MANILA, Philippines — The Philippine property market may be turning the corner from risk to resilience, according to First Metro Securities’ research team led by Mark Angeles and Estella Villamiel.
In a briefing for members of the Monday Circle at the Westin Manila in Ortigas, First Metro Securities expressed the view that the worst may be behind for the Philippine property sector as key indicators begin to stabilize amid a clouded outlook.
For the residential sector, the outlook still shows a persistent oversupply and elevated vacancy rates, unattractive low rental yields, and lingering risk of cancellations amid elevated mortgage rate, all of which continue to weigh on recovery.
Developers, they observed, have become selective though with project launches, with a clear pivot toward regional markets given higher inventory levels and more resilient demand.
Metro Manila, they acknowledge, remains weighed down by the exit of POGOs, hybrid work arrangements and weak rental yields. Regional demand, on the other hand, is buoyed by decentralization, ongoing infrastructure rollout and greater credit availability.
What First Metro Securities hopes to see in the near future for the residential sector is a faster-than-expected absorption of existing inventory alongside a decline in mortgage rates, improved credit availability (particularly in Metro Manila) and/or stronger return to office mandates.
The demand-side drivers, First Metro Securities believes, will accelerate leasing and sales activity that will help offset supply-side pressures and support property prices.
Residential prices remain broadly supported, but demand remains weak and turnover-related cancellations may exert pressure, the research warned.
For the malls, the outlook is positive as there appears to be a strong rebound, with rising rents and occupancy supported by robust consumer spending and aggressive retailer and credit card promotions that offer upfront discounts, buy now-pay later promos and installment plans as low as zero percent on credit card transactions in malls.
Additionally, the implementation of the VAT (value added tax) Refund System or VRS for tourists is an upside for malls, boosting foot traffic and spending, as well as demand for retail space which supports rental growth. Developers with strong exposure to international brands are best positioned to benefit.
The research team observed that the mall sector growth remains steady, driven by redevelopment and regional expansion. Occupancy and rents are rising, with more upside from constructive consumption drivers.
They pointed out that Filipinos’ mall-going culture never went away, as seen in the swift rebound of leasing revenues to pre-COVID levels within two years of reopening. Developers, they note, are reaccelerating expansion plans, with focus on redevelopment and regional penetration, but occupancy is still recovering and still trails pre-pandemic levels due to higher gross leasable area or GLA.
Occupancy is seen to improve further as new malls stabilize and renovations are completed which, in turn, will support higher effective rental rates that are now at or above pre-pandemic levels. Tenant mix upgrades and redevelopment, it was explained, has enabled better lease structures — boosting leasing revenues amid a recovering consumption backdrop.
But the recovery of the mall sector, First Metro Securities warns, also faces some risk if inflation picks up and the government imposes tighter lending standards. A rise in unemployment and slower remittances growth could also delay mall growth recovery.
Even the planned rehabilitation of EDSA was cited as a risk factor for retail assets. First Metro Securities explained that while those along major roads like EDSA gain from high foot traffic, prolonged works may worsen congestion that could either increase mall dwell times or deter visits, creating performance volatility in the sector.
For the office sector, the outlook is neutral as rents and vacancies stabilize. First Metro Securities acknowledges that developers remain cautious amid incoming supply, evolving tenant needs and hybrid work trends.
Metro Manila office demand, they admit, remains fragile even as newer post-COVID assets see steady demand. The 50 percent work-from-home cap under the CREATE MORE helps stabilize vacancies while regional expansion draws interest for business continuity, cost efficiency and proximity.
The Information Technology and Business Process Association of the Philippines (IBPAP), they said, is bullish that the IT and BPO sector will be able to generate over $40 billion in revenues and reach two million jobs within the next 12 to 18 months.
There are concerns, however, on the effect of Artificial Intelligence efficiencies in evolving BPO models that may limit future space requirements.
Based on their research, First Metro Securities noted that property developers have proactively recalibrated their strategies to navigate the current environment.
These include selective residential launches that focus on premium segments and regional markets where demand remains resilient and inventory levels are healthier.
They also noted that office offerings have become quality focused and have included asset upgrades and regional expansion to cater to tenants seeking business continuity, cost efficiency and proximity to workforce hubs.
These actions have already had a positive impact on office rentals, but the upside is limited with the incoming supply of anywhere from 600,000 to 900,000 square meters of new office completions.
Even evolving US protectionist policies was taken into consideration as the Trump administration could also target services and, thus, threaten offshore BPO demand.
For the malls sector, First Metro Securities cited retail asset redevelopment and regional mall expansion to enhance the tenant mix, improve foot traffic and align with evolving consumer preferences.
They also highlighted the capital recycling via REITs which enables developers to monetize mature assets, strengthen their balance sheets and redeploy capital into growth initiatives.
First Metro Securities favors property REITs for those looking to invest in the stock market. They argue that amid the ongoing softness in the Philippine property sector, REITs are better stock picks due to their stable income generation, clear growth visibility and potential for yield compression upside, especially in an environment of moderating bond yields.REITs with strong sponsors, high-quality assets and larger market caps are well-positioned to perform, First Metro Securities concluded.