News release

Economic recovery, supply pressure to impact PH real estate

Economic headwinds are still present in the backdrop, but there is some optimism in the market for the remainder of 2023

May 08, 2023

Jikka Defiño

Assistant Manager – Marketing

JLL Philippines declares that there is some optimism in the real estate market this 2023, though economic headwinds are still present in the backdrop. The country’s GDP registered a strong rebound to 7.6% in 2022 and is projected to further grow by 6-7% in 2023. Consequently, the easing inflation (7.6% as of March 2023, expected to drop to 6% end of year) may also trigger a pause on interest rate hikes and give relief to the market, eventually helping in stimulating spending.

BPOs drive office leasing volumes, transfers to BOI temper office demand

“Occupiers have gained their footing and settled post-pandemic, and now have a clearer view on their short- to medium-term strategy in terms of office space requirements,” says Janlo de los Reyes, JLL Philippines’ Head of Research and Strategic Consulting.

Leasing volumes rose by 39% compared to last quarter, driven by activities from the BPO segment, accounting for 67.1% of total Metro Manila transactions recorded in the first quarter. Growing leasing activity is recorded in the other parts of the Metro which suggests, to some degree, decentralization among occupiers as they take advantage of high vacancies and lower rents.

We may see leasing volumes moderate in the subsequent quarters as the market normalizes. However, this may be tempered by remote work arrangements employed by select BPOs who have shifted from PEZA to BOI. 

Rightsizing or released spaces remained persistent, totaling to roughly 126k sqm in the first quarter of 2023. Release of spaces are observed in select POGO players and some BPOs who transferred their registration to the BOI. “We may see this downsizing among BPOs who transferred their registration to the BOI accelerate in the remaining quarters of the year as they rightsize their footprint to fit their operations,” says Karisse Garcia, JLL Philippines’ Research Manager. 

Aside from rightsizing, new supply further elevated vacancy levels, settling at 17.9% in the first quarter, up by 30.4 bps. JLL anticipates continued increase in vacancy for the remainder of 2023, mainly due to a large volume of supply slated to be completed in 2023 with relatively limited occupied spaces. 

Headline rents continued to contract and settled at PHP 1,043 per sqm per month, down by 0.7% compared to last quarter. We may see rentals for majority of the developments plateau for the remainder of the year, with the moderation of leasing volumes. New prime assets may bring up market rental average incrementally towards year-end. 

Retail market slows down in the first quarter of 2023

Store closures accelerated to roughly 11,000 sqm, while store openings moderated to around 6,000 sqm. Slower leasing activities in the retail market, coupled with new supply, further lifted vacancy to 5.4% (26.0 bps up from last quarter).

Garcia says “we may see leasing activities moderate in the next quarter before improving towards the latter half of the year in time with the peak holiday season. Nonetheless, we still anticipate vacancy levels to climb by end-2023 mainly due to supply pressures.” 

Despite the slower market, retail rents have further climbed up by 2.0% quarter-on-quarter to PHP 1,730 per sqm per month, mainly driven by well-performing assets. 

Minimal expansion on residential vacancy

Vacancy rate expanded incrementally by 6.5 bps q-o-q to 5.6%, driven by new units entering the leasing market. This influenced the softening of rents, owing to steeper competition and aging developments with a chunk of vacant units. Rents are anticipated to record small upticks towards year-end due to the completion of new, higher-tiered developments, bringing up market average incrementally. Unit owners of long vacated units are expected to retain rents to buoy demand.

Meanwhile, the residential sale market cooled down, evidenced by the lower cumulative sales rate for both the RFO (98.0%, down by 4.3 bps q-o-q) and the pre-selling (84.4%, down by 30.0 bps q-o-q) markets. The slower performance is owed primarily to the midscale market which saw multiple cancelled units, bringing net take-up to a negative across completion status.

The upscale and luxury properties, however, saw positive take-up despite economic headwinds. JLL anticipates investment activities to remain challenged for the remainder of the year, primarily due to escalating interest rates which dampen buyer sentiments. 

Prices recorded negligible movements, with the RFO average selling price growing by 0.9% q-o-q to PHP 208,303 per sqm, while a minute contraction on average pre-selling prices was recorded, ending at PHP 233,353 per sqm in 1Q23, down by 1.0% q-o-q, owing to cancelled units. Price growth for the subsequent quarters of 2023 may remain slow, influenced by the anticipated challenged market.

Hotels register pre-pandemic levels

Occupancy levels for end-March 2023 declined to 73.4%, a contraction of roughly 1.5k bps q-o-q, as leisure demand waned after the holiday season. Nonetheless, hotel occupancy levels have already recovered, registering pre-pandemic levels, owing to solid domestic demand. Sustained normalizing of the hospitality market can be observed in the remainder of the year as activities from both local and international tourists gain traction.

Despite the moderating occupancy, room rates have continued to inch up, growing by 2.1% q-o-q to PHP 7,519 per room per night in 1Q23. Hotel operators are gradually pushing rates and testing new thresholds amid a relatively stable demand. We may see room rates sustain its upward trajectory in the subsequent quarters of the year, eventually catching up to pre-pandemic levels.

Varying degrees to recovery

On market recovery, de los Reyes says “We have moved past the pandemic, but it must be noted that there are varying degrees to recovery. Some sectors are performing better than others.”

He says that the residential market is moving sideways, while hospitality is improving and on its way to pre-pandemic levels. The office market is on its way to recovery, but structural changes like PEZA and BOI are impacting the performance of the sector.

Supply pressure is one of the key challenges that is seen to have notable impact on the performance of the market for the remaining quarters of 2023. “We are anticipating a notable volume of supply to enter the market, potentially weighing down on the recovery of demand indicators across sectors,” says de los Reyes.

About JLL

For over 200 years, JLL (NYSE: JLL), a leading global commercial real estate and investment management company, has helped clients buy, build, occupy, manage and invest in a variety of commercial, industrial, hotel, residential and retail properties. A Fortune 500® company with annual revenue of $20.8 billion and operations in over 80 countries around the world, our more than 106,000 employees bring the power of a global platform combined with local expertise. Driven by our purpose to shape the future of real estate for a better world, we help our clients, people and communities SEE A BRIGHTER WAYSM. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit