Property market opportunities in 2025

The Philippine economy continues to enjoy stellar growth, and Colliers see this providing opportunities for the real estate sector, especially in the retail, residential, and industrial segments.

These are the property sub-segments likely to benefit from interest rate cuts recently implemented by the central bank. The Philippines’ young and skilled workforce with constantly rising disposable incomes also support these sub-segments’ growth beyond 2025.

RETAIL: MORE EXPERIENTIAL, LESS TRANSACTIONAL

The retail sector has exhibited resilience over the past 12 months with Philippine malls attracting greater interest from foreign retailers. Some mall developers have even reported that consumer traffic is even greater than pre-pandemic level and this presents tremendous opportunities for retailers and consumers alike.

There will be a focus on experiential retail and special products and services. Even luxury is facing ‘fatigue’ at the moment, and we project that brands that will do well are those that offer unique curation and offering.

We are now seeing the impact of Retail Trade Liberalization Law on physical mall space absorption. With rising interest on the Philippine retail landscape, Colliers expects the entry of more anchor tenants particularly in major regional and super-regional malls across the capital region.

The Philippine economy is primarily consumption-driven, and this entices foreign retailers to invest in the country. Foreign players are now more aggressive in taking up physical mall space.

Mall operators are also implementing shifts to suburbia even in the retail sector, resulting in more retail centers outside of the capital region. Among the malls undergoing redevelopment and are scheduled to open outside Metro Manila include the Filinvest Mimosa Mall in Pampanga, Power Plant Malls in Bacolod and Pampanga by Rockwell Land, Megaworld’s The Upper East Mall in Bacolod, Ayala Malls Abreeza expansion, and the redevelopment of Ayala Center Cebu and Robinsons Bacolod.

Colliers sees the expansion of foreign retailers including those from the home furnishing segment. We believe that the eventual take-up of the sizable number of ready-for-occupancy (RFO) units in Metro Manila will likely support the demand for furniture and home accessories.

RESIDENTIAL: KNOW YOUR DEMAND, BEFORE YOU EXPAND

Tempered new launches in the capital region would mean tempered take-up particularly for condominiums in Metro Manila given the sizeable number of unsold pre-selling and completed/RFO units right now that could take more than five years to absorb given the current take-up rates.

Colliers believes that the substantial number of unsold RFO units is constricting developers to launch new condominium projects in the capital region. As of Q3 2024, Colliers data showed that unsold inventory in Metro Manila (covering pre-selling and RFO) reached 75,300 units. It will take about 5.8 years to fully sell out all these unsold condominium units, about five times longer compared to the pre-pandemic period (2017 to 2019) where remaining inventory life (RIL) ranged between 0.9 and 1.1 years.

Of the 75,300 remaining inventory, 27,200 are RFO valued at P154.4 billion ($2.8 billion).  This is a sizable amount yet to be taken up.

The lower to upper mid-income segments (P3.6 million to P12 million) accounted for 57% of remaining RFO inventory in Metro Manila as of Q3 2024. Meanwhile, among the submarkets with high level of unsold RFO units include Pasig City, QC-South, Parañaque, Manila North, Makati Fringe, and QC-North.

Developers are likely to continue the shift to suburbia with lots-only and house-and-lot (H&L) projects outside of Metro Manila and in key areas outside NCR (AONCR).

Horizontal projects remain attractive. We encourage developers to consider the viable locations for H&L and lot-only projects including provinces in Calabarzon, Central Luzon, Central Visayas, Western Visayas, and Davao region. H&L projects in these property hotspots recorded an average annual price increase of 4% to 7% from 2016 to 2023. Lot-only developments, meanwhile, recorded stronger price appreciation during the period, ranging between 7% and 15% annually from 2016 to 2023.

Colliers sees greater focus on leisure developments but unlike the property cycle in the mid 1990’s, the development is more holistic, and masterplanned with various land uses.

Colliers data showed that these projects were already popular pre-Covid but the pandemic only highlighted the strong take-up for these leisure-centric residential enclaves. Some of these leisure-oriented projects are dispersed across Batangas, Cavite and Cebu. Other locations likely to attract similar investments include Palawan, Boracay, Bohol, and Davao. The demand for these projects should also get a boost from the recovery of the country’s travel and tourism sector. Colliers also sees the revival of demand for golf communities within and outside Metro Manila.

INDUSTRIAL: HOT ON COLD STORAGE

The industrial sector stands to benefit from the government’s push to promote the country as a manufacturing hub in the ASEAN region. Colliers sees semiconductors, food and beverage (F&B) manufacturers as well as sunshine industries including electric vehicles (EVs) likely propelling industrial space absorption across the country.

