Cushman & Wakefield Philippines (Inaugural) 2025 Market Briefing
The real estate market is currently facing unique challenges due to unprecedented factors like the global pandemic, geopolitical tensions, and rapid technological advancements. Despite these challenges, established CBDs remain resilient, and the diversification into multiple sub-markets offers new opportunities. Looking ahead, nouveau sectors such as technology, healthcare, and logistics are expected to drive demand, supporting a gradual market recovery.
The Philippine real estate market is currently experiencing unique challenges, unlike any previous cycles. This distinct environment is shaped by unprecedented factors such as the global pandemic, geopolitical tensions, and rapid technological advancements, according to Cushman & Wakefield (NYSE: CWK).
The emergence of multiple sub-markets beyond the traditional Central Business Districts (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, 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.
Further, despite 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 rise of remote work has increased demand for: (1) flexible office spaces; (2)residential properties in suburban areas (highlighting the adaptability of the market to changing work patterns)’ and (3) high-quality logistics and industrial developments to address the proliferation of ecommerce activities and heightened demand for last mile delivery arrangements.
In the medium term, as economic conditions stabilize and businesses adapt to the new normal, there is potential for over-all property demand to rise. Non-traditional and alternative sectors such as technology, healthcare, 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.
“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 mentioned.
Office Segment
Cushman & Wakefield have 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% year-on-year, while non-CBD areas experienced a more significant decline of 4.2% year-on-year. This trend 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%-18% in 2025.
Residential Segment
The disparity between high-end and mid-end segments in the residential real estate market has become more pronounced. 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 25.0 square meters. Additionally, unrealistic, and highly inflated selling prices contribute to the market's challenges.”, Mr. Cordero maintained.
Mr. Cordero further added, “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.”
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 8% unsold. Outside Metro Manila, there are about 250,000 completed units, where unsold inventory is lower at around 5%.
Retail Segment
Discretionary spending among households in the Philippines has decreased due to the rising cost of living and the prioritization of necessities. The onslaught of the pandemic and the resulting global economic slowdown led to interest rate hikes in 2022 and 2023 to combat spiraling inflation rates. The crunch in spending has intensified competition, as challenging economic conditions are further compounded by evolving consumer loyalty and shopping preferences.
To remain profitable and to drive innovation, several retailers, and developers themselves have undergone significant make-over to remain agile and to balance cost pressures both from the demand for new shopping experience and maintaining a decent occupancy rate due to its loyal locators. The rate of redevelopment efforts has accelerated, coupled with the need to include additional features in newly completed developments to enhance the shoppers’ experience following the pandemic period.
According to Mr. Cordero, “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.”
“The recovery trajectory of the retail sector will similarly vary across different shopping districts depending on the concentration of developments and the quality of available retail space. Maturing retail developments are faced with challenges due to low foot traffic and mounting capital expenditure allocation for space redevelopment. Thus, while mature retail districts like Makati, Mandaluyong and Quezon City exhibit high commercial development density, new and expanding locators still find it viable due to the amount of available quality of retail space.”, Mr. Cordero added.
Hotel Segment
The hospitality segment is experiencing uneven regional recovery due to untapped potential in various tourist destinations, including the Philippines. 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.
In Metro Manila, as well as other areas outside the Philippines, branded developments are expanding, reflecting a market shift towards quality rather than affordability.
Industrial and Logistics Segment
The logistics and industrial sub-sector have remained resilient, with steady demand driven by the incredible growth of the digital economy. However, there is a need for improved quality in logistics facilities to meet the demands of new occupiers as most developments lack the quality needed to leverage digital and automation efforts, necessitating new or redeveloped warehouse facilities.
A notable trend is the emergence of data centers, with numerous hyperscalers considering expansion in the Philippines due to population growth and digitalization. The demand for cloud storage remains
largely untapped. Compared to Singapore, the Philippines has significant room for growth in this sector. However, challenges include achieving sustainability targets, clarity on restrictions from data privacy laws, and the high costs, availability, and viability of the support utilities.
Lasting impact on the capital market
“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.”, Mr. Cordero maintained.
Mr. Cordero added, “However, as uncertainties in U.S. trade policy eventually settle, investors are eagerly anticipating a gradual softening at the short end of the yield curve. This potential decrease in short-term interest rates could bring much-needed relief, lowering borrowing costs and stimulating home purchases by individuals.”
“On the other hand, a softening at the short end often reflects expectations of an impending economic slowdown or central bank interventions. This can influence long-term investment strategies, prompting institutional investors to seek safer, more stable assets or further diversify their portfolios to mitigate risks.”, Mr. Cordero added.
Navigating the slowdown: the role of flight-to-quality
Overall, the current cyclical slowdown mirrors the Philippines' experience during the onset of the global financial crisis in 2008. Cushman & Wakefield believes that the slowdown is nearing its tipping point. The impact of uncertainties in U.S. trade policy directions is expected to be temporary, as the macroeconomic fundamentals remain strong.
According to Mr. Cordero, “Across all key Philippine real estate sub-sectors, the increased demand for higher-quality, well-located, and resilient developments is significantly shaping the future real estate landscape. Investors and tenants prioritize properties in prime locations with superior amenities and robust infrastructure. This preference helps maintain and even increase the value of these assets over time. This stability attracts more investors looking for safe havens, further reinforcing the value of these assets.”
This diversification helps balance portfolios and mitigate risks associated with market fluctuations. Overall, the flight to quality behavior ensures that asset values are better conserved, promoting a more stable and resilient real estate market.
The rise of new master planned communities will also play a crucial role in resolving this cyclical downturn. The strong commitment of established property developers to create self-sustaining developments provides more options for both occupiers and buyers, ensuring that they have the products they demand at any given time—crisis or not.
Growth of secular demand for alternative sectors
“As the market shifts towards quality, there is a growing emphasis on sustainable and highly resilient developments, which tend to maintain their asset values over time. Emerging sectors such as technology, healthcare, and logistics, recognized for their resilience, are attracting increased investment. These alternative sectors highlight the evolving landscape of Philippine real estate, showing the potential for long-term, consistent demand that is unaffected by short-term fluctuations or seasonal trends.”, Mr. Cordero said.
Technology
- Smart Buildings: Integration of IoT and AI will lead to more efficient, automated buildings that optimize energy use, enhance security, and improve occupant comfort.
- Proptech Innovations: Technologies like virtual reality for property tours, big data analytics for market insights will transform real estate operations.
- Flexible Workspaces: The continued rise of remote work will increase demand for adaptable office spaces, not just within Metro Manila but in key urban areas as well, that can be easily reconfigured.
Healthcare
- Outpatient Facilities: There will be a shift towards smaller, decentralized outpatient facilities closer to residential areas, improving accessibility and reducing costs
- Adaptive Reuse: Converting vacant retail and office spaces into healthcare facilities will become more common, addressing facility shortages cost-effectively
- Sustainable Design: Healthcare facilities will increasingly incorporate sustainable practices, such as energy-efficient systems and green building materials
Logistics
- Urban Logistics: The demand for last-mile delivery facilities in highly urbanized areas will grow, driven by e-commerce and consumer expectations for fast delivery.
- Automation and Robotics: Warehouses and distribution centers will adopt more automation and robotics to enhance efficiency and reduce labor costs.
- Cold Storage: The need for cold storage facilities will rise, particularly for pharmaceuticals and perishable goods, requiring specialized real estate solutions.
According to Mr. Cordero, “Given the current market slowdown and the variety of sub-markets and alternative growth segments, stakeholders should be flexible and adaptive. 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. Embracing changes such as remote work and flexible spaces is important, as is developing long-term plans that account for market fluctuations and aim for sustainable growth.”
“In the medium term, as global investors diversify and return to the local capital market, and as policies are strengthened to enhance market transparency, investors will tale notice of the highly evolved Philippine real estate market and uncover more growth opportunities.” Mr. Cordero added.
