Property sector to weather risks

By Keith Richard D. Mariano
Posted on December 28, 2016
http://www.bworldonline.com/content.php?section=TopStory&title=Property-sector-to-weather-risks&id=138336

“With the projected surge in new developments, there will be further pressure on contractors to complete their projects in light of the already insufficient labor pool,” Colliers International Philippines noted in a December report, titled: “Top 10 Predictions for 2017,” that was released on Monday.

The impact of an insufficient work force was apparent this year, according to Colliers, with the projected supply of new office space having been adjusted more than 30% downward from the 900,000 square meters (sq.m.) estimated at the beginning.

Citing data from BCI Economics, a provider of construction industry-based research and reports, Colliers said construction starts may have increased over 1,000% this quarter from the preceding three months.

“We believe that private construction in 2016 could’ve been more robust if not for construction delays brought about by the lack of adequately skilled workers,” Colliers noted.

“The intensified development of public infrastructure projects around the country will exacerbate this problem.”

On the demand side, the continued normalization of interest rates in the US — after quarter-of-a-point increases two weeks ago and a year back after nearly a decade of near-zero levels — could weigh on growth particularly of the residential segment. The US Federal Reserve in the middle of this month signaled three more rate increases on the table for 2017 — up from just two projected last September — a move that is expected to continue driving portfolio investments away from emerging markets towards the US and other developed counterparts.

In the Philippines, some private sector economists expect the central bank to start increasing rates — after keeping them steady since September 2014, except for operational tweaks introduced amid the shift to an interest rate corridor system last June — as early as next semester.

“The rate increase will affect residential developers as development costs would most likely increase with the rise in the cost of debt. This is apart from the rise in purchase costs of their buyers,” the property consultancy wrote in the report.

At the same time, “Colliers sees a decline in purchases from speculative investors as they are more sensitive to higher borrowing costs” — referring to a closely watched potential source of bubble in the market — noting that “[h]igher borrowing costs also constrict access to capital.”

On the whole, the property market should benefit from the economy’s growth which Colliers expects to range 6-6.5% over the next three years — against the government’s targets of 6.5-7.5% next year and 7-8% annually from 2018 to 2022 — “as macroeconomic fundamentals remain sound and the contribution of investments and manufacturing to national economic output continually expand.”

“We expect a surge in manufacturing investments over the near to medium term and this will further raise demand for industrial space. Firms must start developing industrial parks outside of Cavite-Laguna-Batangas area,” Colliers said.

The consultancy deemed public construction a “major source of growth” amid the acceleration of state infrastructure spending under the Duterte administration.

“The implementation of infrastructure projects nationwide should provide access to properties that could be redeveloped into mixed commercial, residential, hotel/leisure and industrial estates,” Colliers noted.

Private construction should receive another boost from the sustained appetite for office and retail developments, as outsourcing and tourism-related activities continue to drive the service sector, according to Colliers.

“Amid concerns from industry stakeholders in the middle of the year of a potential decline in BPO (business process outsourcing) demand due to the President’s anti-US rhetoric, Colliers believes BPOs will continue to drive the office market,” the report read.

The Philippine Offshore Gaming Operation recently rolled out by the Philippine Amusement and Gaming Corp. (PAGCOR) is driving demand for office space further. Offshore gaming accounted for more than 80,000 sq.m. of office space this year, Colliers noted, with the last quarter witnessing a surge in inquiries from operators with a minimum requirement of 10,000 sq.m. each.

“As demand from offshore gaming companies increases… Colliers recommends landlords to consider accommodating offshore gaming companies who are looking to expand immediately.”