We encourage industrial players to incorporate technological innovation into their warehouses and work with the government and other stakeholders in upskilling manufacturing workforce and ease the process of registering businesses to send a signal to foreign industrial locators that the Philippines is open for business.

Colliers also projects the cold chain sector likely sustaining demand for industrial and warehouse assets. We see this subsegment thriving even post-pandemic. The Cold Chain Association of the Philippines (CCAP) expects the sustained expansion of country’s cold storage capacity. This should entice more foreign locators to invest in the country’s cold chain segment.

The opportunities for Philippine property are boundless. We should aim to thrive in 2025.

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Source: Business World

Resiliency and adaptability in the Philippine property market

According to recent reports from Leechiu Property Consultants, the economy, which showcases a gross domestic product growth rate of 6.3%, is a significant factor driving property demand in the Philippines. The said figure positions the Philippines as the second fastest-growing economy in the region, just behind Vietnam, which recorded a growth rate of 6.9%.

The country’s economic performance provides a foundation for sustained interest in the real estate sector. As the Philippines gears up to achieve upper-middle-income status by 2025, anticipated investments in the property market are expected to rise, reflecting growing confidence in the country’s economic prospects.

Investors and homebuyers alike are increasingly looking beyond Metro Manila to tap into the opportunities presented by these dynamic regions. The improvements in transportation infrastructure, such as new expressways and public transit systems, have made these areas more accessible and investor-friendly.

Stabilized demand amid declining launches

According to Colliers Property Market Report published for the third quarter of 2023, the demand for residential properties in Metro Manila remained tempered due to elevated mortgage rates. While the Bangko Sentral ng Pilipinas has initiated rate cuts, their immediate impact on consumer lending is limited.

Only 9,300 pre-selling units were sold in the first nine months of 2024, a 53% year-on-year decline. Colliers projects an annual average increase of 4,980 units in pre-selling take-up from 2024 to 2028, with a full-year growth of 6,830 units expected by the end of 2024.

Interestingly, there has been a growing preference for upscale and luxury units, which are now accounting for a larger share of overall pre-selling take-up. This trend reflects a shift in buyer profiles, as investors and high-income earners continue to fuel demand despite the economic headwinds.

Meanwhile, the supply in the Metro Manila condominium market remains constrained, with completions in the third quarter of 2024 amounting to just 830 units, bringing the year-to-date total to 9,860 units lower than the previously forecasted 11,290 units due to project delays.

The vacancy rate in Metro Manila’s secondary residential market increased to 17.4% in the third quarter of 2024, up from 17.2% in the previous quarter. The exit of Chinese Philippine Offshore Gaming Operators (POGOs) workers significantly contributed to this trend, particularly in the Bay Area.

On the rental front, recovery remains sluggish. In fact, residential rents grew marginally by 0.2% quarter-on-quarter (QoQ) and are expected to rise by 1.0% year on year by the end of 2024. Annual growth is forecasted at 2.1% from 2024 to 2028, with rental rates returning to pre-pandemic levels by the second quarter of 2028.

Capital values for residential properties grew by 0.5% QoQ in the third quarter of 2024, with an annual growth projection of 2.1% for the year.

One of the key elements sustaining demand in the residential market is infrastructure development, particularly in areas outside Metro Manila. Provinces such as Cavite, Laguna, and Batangas have emerged as focal points for growth, benefiting from enhanced connectivity and ongoing urban development projects.

Decline in office market growth

The office market experienced its first negative net take-up since 2021, recording a net absorption of -33,000 square meters (sq.m.) in the third quarter of 2024. This contraction was driven by the vacated spaces of POGOs following the government’s ban, coupled with rightsizing among outsourcing firms.

Notably, the vacancy rate in Metro Manila rose to 18.5% in the third quarter of 2024 from 18.3% in the previous quarter. However, demand for office space in the provinces outperformed Metro Manila, with provincial transactions accounting for 23% of total office deals during the period. Cebu and Davao emerged as key hot spots, with substantial leasing activity from outsourcing firms.

New office supply remained limited, with only 9,500 sq.m. completed in the third quarter of 2024. For the first nine months, total completions amounted to 176,400 sq.m. — a 47% drop compared to the same period in 2023. Colliers attributes this decline to construction delays, muted pre-leasing activity, and high vacancy rates in certain submarkets.

While average rents in Metro Manila declined by 0.6% QoQ, primary central business districts (CBDs) like Makati, Fort Bonifacio, and Ortigas demonstrated resilience with marginal increases. In contrast, secondary markets are likely to experience further rental declines.

