POGO ban order impact already felt in leasing market

Leechiu Property Consultants (LPC) [link] presented their Q3 2024 PH Property Market Report, and according to their data, the president’s order to ban POGOs has already caused “about 50,000 sqm [to be] vacated by the POGO industry”. LPC said that this increased the total number of new vacancies to 378,000 sqm for Q3 2024, which was up 21% y/y, but that the industry still accounted for approximately 500,000 sqm of leased space. LPC noted that it expects available office supply to decrease by up to 50% in 2025, which should cause vacancy rates to drop. The company also provided an overview of the Metro Manila condo market [link]. LPC said there’s now a 29-month oversupply of condo units in Metro Manila due to high interest rates and “changing buyer preferences”. A 29-month oversupply means that even if no new units were made starting today, it would still take until April 2027 to sell all of the available units at the prevailing sales price. LPC said that a normal condo inventory for Metro Manila is around 12 months’ worth. LPC said it expects the market for condos to improve as interest rates and inflation go lower.

MB bottom-line:  It’s going to be interesting to see the Q3 earnings reports from our REITs next month. The state of the commercial leasing market is why the REITs that have largely failed to diversify their assets away from commercial leasing–like DDMP [DDMPR 1.07 unch; 90% avgVol] and Filinvest REIT [FILRT 3.05, down 4.4%; 95% avgVol]–have fallen so far behind relative to their diversified peers. To me, it seems like hotels are the new POGO gold rush for real estate developers, so I’m paying more and more attention to how the top-tier developers are addressing the tourism industry in their long-term plans. We’re in the honeymoon phase of hotel development right now where “more more more” is the only thing anyone cares about, but my interest is in trying to see which of the developers will understand this market and be players for the very long term. Feels too early to tell.

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