns than in 2019. Office

Office vacancy rates will rise a little further this year and then decline in 2022. Globally, positive net absorption for office space will return by late 2022, driven by employment growth. Global leasing activity is expected to increase by 10 percent this year, with activity in the Americas and EMEA led by life sciences, manufacturing, energy and technology. In APAC, fintech, insurance and tech will lead leasing activity. Occupiers

In countries with low office occupancy, employees are anticipated to start frequenting the office on a more regular basis in the second half of the year, barring any restrictions brought about by surges in the delta variant. Sentiment is waning in the Americas for big reductions to office portfolios, while domestic companies in APAC anticipates growth and Europe, the Middle East and Africa (EMEA) mostly expects to hold steady. Demand for flex space will increase. Industrial & Logistics

This year will be the strongest on record for the sector. Retailers and others will increase their inventories to cushion against major disruptions. More companies will outsource their supply chain operations, which means third-party logistics companies will claim an even larger share of leasing activity. Retail

The recovery will be uneven, with luxury, discount and services garnering the most spending. Retailers will expand further into programs like click-and-collect and ship-from-store to counter rising costs of last-mile delivery. CBRE expects that new leases will include more detailed clauses allowing retailers more options for reacting to major, unforeseen events. Multifamily

Multifamily will become the leading global investment asset class in the near future as EMEA and APAC further adopt the multifamily-rental model popular in North America. Vacancy rates will decline over the next year, rents will increase, and capitalization rates will decline. CBRE expects that most U.S. markets will exceed pre-crisis rent levels by the second quarter of 2022.

Global-Midyear-Outlook-2021

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Source: World Property Journal and CBRE