The Philippines is gearing up towards the upcoming presidential and congressional elections in May 2010, amid a rising level of political uncertainty. Indeed, the ruling Lakas-Kampi-CMD will be facing a resurgent opposition benefitting from a revival of democratic fervour stemming from the death of former president Corazon Aquino, who was instrumental in overthrowing the despotic Marcos administration via the 'People's Power' revolution in 1986.

But a fragmented opposition with multiple presidential contenders will probably mean that the incumbent Lakas-Kampi-CMD will remain in power. CB Richard Ellis (CBRE) reported that the property investment market was relatively inactive in Q109, with local investors accounting for the majority of the small number of transactions. Investors are slowly coming back to the table, although it will not be until Q110 that we will be able to estimate with any confidence the level or sustainability of this recovery. Many deals in the current climate have been related to occupational end-use.

Capital values remain relatively stable, especially in the residential market. Transactions and decision-making in the Philippines are reported to be very slow. Developers are now focusing on mid-range and affordable residential projects.

They continue to lobby the government to introduce tax exemptions for mass housing projects as part of a plan to revive the construction industry, which is one of the main drivers of the economy. The run-up to the general elections next year may complicate this lobbying process.

Declining rental values and vacancy rates trending upwards suggest there will be no recovery in H110 in demand for office space. Also weighing on demand is an expected continuing pressure on BPO activities that have traditionally been a large driver of demand.

Having said that, performance is likely to vary from district to district. While comprehensive data remains unavailable for H109, previous indicators and recent news reports suggest a number of additional office projects due for completion outside Makati CBD in the course of 2009 that are likely to make the supply situation worse.

Rental values in Metro Manila have fallen at least 15% in the central business district and, according to CB Richard Ellis in May 2009, office rents in Metro Manila have fallen 20% y-o-y and total occupancy costs by 17.4% over the same period.

Source: Business Monitor International

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