3 weeks ago
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The Philippine real estate market, according to global real estate firm Cushman & Wakefield (CWK) is currently experiencing unique challenges, unlike any previous cycles.
In its first 2025 market briefing, CWK noted that the current environment “is shaped by unprecedented factors such as the global pandemic, geopolitical tensions and rapid technological advancements.
Despite these challenges, CWK assured that “established CBDs (central business districts) remain resilient, and the diversification into multiple sub-markets offers new opportunities. Looking ahead, nouveau sectors such as technology, health care and logistics are expected to drive demand, supporting a gradual market recovery.”
The global real estate services firm pointed out that the emergence of multiple sub-markets beyond the traditional CBDs of Makati, Bonifacio Global City (BGC) and Ortigas has provided developers, investors and occupiers with opportunities to diversify their portfolios. This diversification helps mitigate risks by spreading investments across various locations and property types, reducing dependency on any single market.
Due to the combined effects of the pandemic and the extended economic downturn, CWK said, the availability of top-tier real estate assets in established CBDs has made the flight-to-quality trend more pronounced. The ability of established CBDs, as well as large, major cities outside Metro Manila, to preserve real estate values has attracted investors and discerning tenants who seek to minimize market risks.
CWK noted that despite the challenges, such as the departure of Philippine offshore gaming operators (POGOs), “established CBDs have demonstrated remarkable resilience. These areas continue to attract businesses and maintain high occupancy rates due to their developed infrastructure, accessibility and established business ecosystems. While certain non-CBD markets face pressures, such as reduced demand in specific sub-sectors, there remains some bright spots.”
The bright spots, according to CWK, are the rise of remote work which has increased demand for flexible office spaces, residential properties in suburban areas (highlighting the adaptability of the market to changing work patterns) and high-quality logistics and industrial developments to address the proliferation of e-commerce activities and heightened demand for last mile delivery arrangements.
In the medium term, as economic conditions stabilize and businesses adapt to the new normal, CWK said there is potential for over-all property demand to rise. Non-traditional and alternative sectors such as technology, health care, and logistics are expected to drive this new wave of demand, amplified by their significant growth during and even after the pandemic. The current situation is characterized by diverse recovery and growth trajectories for different markets. Local economic policies, infrastructure development and sector-specific trends will play crucial roles in influencing the pace and nature of (highly-localized) recovery.
However, CWK warned, “Inflation and prolonged high interest rates remain significant concerns, with food and crude oil prices heavily impacting the economy. The Bangko Sentral ng Pilipinas aims to lower policy rates to stimulate investments. However, recent global political trends, such as the Trump 2.0 administration, complicate this task”, according to Claro Cordero Jr., CWK head of research, consulting and advisory services, Philippines.
CWK has observed a decline in average prime and 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. This trend, the firm said, reflects a continued flight-to-quality, with CBD office developments benefiting from their superior finishes, amenities and tenant mix.
The actual supply of grade A office space completed in 2024 fell significantly short of the initial projection, indicating a slower-than-expected market recovery due to reduced demand, inducing further potential construction delays. Despite the return of office space from POGO companies, absorption rates have improved from pandemic lows, but remain influenced by flexible work trends and corporate policies. On the other hand, some companies mandating a return to the office are positively impacting demand growth. Overall, vacancy rates are expected to stabilize around 17 to 18 percent this year.
Developers and landlords, CWK added, have been cautious, holding onto their rental offers, and new office stock has been more dispersed outside traditional CBDs. Over the past decade, about 2.9 million square meters of office space were added outside Makati and BGC, with these areas adding around 2.5 million square meters. Non-CBD markets have seen higher absorption rates post-pandemic, partly due to flexible work trends and a focus (in terms of investment incentives) on developments outside main CBDs.
The disparity between high- and mid-end segments in the residential real estate market has become more pronounced, it said. During the Asian financial crisis, the oversupply of condominiums was concentrated in the high-end market. Today, excess inventory is focused on the mid-end market, which faces various issues, while the high-end segment remains relatively insulated with increasing demand for luxury developments offering larger units and quality amenities.
“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 sqm. Additionally, unrealistic and highly inflated selling prices contribute to the market’s challenges,” Cordero said.
Furthermore, he said, “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.”
CWK cited that 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 to 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, of which unsold inventory is lower at around five percent.
