The Philippine real estate market is currently experiencing unique challenges, according to real estate service firm Cushman & Wakefield.
“Inflation and prolonged high interest rates remain significant concerns, with food and crude oil prices heavily impacting the economy. The Bangko Sentral ng Pilipinas (BSP) aims to lower policy rates to stimulate investments. However, recent global political trends, such as the Trump 2.0 administration, complicate this task,” Claro dG. Cordero Jr., head of Research, Consulting & Advisory Services, Philippines at Cushman & Wakefield, said.
Despite challenges, such as the departure of Philippine Offshore Gaming Operators (POGOs), established central business districts of Makati, Bonifacio Global City and Ortigas have continued to attract businesses and maintain high occupancy rates because of developed infrastructure, accessibility and established business ecosystems.
Non-traditional and alternative sectors such as technology, healthcare and logistics are expected to drive the new wave of demand in real estate, amplified by significant growth during and even after the Covid-19 pandemic.
Cushman & Wakefield observed a decline in average Prime & Grade A office developments in Metro Manila for the fifth consecutive quarter. Average rental rates for office developments in CBD areas have decreased by 2.9 percent year-on-year, while non-CBD areas experienced a more significant decline of 4.2 percent year-on-year.
Companies mandating a return to the office are positively impacting demand growth. Overall, vacancy rates are expected to stabilize around 17 percent to 18 percent in 2025.
Excess inventory is focused on the mid-end market.
“The mid-end market faces a critical supply-demand mismatch, as buyers now prefer larger units (a substantial turnaround from the market-acceptable development density following the Asian financial crisis), while available studio types are often less than 25 square meters. Additionally, unrealistic and highly inflated selling prices contribute to the market’s challenges,” Cordero said.
He added that developers are grappling with increased input costs due to persistent global inflation and supply chain issues, exacerbated by geopolitical tensions.
“These factors hinder their ability to adjust prices quickly, leading to slower sales and impacting revenues. Elevated mortgage rates further worsen the situation for both buyers and developers. Until a balance is achieved between buyers’ expectations and developers’ pricing, excess inventory in the mid-end residential condominium sector will persist,” Cordero added.
The annual average completion rate for residential condominiums over the last decade has been 25,000 units, down from 35,000 units pre-pandemic. In 2024, completions breached 10,000 units, after averaging 6,500 units from 2000-2023. Metro Manila has approximately 450,000 mid-end and high-end residential units, with around eight percent unsold. Outside Metro Manila, there are about 250,000 completed units, where unsold inventory is lower at around five percent.
To remain profitable and to drive innovation, several retailers and developers have undergone significant makeover to remain agile and to balance cost pressures both from the demand for new shopping experience and maintaining a decent occupancy rate.
“As consumer preferences move towards experiential retail, which offers immersive, engaging and personalized shopping experiences, aging malls need to innovate to stay competitive. The noticeable trend among aging retail developments is the dwindling footfall rate due to their inability to adapt to the evolving ‘next normal’ in retail shopping, primarily due to their outdated infrastructure, lack of modern amenities and inefficient space layout,” Cordero said.
Currently, the total supply of mid-end and high-end hotel and serviced residence stock is around 50,000 keys, with an additional 1,600 expected to be completed by 2025. However, delays in hotel construction have slowed progress, and it may take five years to reach the projected 70,000 keys.
“While the global investment market is expected to slowly recover in the medium term, the Philippine capital market may remain under the radar due to recent geopolitical events that could undermine initial confidence gains. The high-for-long interest rate environment has led to increased borrowing costs, impacting both corporate and consumer spending. Investors are becoming more risk-averse, resulting in heightened volatility and wider bid-ask spreads in the local investment market. Additionally, the stronger U.S. dollar, driven by attractive yields, has put pressure on the Philippine peso, further complicating the economic outlook and stalling key real estate transactions,” Cordero said.
As the market shifts towards quality, there is a growing emphasis on sustainable and highly-resilient developments. Key strategies include diversifying investments to reduce risks and seize new opportunities, focusing on resilient sectors like technology, healthcare, and logistics, and staying informed about market trends and policies.