More investors,developers to tap REIT to diversify portfolio

As the real estate investment trust (REIT) market has exhibited stable returns, real estate services and consultancy firm JLL Philippines sees more investors and property developers tapping REIT to diversify their portfolio.

AREIT Inc. recently announced it earned P1.23 billion last year, 42% higher than the previous year. Given the stable returns that REIT offers which make it an attractive and substantial alternative investment vehicle for investors, JLL anticipates REIT becoming bigger and helping buoy the economy.

During its webinar on the firm’s real estate outlook for 2021 held in January, JLL says the commencement of the country’s REIT market in 2020 was a much-needed development and boosted investment sentiment for the property sector. 

“We believe REITs will play an important role in jumpstarting the economy from the adverse effects of the pandemic and will promote growth in the real estate sector,” said P. Ryan Isip, JLL Philippines’ Head of Capital Markets. “Because of the nature of REITs, properties will need to be transparent in its income, occupancy, and prospects to make it more attractive to be invested in. Due to this, the REIT market promotes transparency in the real estate industry. Ultimately, REITs will help attract a lot of investors in the medium- to long-term and will pave way for us to develop capital investments in the country.”

It follows that more property developers will look into the REIT market to diversify their portfolio and to tap new capital to expand their real estate buildings. Profits earned from being a REIT-listed property may provide a cheap funding source for developers, raising fresh capital to finance future projects, which in turn will ramp up construction activities and employment. 

Further, developers are also looking into increasing their properties’ asset value to make them more attractive investments. “REIT-listed properties tend to be better managed and maintained to make them attractive for tenants to move in. Therefore, it becomes an attractive income-generating property for REITs,” said Isip.

Philip Mareschal, JLL Philippines’ Head of Property and Asset Management, underscores the importance of contracting third-party property managers to uphold transparency and discover innovative ways of protecting, or even increasing, the asset value to maintain the REIT.

“Around the world, REITs are gaining popularity and have become a growing segment of the real estate market. In the Philippines, JLL is in the unique position to showcase the cost saving advantages of using third-party property management over in-house management,” said Mareschal. “Some of these advantages include the use of property technology (PropTech) for procurement, career management, and site management, among others, which are mostly where third-party property managers such as JLL specialize in.” 

Logistics, co-living as alternative attractive assets

JLL also sees more potential in the REIT market following the growth in other asset classes, particularly the under-penetrated logistics and co-living sectors, which will give an opportunity for new investors to come in.

The boom of e-commerce has increased the demand for quality logistics spaces, while the restriction of mobility and transportation due to the pandemic has increased the demand for more co-living spaces, especially those near business districts.

While uncertainties remain in terms of office space requirements in the future, the office sector will take a backseat in the priority list of investors for the time being. In the long term, however, JLL anticipates that the office sector will still attract the interest of property developers who are looking into REITs.

“Despite these uncertainties in the office sector, outsourcing firms in Metro Manila that are looking to expand in other key urban areas such as Metro Cebu and Davao City will need office properties to move into. This is where developers can come in to meet the demand, and this demand will make the office sector still an attractive asset class for REITs in the long term,” said Isip. 

Download JLL’s primer on REIT, “Philippine Real Estate Investment Trust: A Bright Spot in the Next Normal,” here. 

JLL has been operating in the Philippines since 1997 as a 100% wholly owned entity and currently manages about 5.3 million square meters of real estate with a workforce of over 1,300 employees. With more than two decades of local expertise working hand-in-hand with its global legacy, JLL provides to the Philippine real estate market an unparalleled synergy of services with a strong commitment to achieve real estate ambitions through future-ready approaches. For further information, visit www.jll.com.ph.