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.”

Dissecting market’s bullishness

It is important to dissect what’s driving the property firms’ optimism. Aside from a government-projected economic recovery, Colliers believes that office space demand remains stable despite the pandemic. That’s why it is no longer surprising to see property firms divesting office assets into their respective REIT companies.

My colleagues from the Office Services team have been busy assisting tenants with their office space requirements. While options in Metro Manila remain popular, preference for provincial locations is also gaining traction. An interesting case is Iloilo, a popular choice among expanding business process outsourcing (BPO) firms. Aside from Metro Manila and Cebu, Iloilo is emerging as a hotspot for higher-value knowledge process outsourcing (KPO) companies. In the first half, Iloilo cornered about 30 percent of provincial office transactions recorded by Colliers Philippines.

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 for 36 percent of the country’s population. About 136 million doses of vaccines are likely to arrive for the remainder of the year. Health experts believe that herd immunity (70 percent of the population vaccinated) is likely to be achieved by second quarter next year.

MM office space deals

Office transactions in the second quarter reached 84,700 sqm, up 154 percent from the 33,400 sqm recorded in the same period in 2020, as occupiers expand and implement a mix of flight-to-value and flight-to-quality measures. Colliers believes that among the firms that are likely to lead office space take-up in the next six to 12 months are outsourcing and traditional firms, including professional service companies as well as government agencies transferring to newer buildings across the capital region.

A government-forecasted economic rebound; an accelerated vaccination program; a pick up in office space deals; and concrete expansion plans from major developers across the Philippines—these are just some of the green shoots that are likely to lead the Philippine property market’s recovery beyond 2021. REITs are also mandated to distribute 90 percent of their income and reinvest in the Philippines. This bodes well for the government’s goal of democratizing wealth, generating more job opportunities, and pump-priming other key economic sectors such as construction.

 

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