PHL property sector may face uneven recovery this year, says Cushman & Wakefield

THE PHILIPPINE property sector is likely to experience an uneven recovery across its segments this year, as economic uncertainty and geopolitical tensions continue to dampen investor sentiment, according to property consultancy firm Cushman & Wakefield (C&W).

However, the firm expects short-term appetite for prime assets with strong demand, it said in its latest Philippine Office and Investment MarketBeat Report.

“Over the next 12 to 18 months, expect renewed appetite for acquisitions — particularly in logistics and industrial assets, which remain strong demand drivers, as well as prime office and residential properties,” said Claro dG. Cordero, Jr., C&W director and head of research, consulting, and advisory services.

The uneven recovery across property segments is also being influenced by recent policy rate adjustments, which are affecting financing costs and investor sentiment.

The benchmark interest rate currently stands at 4.5%, the lowest in over three years. The Monetary Board has delivered 200 basis points (bps) in cuts since beginning its easing cycle in August 2024, including five straight 25-bp reductions last year.

“Sustained monetary easing by the Bangko Sentral ng Pilipinas (BSP) and supportive reforms can drive renewed capital inflows and enhance risk-adjusted returns across investment-grade real estate,” Mr. Cordero said.

BSP Governor Eli M. Remolona, Jr. earlier said a cut is possible at this month’s meeting if there is a need to support domestic demand, particularly after economic growth slumped to a five-year low in 2025.

However, he noted on Wednesday that inflation returning within the target range last month and expectations of economic recovery amid renewed confidence may have narrowed the room for further easing. The Monetary Board’s next policy meeting is scheduled for Feb. 19.

This year, office developments in prime central business districts (CBDs) are expected to stabilize, with quicker rental rate rebounds projected in the second half, while non-CBD areas may lag due to sluggish demand, slow space absorption, and gradual vacancy improvements.

“Overall, market demand is being supported by a mix of expanding IT-BPM (information technology and business process management) operations and renewed leasing activity from traditional occupiers, which are helping to underpin the recovery momentum across the office sector,” the firm said.

Global Capability Centers (GCCs) in the Philippines are also poised for sustained growth, driving demand for high-quality office spaces in CBDs tailored to their operational needs.

The report noted that landlords are increasing redevelopment and retrofits of aging buildings with green upgrades.

“While this may temporarily remove older stock from the market, the trend is expected to strengthen long-term competitiveness and enable aging buildings to better compete with newer office developments,” Mr. Cordero said, adding that these upgrades should match tenant expectations, enhance building value, and help properties stand out in competitive urban hubs.

Metro Manila office vacancy rates improved slightly in the fourth quarter of 2025, driven by CBD demand exceeding new supply despite rental and availability pressures.

CBD-led demand outpaced new supply in key districts, alongside shifts in occupier preferences toward modern, sustainable workspaces.

“The Philippine office market continued to gain traction in 2025, with expansion in the IT-BPM industry and new entrants supporting demand. While the overall vacancy rate remains elevated, outperforming sub-markets such as Bonifacio Global City (BGC) and Makati reflect stronger occupier interest, indicating a growing preference for high-quality, centrally located spaces,” Tenant Advisory Group Director Zory Mangelen said.

Vacancy rates in core CBDs such as Makati, BGC, and Ortigas Center improved to 10.4% from 10.9%, supported by steady IT-BPM and multinational leasing.

However, this was not enough to prevent rents from falling from P1,114 to P1,093 per square meter (sq.m.) per month, as some high-vacancy buildings reduced rates in the fourth quarter to attract tenants.

“CBD rental rates contracted by 1.89% quarter on quarter, with average rents declining by 1.9% to P1,093 per sq.m. per month, as some landlords implemented rate reductions to improve occupancy,” the firm said.

“Decentralized markets remain subdued, with rents flat at P815 per sq.m. per month and vacancies still elevated at 25.7%,” it added.

According to the report, limited space in core CBDs means landlords in other submarkets should review project timelines and increase supply delivery to meet ongoing demand in stronger segments.

“Early indicators of renewed activity in the prime office segment suggest that developers and landlords need to anticipate evolving occupier requirements by prioritizing modern designs, sustainability certifications, and flexible configurations,” Mr. Cordero said.

Prime and Grade A properties in Makati, BGC, and Ortigas held steady, but rental softening continued. Prime and Grade A office vacancies across Metro Manila narrowed by 40 bps quarter on quarter, from 18.3% to 17.9% in Q4 2025.

Estimated average office yields for Prime and Grade A developments dipped slightly to 6.92% — a one-bp decline both quarter on quarter and year on year — indicating cautious investor sentiment. — Alexandria Grace C. Magno