BSP rate cuts to spur Philippine property sector recovery

Leechiu Property Consultants said the Bangko Sentral ng Pilipinas' (BSP) interest rate cuts will stimulate economic activity and drive the recovery of the Philippine property market.

Industry experts expect the BSP to reduce its overnight borrowing rate by another 25 basis points at its December monetary policy meeting, with additional cuts projected through 2025.

"This strategic easing is expected to lower rates to 4.75 percent to 5 percent by end-2025, supporting long-term property market growth," Leechiu said.

Lowering interest rates promotes market activity and supports long-term capital value protection and growth, Leechiu said. While capital values remained stable post-pandemic, growth has stagnated. A continued reduction in interest rates, coupled with broader monetary policy easing, is expected to stimulate investment and boost the property market's potential for value appreciation.

After a decline during the pandemic, the Philippine Stock Exchange Index (PSEi) property sector partially recovered but has been trading within a limited range and has struggled to break out of its current trading range.

The PSEi property sector's conservative valuations offer investors an opportunity for a relatively safe store of value and capital growth in the long run, Leechiu said.

The Philippine real estate investment trust (REIT) market also continues to deliver competitive yields of 6 percent to 10 percent, outpacing returns in mature markets.

"The Philippine property sector stands to benefit from continued monetary easing, offering an essential stimulus for economic recovery. This clear policy direction is expected to boost confidence among developers, buyers and investors, encouraging increased market activity over the next 12 to 18 months. As key market indicators stabilize and growth potential strengthens, the sector presents a compelling opportunity for strategic investments," Leechiu said.

"We think the next 12 to 18 months is a good time to start entering or reentering the market. There will be plenty of opportunities to come in at attractive valuations for investors to be well positioned for a 5 to 7-year investment horizon in terms of yields and capital appreciation. We particularly like high-end residential assets and CBD-located commercial properties," said Tam Angel, director of investment sales at Leechiu.

Office Leasing Market

Meanwhile, the Philippine office leasing market recorded 1.1 million square meters of transacted deals in 2024, reflecting a 4 percent year-on-year growth and marking the highest transaction volume since the pandemic, Leechiu said.

This expansion comes despite challenges such as the Philippine Offshore Gaming Operator (POGO) ban, high interest rates, and inflationary pressures.

Government relocations and expansions in the Bay Area accounted for 122,000 square meters of recorded transactions, driving overall demand.

The traditional sector led the market with 492,000 square meters, surpassing the IT-BPM industry. Although demand slowed in the latter half of 2024, the full-year total reached 1 million square meters.

Traditional office demand grew 13 percent in 2024 compared to 2023. Following the POGO ban in July, no POGO-related office space demand was recorded in the year's second half, highlighting a market shift toward more sustainable tenants.

More than 80 percent of all transactions came from the traditional sector, with deals primarily under 500 square meters. IT-BPM companies leased spaces ranging from 1,000 to 5,000 square meters, while government relocations in the Bay Area typically ranged from 2,000 to 5,000 square meters.

Transactions above 1,000 square meters accounted for 75 percent of the market's overall demand. IT-BPM firms, traditional tenants, and government offices favored Grade B buildings under 10 years old.

About 10 percent of IT-BPM deals over 1,000 square meters were driven by new market entrants, signaling continued interest in the Philippines.

Metro Manila recorded 881,000 square meters of total leasing demand, with the Bay Area as the top-performing district due to government relocations. Outside Metro Manila, Cebu led with 113,000 square meters, representing nearly half of provincial demand.

Live demand for office space reached 494,000 square meters, with over half driven by third-party IT-BPM vendors. The government seeks an additional 71,000 square meters for expansion, while companies primarily target Metro Manila, with Bonifacio Global City (BGC) as the preferred location.

"The market is projected to stabilize by 2027, with vacancy rates returning to pre-pandemic levels of 7 percent by 2030. With steady demand growth since 2021, the Philippine office leasing sector is poised for long-term recovery," Leechiu said.

"Although vacancies remain elevated at 18 percent, supply and demand trends indicate that the market is shifting toward equilibrium, with clearer signs of recovery expected by 2027," said Mikko Barranda, director of commercial leasing at Leechiu.