INDUSTRIAL

Industrial Sector: Resilience in the Midst of a Pandemic

PRIME Philippines Research & Advisory Group • May 22, 2020

The Philippines’ real estate scene has seen better days, but with the onset of the coronavirus pandemic, the industry’s performance has been greatly impaired. Of the six real estate sectors, those heavily reliant on consumerism and tourism – specifically the hotel and retail sectors – are expected to take in the most damage. 

 

Other industries, like that of the office and the residential sectors, have continued to stay resilient in spite of the pandemic. The industrial sector, however, somehow finds itself caught in the middle. 

 

The Purchasing Managers’ Index (PMI) analyzes where economic trends with regards to the manufacturing and service sectors are most likely to go. Its significance lies in the fact that the result put out gives decision makers and investors a general idea about the current real estate business climate, which could, ultimately, affect their respective businesses. When compared to data gathered in previous months, a PMI resulting in a number above 50 is indicative of an expansion, a number below 50 indicates a contraction, and a number equal to 50 shows no change. 

 

In 2019 alone, the PMI in the Philippines saw an average value of 51.76. That positive performance carried over to the first two months of 2020, but drastically fell by March. When April rolled around, the index managed to drop to a record low of 31.6 from the previous month’s 39.7. In an interview with David Owen, an economist for the IHS Markit, predicted that “output declined at a rapid pace, signalling that industrial production data is likely to be bleak during the lockdown period.” Owen added, in the same article, that the lockdown brought about by the pandemic, as well as the subsequent extensions, has forced industries to adjust their production accordingly. 

 

The presence of the lockdown has dealt a massive impact on the manufacturing sector, especially since it calls for a restriction of activity. IHS Markit added that exports have fallen drastically due to distancing measures, as well as the global initiative to prevent further spreading of the virus. Because of this, there has been a cut on consumer spending, thereby creating a steep decline in orders. This, evidently, is anticipated to create a chain reaction, with the end result translating to a realignment and reorganization of storage warehouses in order to ensure the survival of the country’s industrial sector. In line with this, it is expected that the apparent decrease in demand in manufacturing and production may dampen the demand for storage and warehouses for the duration of the lockdown, and perhaps longer depending on the state of recovery. 

 

Although the country’s industrial sector is faced with potential turmoil due to the pandemic, it is still possible to foresee a rebound in a future post-COVID. For one thing, a decrease in consumers purchasing from traditional retail establishments can pave the way for e-commerce to experience a further boom. E-commerce, as well as the fast-moving consumer goods (FMCG) industry, can serve as forms of demand drivers for the industrial sector. The increase in demand for e-commerce can reignite demand for warehouses and industrial lots for the purpose of storage space, as well as a revival in the manufacturing and service sectors. Among these adaptive strategies include the renovation and modernization of warehouse capacities in order to further accommodate the demands of e-commerce institutions, as well as the growing trend of grocery and produce delivery services.

 

Overall, the industrial sector is no exception to the negative impacts brought about by the COVID-19 pandemic. Although such is the case, the industry has proven its resiliency again and again through alternative means and measures. Though its manufacturing arm may be hampered, it is the storage facilities that could stand to gain the most out of this whole situation, especially with the further usage of e-commerce platforms. These types of opportunities are, ultimately, expected to aid in sustaining the industry until the end of the pandemic. 

Tags:
PRIME Philippines, real estate, industrial sector, impacts brought about by the COVID-19, Purchasing Managers’ Index (PMI), industrial sector recovery, COVID-19
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