(First of two parts)

THE past twelve months have produced mixed results for the Philippine property. Office vacancies remain elevated while a sizable condominium inventory has yet to be absorbed by the Metro Manila market. Meanwhile, the retail sector has been recording sustained mall space take-up despite new supply while rebounding consumer spending has also been benefiting the leisure sector, resulting in occupancies more than tripling since the pandemic. Industrial parks continue to expand with greater prospects from sunshine segments such as electric vehicles and related components.

Meanwhile, the next 12 months provide vast opportunities for developers to reassess their strategies. They should identify growth opportunities and know how to recalibrate. 2025 is a year where we will likely see the full impacts of policy changes implemented in 2024 and the results of midterm elections likely to set the stage for 2028 national polls. Property firms should thoroughly evaluate headwinds in the market but should be quick in maximizing tailwinds. Only those who pivot will stay afloat.

OFFICE: OPTIMIZING NEW MARKET DYNAMICS POST-POGOWe see record high vacancies with the POGO exodus, but not all central business districts (CBDs) are the same, with Makati CBD, Fort Bonifacio and Ortigas CBD faring better.

Per submarket, Makati CBD will continue to record healthy occupancy rates as we only recorded limited vacated spaces. In our view, primary CBDs such as Fort Bonifacio, Ortigas CBD and Makati CBD are likely to recover faster compared to the Bay Area, Alabang and Makati Fringe. In 2024, we project overall vacancies to rise to 20.5%, a record high. In our latest briefing poll, Makati CBD emerged as the preferred destination for relocation and expansion. In fact, we believe that Makati CBD is up for redevelopment.

Tenants should take advantage of available fitted office space especially those implementing flight to cost and flight-to-quality measures. We see more occupants, including government agencies, taking advantage of high-quality office spaces being offered at a discount. Note that average lease rates in Metro Manila corrected by nearly 40% from 2020 to 2023.

We are likely to see sustained office space demand in Pampanga, Cebu, Davao, Bacolod, Iloilo, and Davao. We are getting queries from large BPO firms planning to either open their first facility or expand in these locations.

We see a more pronounced take-up for green and sustainable office space across the country.

In the first nine months of 2024, Colliers recorded 293,900 square meters (3.2 million square feet) of office space transacted in green buildings with Leadership in Energy and Environmental Design (LEED), Excellence in Design for Greater Efficiencies (EDGE), WELL Building Standard (WELL), and Building for Ecologically Responsive Design Excellence (BERDE) certifications or pre-certifications. This is nearly double the amount compared to the 151,900 sq.m. (1.6 million sq.ft.) transacted a year ago. Given the heightened importance of sustainability in occupiers’ office requirements, landlords are encouraged to infuse green features into their portfolio.

Major office developers are taking the lead in promoting sustainability in workspaces. We see a more pronounced promotion of healthy office space as developers and occupants work together to lure employees back to traditional office setup.

HOTEL: FOREIGN BRANDS BETTING BIG ON PHILIPPINE HOSPITALITYVisitor arrivals are expected to be at more than seven million this year — that is up by more than 20% year on year (YoY). The Tourism department is targeting 12 million foreign tourists in 2028. This should entice developers to build more homegrown brands or form partnerships with foreign operators in constructing more accommodation facilities across the Philippines especially in emerging tourist destinations.

Colliers believes that now is an opportune time for foreign brands to expand their presence in the Philippines given the planned modernization of the country’s international airports and the projected rise in international arrivals. The government has also set a lofty goal of attracting 12 million international tourists in 2028. Other foreign branded hotels in the pipeline will come from Sheraton, InterContinental Hotels, Dusit Thani, Citadines, Tryp by Wyndham and AppleOne’s JW Marriott in Panglao, Bohol. Colliers recommends that developers be on the lookout for upcoming convention centers and soon-to-be modernized airports outside the capital region for their hotel expansion plans.

Colliers believes that the establishment of more meetings, incentives, conferences, and exhibitions (MICE) is a must especially now that the government is positioning the Philippines as a key MICE destination in the world. The integration of these facilities is of utmost importance especially in business hotels located in major business districts in Metro Manila, Pampanga, Cebu, and Davao.

(To be continued.)

Joey Roi Bondoc is the director and head of Research of Colliers Philippines.

joey.bondoc@colliers.com