Worst is over for PH property sector–report
The worst may be over for the Philippine property sector as key players have “proactively” recalibrated their strategies to cope with structural challenges, leading to “early signs of market stabilization.”
This is according to a Philippine property research dated July 23 written by First Metro Securities analysts Mark Angeles, Estella Dhel Villamiel and Nicole Aquino, and distributed to institutional investors by Singaporean financial group DBS.
“Oversupply, subdued rental growth and elevated vacancy rates continue to pressure fundamentals, especially in the residential and office segments. Nevertheless, retail assets have emerged as a bright spot, with malls showing robust post-COVID recovery, underscoring the enduring strength of Filipino consumer behavior and the country’s mall-centric culture,” the research said.
“Despite this challenging backdrop, we believe the worst may be behind us, as key sector indicators are beginning to stabilize,” it explained.
More importantly, it noted that developers have adjusted their playbook to navigate the challenging environment.
Flight to quality
In the case of residential developers, the paper noted that new launches have become more selective. There’s increasing focus on premium segments and regional markets, where market demand remained resilient and inventory levels are seen to be healthier.
Office offerings have likewise become more quality-focused, the research noted.
It also observed that developers have focused on tenants seeking business continuity, cost efficiency and proximity to workforce hubs. Meanwhile, landlords are also seen upgrading office assets and embarking on regional expansion.
In the retail business, the research noted that developers were redeveloping their shopping malls and plotting regional expansion. The goals are to enhance the tenant mix, improve foot traffic and align with evolving consumer preferences.
Meanwhile, it noted that capital recycling via the real estate investment trust (REIT) structure has enabled developers to monetize mature assets, strengthen balance sheets and redeploy capital into growth initiatives.
“We favor property REITs due to their stable income streams, clear growth visibility and potential for yield compression amid moderating interest rates,” the research said.
First Metro Securities’ top REIT picks are MREIT Inc., RL Commercial REIT Inc. and AREIT Inc.
Among property developers, the top picks are SM Prime Holdings, Robinsons Land Corp., Megaworld Corp. and Ayala Land Inc.
“Developers with high levels of recurring income (especially from malls and offices), low leverage and exposure to premium and regional markets are better positioned to meet current demand trends,” the research said.
“Moreover, index names will benefit from liquidity premiums and passive fund flows, reinforcing their potential to lead the sector’s recovery.”
