According to recent reports from Leechiu Property Consultants, the economy, which is showing gross domestic product growth of 6.3%, is a major factor driving real estate 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 is the basis for continued interest in the real estate sector. As the Philippines gears up to reach upper middle-income status by 2025, projected investment in the real estate market is expected to rise, reflecting growing confidence in the country’s economic prospects.
Investors and homebuyers alike are increasingly looking beyond Metro Manila to take advantage of the opportunities offered by these dynamic regions. Improvements in transportation infrastructure, such as new highways and public transportation systems, have made these areas more accessible and investor-friendly.
Stabilized demand amid declining launches
According to the Colliers Property Market Report released for the third quarter of 2023, housing demand in Metro Manila remained subdued due to higher mortgage rates. Although the Bangko Sentral ng Pilipinas has initiated interest rate cuts, their immediate impact on consumer loans is limited.
Only 9,In the first nine months of 2024, 300 pre-sale units were sold, down 53% year-over-year. Colliers expects an annual average increase of 4,980 units in pre-sale intake between 2024 and 2028, with full-year growth expected to reach 6,830 units by the end of 2024.
Interestingly, there is a growing preference for luxury and luxury units, which now account for a larger share of the total pre-selling take. This trend reflects a shift in buyer profile as investors and high-income earners continue to drive demand despite economic headwinds.
Meanwhile, supply in Metro Manila’s condominium market remains tight, with third-quarter 2024 completions of just 830 units, bringing the year-to-date total to 9,860 units from the previously forecast 11,290 units due to project delays.
The vacancy rate in Metro Manila’s secondary housing market increased to 17.4% in the third quarter of 2024, from 17.2% in the previous quarter. The departure of employees from Chinese Philippine Offshore Gaming Operators (POGOs) has contributed significantly to this trend, especially in the Bay Area.
On the rental front, recovery remains slow. In fact, residential rental prices have increased marginally by 0.2% quarter-on-quarter (QoQ) and are expected to increase by 1.0% year-on-year by the end of 2024. Annual growth is expected to reach 2.1% between 2024 and 2028, with rental prices returning to pre-pandemic levels in the second quarter of 2028.
Residential capital values rose 0.5% quarter-on-quarter in the third quarter of 2024, with an annual growth projection of 2.1% for that year.
One of the key elements that maintain demand in the housing market is infrastructure development, especially in areas outside Metro Manila. Provinces such as Cavite, Laguna and Batangas have emerged as focal points for growth, benefiting from improved connectivity and ongoing urban development projects.
Decline in the growth of the office market
The office market experienced its first negative net absorption since 2021, with a net absorption of -33,000 square meters (m²) in the third quarter of 2024. This contraction was caused by the vacated spaces of POGOs after the government ban, in combination with justifying the size of outsourcing companies.
Notably, Metro Manila’s vacancy rate increased to 18.5% in the third quarter of 2024, compared to 18.3% in the previous quarter. However, office space demand in the provinces outperformed that of Metro Manila, with provincial transactions accounting for 23% of total office transactions during the period. Cebu and Davao emerged as major hotspots, with significant leasing activity from outsourcing companies.
The new office supply remained limited: only 9,500 m². completed in the third quarter of 2024. During the first nine months, the total delivery amounted to 176,400 m². – a decline of 47% compared to the same period in 2023. Colliers attributes this decline to construction delays, subdued pre-lease activity and high vacancy rates in certain submarkets.
While average rents in Metro Manila fell 0.6% quarter-on-quarter, primary central business districts (CBDs) such as Makati, Fort Bonifacio and Ortigas showed resilience with marginal increases. In contrast, secondary markets are likely to experience further rental declines.
Despite the challenges, traditional businesses drove demand in Metro Manila, accounting for 53% of transactions in the first nine months of 2024. Banking institutions, government agencies and flexible workspaces were among the top contributors to this segment.
Shift towards leisure-oriented developments
According to Leechiu Property Consultants, a full recovery of the hotel, tourism and leisure segment to pre-pandemic levels is expected 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 major projects in Clark and Metro Manila. Visayas follows with major 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, Colliers said. Golf communities are gaining popularity as lifestyle-oriented investments. These projects, priced between P175,000 and P590,000 per square meter, report absorption rates ranging from 43% to 100%.
Increase in retail demand
Colliers highlighted that shopping center operators are strategically renewing retail spaces to attract more visitors and extend their length of stay, especially in the run-up to the festive fourth quarter. In the third quarter of 2024, 104,800 m². of retail space was absorbed, with food and beverage (F&B) brands leading the way.
Expansion by foreign retailers, including brands from the home furnishings and personal accessories sectors, further boosted demand.
The market also saw the completion of 86,900 m². of new retail space during the quarter, including prominent developments such as 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 shopping centers to meet consumer demand for more immersive and experiential spaces.
Retail rents showed modest growth due to the influx of new supply, with a quarter-on-quarter increase of 0.2%. Premium rents were observed in business centers and shopping centers with low vacancy rates.
Vacancy improved slightly to 15.1% in the third quarter, thanks to robust uptake by retailers. By the end of the year, the vacancy rate is expected to rise to 15.3% as new supply comes in. — Micole A. Moraal