We continue to advise clients to BUY companies with significant exposure to consumer demand and middle-income residential, while avoiding companies that are heavy on office leasing. The rapid pace of disinflation and real wage growth should serve as a catalyst to drive discretionary consumption, which should translate to higher revenues for property developers with exposure to malls and hotels. At the same time, the BSP\u2019s continued easing of interest rates should boost middle-income residential sales and reduce the overhang on inventory. <\/p>\n\n\n\n
As such, we reiterate our BUY calls for SMPH (Target Price: P 40.30) and RLC (Target Price: P21.86).<\/p>\n\n\n\n
POGO exit starting to affect vacancy<\/strong><\/p>\n\n\n\n Leechiu Property Consultants (LPC) held a briefing for the third quarter last Tuesday. LPC noted that Q3 saw 50K sqm worth of vacancies by the POGO industry, which contributed to an increase in office leasing contractions to 378k sqm, up 21.5% from 311k sqm in the same period last year. Following the contraction, we estimate that the POGO sector now only accounts for around 430k sqm or 3% of total office space.<\/p>\n\n\n\n On track with Colliers estimates<\/strong><\/p>\n\n\n\n This is on track with Colliers vacancy estimates for the office market rising by 2.9ppts to 22.2% vs last year\u2019s 19.3% on the back of the continued exit of POGOs which would further soften demand for offices and lead to a potential decline in rental rates as well. <\/p>\n\n\n\n We note that 70% of remaining POGOs in the country are primarily located in the Bay Area, where 42% of SMPH\u2019s office GLA is located as of 1H 2024. Despite this, we remain bullish on SMPH given that offices only contribute a measly 5% of overall revenues, so we do not see the potential decline in rates due to higher vacancies in the area as something that would materially impact SMPH\u2019s topline.<\/p>\n\n\n\n