The Philippines’ inflation rate surges to 4.9% in August.

The headline inflation at the national level jumped to 4.9 percent in August 2021, from 4.0 percent in July 2021. This is the highest inflation recorded since January 2019.

With the August 2021 inflation, the Philippines’ average inflation from January to August 2021 stood at 4.4 percent.

In August 2020, inflation rate was lower at 2.4 percent.

The uptrend in the country’s inflation was mainly brought about by the higher annual increment in the index of the heavily-weighted food and non-alcoholic beverages at 6.5 percent during the month, from 4.9 percent in July 2021.

Moreover, recreation and culture index went up by 0.5 percent in August 2021, after recording annual decreases since August 2020.

Annual increases were also higher in the indices of the following commodity groups:

• Alcoholic beverages and tobacco, 10.3 percent;

• Clothing and footwear, 1.8 percent;

• Housing, water, electricity, gas, and other fuels, 3.1 percent;

• Furnishing, household equipment and routine household maintenance, 2.5 percent;

• Transport, 7.2 percent; and

• Restaurant and miscellaneous goods and services, 3.8 percent.

The other commodity groups, i.e., health, communication, and education, retained their previous month’s annual growth rates.

Excluding selected food and energy items, core inflation, likewise, picked up to 3.3 percent in August 2021, from 2.9 percent in July 2021. In August 2020, core inflation was posted at 3.1 percent.

For food index, the annual growth rate at the national level accelerated to 6.9 percent in August 2021, from 5.1 percent in July 2021. It was observed at 1.7 percent in August 2020.

By specific food item, double-digit annual growth rates were noted in the indices of meat at 16.4 percent; fish, 12.4 percent; and vegetables, 15.7 percent.

Annual hikes were also higher in the indices of the following food groups:

• Corn, 8.7 percent;

• Other cereals, flour, cereal preparations, bread, pasta, and other bakery products, 1.8 percent;

• Oils and fats, 4.8 percent;

• Sugar, jam, honey, chocolate and confectionery, 1.2 percent; and

• Food products not elsewhere classified, 1.6 percent.

Moreover, inflation for fruit inched up to 0.1 percent, from an annual drop of -0.6 percent in the previous month. Furthermore, the annual decline of -0.4 percent in rice index during the month was slower relative to its previous month’s annual decrease of -1.0 percent.

Meanwhile, milk, cheese and egg index retained its previous month’s annual growth of 0.6 percent.

Source: PSA

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

Office Rent Exposure In Asia Pacific

Covid 19’s impact on the Asia Pacific office market has been that buoyant demand leading into the pandemic was quickly stymied as corporate occupiers sought to limit cost exposures and assess their real estate needs.

In line with this, vacancy has increased and rents have softened across most markets, pushing them towards greater tenant-friendly status. However, corporate occupiers must be aware that these changes may not bring the cost savings they might expect and that in some markets, tenants may have to pay more on a new lease than they were paying on the last year of an expiring lease.

The year ahead

Looking ahead, landlords are expected to continue experiencing headwinds in many markets across Asia Pacific. While the regional economy recovered to pre-pandemic levels in the fourth quarter of 2020, with forecast growth of 6.5% in 2021, recovery in commercial office markets has lagged behind.

The regional one-year rental outlook is for an average decline of around 1.7%, but with great variability around this average. Rents in Hong Kong are forecast to fall a further 13% over 2021, continuing the trend that started in early 2019. Rents in Hanoi and Tokyo are also under comparatively significant downward pressure due to forthcoming supply.

In contrast, rents are forecast to increase the most in Seoul, at around 5% for the year. Seoul’s office market has been especially resilient during the pandemic so far, even posting growth of 3% in 2020, thanks to strong tenant demand and limited supply.

Overall, this is broadly positive news for any corporate newly entering any of these flat or declining markets. In short, they should be paying less than a new market entrant 12 months ago. However, what about existing occupiers looking to re-sign a lease? Although rents have been easing, past rental growth over the duration of an average lease term needs to be considered.

Rental exposure across the region

Looking at past rental growth together with the 2021 outlook provides an estimate of rental exposure – the difference in rent paid on a lease and market rent. To analyze more accurately, market conventions for annual rental escalations have been included.

The situation is delicately poised. A little over half of the markets analyzed are over-rented by an average of 1%. In other words, rents currently being paid by occupiers are on average 1% above market rent, mainly due to the recent global softening. However, this also means that the opposite is true for the remaining markets – market rents are above current lease rents.

Hong Kong sits at one extreme, with current lease rents being almost 40% above market rents, reflecting the steep market rent declines experienced over the past two years. After this, differences of over 10% also exist for Beijing, Jakarta and Shenzhen.

Of greater concern are the markets where tenants are under-rented – paying below expected market rent as at Q4 2021. Indian cities feature prominently here, reflecting their meteoric growth over the past few years. Bengaluru is the most under-rented, at 39% below market rent, closely followed by Hyderabad at 35% under-rented.

The underlying message here is that market conditions are perhaps more challenging for occupiers than they first appeared. While occupiers in some markets are likely to be able to make considerable cost reductions on lease negotiations this year, others could be looking at varying degrees of higher real estate costs at a time when corporates are more acutely seeking to minimize cost exposure.

Beyond a closer observation of market dynamics, corporates should explore additional strategies, including:

• Be proactive in managing corporate space needs in the most volatile markets to capitalize on expected rental declines or minimize rental increases.

• Ensure that real estate strategy is aligned to corporate enterprise goals, especially when considering alternative locations.

• Calculate space requirements accurately through workplace analysis.

• Apply thoughtful design and fit-out standard to help ensure maximum productivity.

C_W_APAC_OfficeRentalVariabilityIndex2021

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Source: Property Chronicle and Cushman & Wakefield