But positive sentiment outweighs negative
67 per cent of real estate developers are unsure of the country’s economic recovery path in the next 12 months, a survey by Cushman & Wakefield Philippines has shown. As the Philippines formally enters into the recession phase after registering a record contraction of 16.5 per cent and 0.7 per cent in Q2 2020 and Q1 2020, respectively, the continued disruption to business and economic activities weighed heavily on consumer spending – the biggest contributor to GDP – by shrinking 15.5 per cent in Q2 2020.
Faced with the weighed-down consumer sentiment along with the anticipated decline in overseas Filipino (OF) remittances and tourism receipts – two of the most-hit sectors of the economy due to the severity of containment measures in response to the COVID-19 virus – amidst the burgeoning unemployment rate, it is imperative to take a look at the severity of its implications from the viewpoint of the Philippines’ real estate developers.
Key findings of the survey:
1) Less optimistic six-month outlook for property developers
Real estate developers in the Philippines remain largely less optimistic as they expect capital values and rental rates to soften in the short-term. In the medium-term, developers express optimism that the property market will show early signs of recovery along with moderate growth in capital values and rental rates. Market vulnerability, however, is seen to persist up to the mid-term. In the long-term or a period of two to three years, the developers are very optimistic of the full recovery of the property market and expect that the market will again build-up momentum through a strong rebound of both supply and demand growth drivers. By then, the developers also expect a sharp recovery of capital values and rental rates. 
2) Industrial and office sub-sectors remain resilient during the pandemic
3) Supply of new hotel and retail space to fall significantly in response to revenue losses
Significant reduction in the supply of new hotel and retail space is expected as roughly half of the hotel and retail development pipelines over the next 12 months are indefinitely stalled by the pandemic. With the tourism industry on standstill and the uncertainties continue, 88 per cent of hotel developers and 53 per cent of retail developers expect revenue losses of greater than 50 per cent in the next 12 months. Following the more relaxed quarantine restrictions towards the end of Q2 2020, establishments other than the essential ones have been allowed to partially resume operations in shopping centers with strict implementation of security and sanitation measures. However, footfall remains far below pre-COVID levels with dampened consumer sentiment and weak household spending as consumers are holding back consumption amid the uncertainties that surround the pandemic.
Claro Cordero Jr, Director, Research, Consulting & Advisory Services, Cushman & Wakefield Philippines said “Market vulnerability will persist in the mid-term. In the long-term or a period of two to three years, the developers are very optimistic of the full recovery of the property market and expect that the market will again build-up momentum through a strong rebound of both supply and demand growth drivers. By then, the developers also expect a sharp growth of capital values and rental rates. The fundamentals for the Philippine real estate market remain very strong”.
Download a copy of the COVID-19 Real Estate Developer Sentiment Survey here.
