PHILIPPINE office landlords face a more challenging second half as weak demand and aging buildings weigh on the market, while industrial and provincial retail properties offer developers better investment opportunities, CBRE Philippines said.
The commercial real estate services firm said the office market would need more than 500,000 square meters of take-up in the second half to match last year’s take-up.
“We should be bracing ourselves for that,” CBRE Philippines Country Head Jie Espinosa said during the firm’s second-quarter market briefing on Thursday.
He said developers are also contending with an aging office stock in addition to slower leasing activity.
“It’s not just about vacated spaces anymore. Spaces that were left behind by locators. Beneath all of those vacated spaces, which would be more than 50% of the market at this stage, you have a lot of aging buildings behind them. Approaching 10 years, perhaps more than 10 years. A lot of the developers now will have to grapple with the fact how do they become more competitive.”
He said landlords that lose tenants could face extended vacancy periods before securing replacements.
“If a landlord were to lose a tenant at this stage, and they would have to face the consequences of waiting to backfill it, it could take almost one to four years for them to wait just to be able to replace that particular space,” he said.
Against that backdrop, Mr. Espinosa said the industrial and logistics segment remains the strongest-performing property sector and is expected to sustain its momentum through the second half.
“Our industrial and logistics sector has had a banner first half so far. We expect that to be true for the second half as well.”
“We really think that of all of the sectors, if I were to be a developer, that’s the particular sector where I could justify investing and I would be able to expect better yields compared to all of the assets that I could probably consider,” he added.
Mr. Espinosa also cited opportunities in the retail segment, particularly in provincial markets where overseas Filipino worker (OFW) remittances continue to support consumer spending.
“If you look at the way we look at our business, the way we’re trying to diversify, we understand that retail still has a runway to go. And it’s not necessarily in National Manila.”
“The provincial markets where your remittances typically go, the majority of your $35.6 billion of remittances, that’s going to create structural demand in key urban areas outside of Metro Manila.”
He urged local developers to maximize idle landholdings to capture demand outside the capital.
“Most of these local developers typically require tie-downs. At this time, they’re sitting on idle asset. They have a lot of land. They’re probably well land-bound. And they have to trigger the possibilities of those assets that they currently have,” he said.
Mr. Espinosa also urged the industry to prepare for the long-term effects of artificial intelligence (AI) on office demand and employment.
“And that’s why for this quarter, the question that we’re posing in the market is, how will we survive AI?”
He said the Philippines must ensure its workforce remains competitive as AI creates new industries and changes office space requirements.
“Will we be able to be competitive enough to backfill all of these 1.7 million square meters that we currently have, not just in Metro Manila, but in provincial locations? Is the labor that we currently have lying in wait?”
“I think those are the more important questions frame that we need to answer,” he added. — Juliana Chloe A. Gonzales