Inflation surges 8.0% in November 2022, faster than the 7.7% and 3.7% recorded in October 2022 and November 2021, respectively. This marks the highest inflation rate since November 2008, putting the year-to-date average at 5.6%, amidst continued increase in the general prices and cost of delivery of farm products. With the continued elevated inflation environment, the Bangko Sentral ng Pilipinas (BSP) is likely to raise the policy rate by 25-50 bps within the month. Coupled with other external headwinds, the government revised the GDP growth rate for 2023 to downwards to 6.0% to 7.0% from 6.5% to 8.0% in 2023.

While the recent hyper-inflation environment in the Philippines is driven by demand-pull factors brought about by pandemic-induced disruptions, primarily from revenge spending activities, the underlying pressures coming from supply-push factors will likely keep inflation uncomfortably high in the coming months.

The main effect of higher inflation on the real estate sector is the resulting increase in property prices and rents, coupled with eroding profitability for investors and owners if the resulting rental growth rate is lower than the increases in operating costs. Higher inflation for a manageable period may be beneficial to the property sector if only the effects are not as damaging to the economy. As it stands, the economy is expected to continue a rough ride in the short term. Hence, both property owners and occupiers must instill facility management global best practices and negotiate for favorable longer lease terms to effectively reduce occupation costs.

By Claro Cordero Jr. – Director and Head of Research, Consulting & Advisory Services