Despite challenges, traditional firms drove demand in Metro Manila, accounting for 53% of transactions during the first nine months of 2024. Banking institutions, government agencies, and flexible workspaces were among the key contributors to this segment.

Shift to leisure-oriented developments

According to Leechiu Property Consultants, the full recovery of hotel, tourism, and leisure segment to pre-pandemic levels is projected by 2026, as the government and private developers invest heavily in infrastructure and accommodations.

Nationwide, the private sector has committed to 158 new hotel projects, totaling 40,084 rooms, generating P250 billion in investments, and creating 57,000 jobs.

Luzon accounts for 50% of the total pipeline, with key projects in Clark and Metro Manila. Visayas comes next with significant developments in Boracay, Mactan Island, and Panglao; while Mindanao contributes 8% of the pipeline, with notable projects in Davao City, Cagayan de Oro, and Siargao.

In response to tepid demand in Metro Manila, developers are shifting focus to leisure-oriented projects outside the capital, according to Colliers. Golf communities are gaining traction as lifestyle-oriented investments. These projects, priced between P175,000 and P590,000 per square meter, report take-up rates ranging from 43% to 100%.

Surge in retail demand

Colliers highlighted that mall operators are strategically refreshing retail spaces to entice more visitors and extend their dwell time, particularly in the run-up to the festive fourth quarter. In the third quarter of 2024, 104,800 sq.m. of retail space was absorbed, with food and beverage (F&B) brands leading the charge.

Expansion by foreign retailers, including brands from the home furnishing and personal accessory sectors, further amplified demand.

The market also saw the delivery of 86,900 sq.m. of new retail space during the quarter, including prominent developments like Opus Mall in Quezon City and expansions of SM City Caloocan and SM Bicutan.

On the other hand, developers are increasingly focusing on redeveloping existing malls to align with consumer demands for more immersive and experiential spaces.

Retail rents exhibited modest growth due to the influx of new supply, with a QoQ increase of 0.2%. Premium rents were observed in business hubs and malls with low vacancy rates.

Vacancy rates improved slightly to 15.1% in the third quarter, driven by robust retailer take-up. By yearend, vacancy is projected to inch up to 15.3% as new supply comes.

Source: Business World

PHL mortgage rates seen steady until mid-2025

Mortgage rates in the Philippine residential sector are expected to remain unchanged until mid-2025 despite the recent rate cut, according to Colliers Philippines.

“We’ll probably see the full effect by mid-2025, and hopefully that results in lower mortgage rates because the average mortgage rate right now is only about 8.3%,” Joey Roi Bondoc, director for research at Colliers Philippines, told reporters a day before the policy meeting of the Bangko Sentral ng Pilipinas (BSP) on Oct. 16.

“That’s still pretty high, and that has been resulting in lower take-up of residential units, especially in Metro Manila,” he added.

The Monetary Board on Oct. 16 cut benchmark interest rates by 25 basis points (bps), as expected, since price pressures remain manageable. This brought its policy rate to 6%.

BSP Governor Eli M. Remolona, Jr. said another 25-bp cut to benchmark rates could be made at the December 19 meeting.

Lower mortgage rates will stimulate the market, increasing the demand for residential units, Mr. Bondoc noted.

He added that the mid-income segment is mostly affected by higher mortgage rates.

“If you look at pre-pandemic, at the time, we were looking at the take-up in the preselling condominium sector of 55,000-58,000 units. Now we’re good at what? 15,000, 20,000 units in a single year,” he said.

Mr. Bondoc said that Philippine offshore gaming operators (POGOs) were once a crucial factor in the demand for condominiums in Metro Manila.

“Because if you’re an OFW (overseas Filipino worker), the most attractive price point is the P2.5 (million) to P7 (million). So that’s affordable to lower mid-income. Given that mortgage rates are still elevated, some OFWs are still not keen on acquiring residential units,” he said.

Due to the elevated mortgage rates, OFWs are wary in terms of buying residential units despite increasing remittances, Mr. Bondoc added.

Meanwhile, economist Bernardo M. Villegas said the Philippines continues to be one of the fastest-growing economies in the Association of Southeast Asian Nations region despite global uncertainties.

“With a projected growth rate of over 6% in the coming years, we are poised to lead in economic resilience and transformation,” he said during a forum.

Mr. Villegas noted that the current administration’s efforts have established a “solid foundation” for inclusive growth, with advancements in infrastructure, investments, and the digital economy set to propel our progress further.

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Source: Business World