‘Inflation will start to hurt. And it did. We had roughly 7 percent last April due to power costs, and also supply. Property owners should cut building costs to power and reserve. Rent estimations now are are between 2 percent to 3 percent, compared to the ones before [the Middle East conflict], which is about 5 percent to 6 percent.’
The broader economic downturn the Philippines is currently experiencing may trigger spillover effects in the real estate market, according to property consultancy CBRE.
CBRE senior manager for Capital Markets & Investments Paolo Matibag said elevated inflation resulting from oil supply disruptions in the Middle East may alter real estate market behavior moving forward.
Inflation will hurt
“Inflation will start to hurt. Yes, and it did. We had roughly 7 percent last April due to power costs, and also supply,” he said.
“So, for property owners, you should cut building costs to power and reserve. And as you can see, what we are seeing now, rent estimations are between 2 percent to 3 percent, compared to the ones before [the conflict], which is about 5 percent to 6 percent,” he added.
The Gulf conflict between the US and Iran has resulted in oil supply disruptions in the Strait of Hormuz, through which approximately one-fifth of the world’s oil passes.
The Philippines relies heavily on imports through the Strait, with Department of Energy data showing about 99 percent of domestic oil supply passing through it. The waterway currently remains under a US naval blockade as peace talks between the parties remain stalled.
Headline inflation rose three-year high
Headline inflation rose to a three-year high in April as domestic pump prices climbed to triple-digit levels per liter.
The conflict has also resulted in persistent weakness in the peso, which has slumped to record lows 12 times since the escalation of the conflict in March. Matibag said the weaker peso could provide a silver lining for the real estate market by attracting foreign investors.
“Now, treat this weak peso as a selling point to foreign buyers. If a client wants a good operating business, or a good operating asset, then we can look for foreign buyers. Foreign buyers are really looking at investing in buildings,” he said.
“Dollars right now, you can buy a house, a credit order, a product here, for instance, which gives them more power, [about] 7 percent more.”
Offices adopting flexible work arrangements
Meanwhile, CBRE head of Logistics Bryan David said the spike in oil prices, which threatens to push pump prices back into the triple-digit-per-liter range next week as US-Iran ceasefire talks have stalled, has prompted offices to adopt more flexible work arrangements similar to those seen during the pandemic.
“With the increase in gas prices, the companies are now more able to be flexible, meaning more hybrid. Previously, prior to that ever happening, we have seen improvements in terms of the percentage of recurring profits,” he said.
“Some of the companies are now establishing three-day, four-day operations in an office and then one-day flexible. But with the increase in gas prices, not just offices but also other establishments have provided flexibility, let’s say, in work from home for three times, four times a [week].”
