Extended REIT party

 

GDP recovery signals property rebound.

This is the title of Colliers Philippines’ latest market report. The Philippine government, credit rating firms and global think tanks are optimistic that the country’s economy will grow at a faster pace this year and in our view, this should support the recovery of the Philippine property market.

But aside from the projected economic growth, it appears that the Real Estate Investment Trust (REIT) is becoming a major plank of the property development sector’s expansion amid the pandemic. In fact, major developers have aggressively tapped REIT to raise fresh capital, acquire more assets, diversify and prepare for pent-up demand postpandemic.

Among the firms that have already launched their respective REITs are Ayala Land, DoubleDragon, Filinvest Land, Megaworld and Robinsons Land. As I stressed in my previous column, AREIT plans to acquire more properties; DoubleDragon will use majority of DDMPR’s proceeds to expand its industrial footprint; Robinsons Land REIT plans to have the “most geographically diverse portfolio,” while Filinvest Land said it will use the REIT proceeds to acquire more properties within and outside Metro Manila. Megaworld also joined the REIT party with MREIT planning to become “the largest office REIT in Southeast Asia.”

The rapid expansion of REITs in the Philippine market underscores the growing confidence of both investors and developers in this financial vehicle as a means of driving long-term growth. Beyond providing companies with access to fresh capital, REITs offer investors a stable and income-generating asset class, making them an attractive option in a recovering economy. Moreover, the increased participation of major developers in the REIT market is expected to spur further investments in commercial, office, and industrial properties, reinforcing the property sector’s resilience and positioning it for sustained post-pandemic growth.

Dissecting market’s bullishness

It is important to analyze the key factors driving property firms’ optimism despite the lingering effects of the COVID-19 pandemic. While economic uncertainty persists, the Philippine government’s projection of a faster GDP recovery has provided a much-needed confidence boost. Additionally, credit rating agencies and global think tanks share a positive outlook, further reinforcing the belief that the real estate sector is poised for a strong rebound.

A crucial factor contributing to this optimism is the stability of office space demand. Despite the challenges posed by remote work and shifting business strategies, the demand for office spaces has remained resilient, particularly from companies in the business process outsourcing (BPO) and knowledge process outsourcing (KPO) sectors. This trend has prompted major real estate developers to divest their office assets into REIT companies, enabling them to unlock capital for further expansion and investment in new properties.

Another emerging trend in the office market is the growing preference for provincial locations. While Metro Manila remains a prime destination for office investments, many businesses are now considering expansion in key cities outside the capital. One of the most notable examples is Iloilo, which has become an attractive hub for BPO and KPO firms. Companies are drawn to Iloilo’s skilled workforce, improved infrastructure, and lower operational costs compared to Metro Manila and Cebu.

In fact, data from Colliers Philippines shows that Iloilo accounted for about 30% of all provincial office space transactions in the first half of the year. This trend indicates a shifting dynamic in the real estate sector, where regional cities are emerging as viable alternatives for businesses looking to expand. If this momentum continues, it could lead to greater decentralization of office spaces, reducing congestion in Metro Manila and spurring economic growth in secondary cities across the country.

Jabs key to recovery

In our view, the property sector’s recovery is likely to be anchored by the pace of the government’s COVID-19 inoculation program. As of Sept. 13, the government has administered some 39.1 million doses of vaccines, covering 36% of the country’s population. About 136 million more doses are expected to arrive before the year ends. Health experts believe that herd immunity, or the vaccination of at least 70% of the population, could be achieved by the second quarter of next year, providing a much-needed boost to the country’s economic recovery.

The impact of mass vaccinations extends beyond public health—it directly influences business confidence and investor sentiment. A higher vaccination rate allows for the gradual easing of mobility restrictions, enabling more businesses to resume full operations. For the property sector, this means a renewed demand for office spaces, retail establishments, and residential developments, as companies regain confidence in expansion and employees return to physical workspaces. Additionally, increasing vaccination rates enhance the appeal of the Philippines as an investment destination, reassuring both local and foreign investors that the country is on track toward stability.

Furthermore, the acceleration of vaccination efforts in business hubs and key provinces plays a crucial role in reviving regional real estate markets. With more cities reaching high immunization levels, we may see increased property transactions, heightened leasing activity, and improved occupancy rates in both commercial and residential spaces. As economic activity picks up, property developers are expected to ramp up new projects, ensuring that the sector remains a strong pillar of post-pandemic recovery. However, continuous government support, effective vaccine distribution, and sustained public compliance with health measures remain essential in maintaining this positive trajectory.

MM office space deals

Office transactions in the second quarter reached 84,700 sqm, marking a 154% increase from the 33,400 sqm recorded in the same period in 2020. This surge reflects a growing confidence among occupiers, many of whom are implementing a mix of flight-to-value and flight-to-quality strategies to optimize their office locations. Colliers believes that outsourcing firms, traditional corporations, and professional service companies will continue to drive office space demand over the next six to twelve months, alongside government agencies relocating to newer buildings within Metro Manila.

The demand for office space is also being shaped by the evolving nature of work arrangements. While hybrid work models remain relevant, many companies are reassessing their long-term office requirements, leading to an increased preference for modern, flexible, and strategically located office spaces. Business districts such as Bonifacio Global City (BGC), Makati, and Ortigas continue to attract multinational firms, while emerging office hubs in Quezon City, Alabang, and the Bay Area are gaining traction due to competitive lease rates and improved infrastructure.

Beyond Metro Manila, provincial office markets are also benefiting from the rising interest in decentralized workspaces. Cities like Cebu, Iloilo, Clark, and Davao are seeing heightened leasing activity, particularly from business process outsourcing (BPO) firms and knowledge process outsourcing (KPO) companies. This shift aligns with the broader trend of companies diversifying their office locations to enhance operational resilience and reduce costs. Additionally, the government’s Build, Build, Build program has significantly improved infrastructure in key provinces, further encouraging firms to establish offices outside the capital region.

A government-forecasted economic rebound, an accelerated vaccination program, an uptick in office space transactions, and major expansion plans from top developers—these factors collectively signal a steady recovery of the Philippine property market beyond 2021. The continued growth of Real Estate Investment Trusts (REITs) also plays a pivotal role, as they are required to distribute 90% of their income and reinvest in the Philippines, further fueling development. This trend aligns with the government’s broader goals of democratizing wealth, generating employment, and stimulating key economic sectors such as construction, ultimately reinforcing the resilience of the country’s property industry.

Conclusion

The Philippine property market is on a steady path to recovery, driven by a combination of economic resilience, strategic investments, and evolving market preferences. The accelerated rollout of COVID-19 vaccinations has played a crucial role in restoring business confidence, leading to increased office space transactions and heightened interest in Real Estate Investment Trusts (REITs). The growing preference for provincial office locations, alongside major developers’ expansion plans, further reinforces the sector’s adaptability to new market dynamics. With continued government support and infrastructure development, the real estate industry is poised to sustain its growth trajectory beyond the pandemic.

Moving forward, the key to sustaining this momentum lies in fostering investor confidence, maintaining a balanced approach to flexible work arrangements, and ensuring that infrastructure projects remain aligned with the evolving needs of businesses. While challenges such as inflationary pressures and global economic uncertainties remain, the Philippine property sector’s ability to innovate and adapt to market shifts will be critical in shaping its long-term growth. By leveraging these opportunities, developers, investors, and stakeholders can contribute to a more resilient and dynamic real estate landscape in the years to come.

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