Metro Manila real estate market shows mixed performance in Q3 2024 - JLL

MANILA, PHILIPPINES - Jones Lang LaSalle (JLL) Philippines released its third 2024 Metro Manila market overview today, revealing a mixed performance across the office, retail, and hospitality sectors for the third quarter of the year.

According to Janlo delos Reyes, Head of Research and Strategic Consulting at JLL Philippines, office leasing remains stable but low pre-commitment levels on new spaces continue to apply supply pressure on the market and sustain soft rentals. Meanwhile, retail and hospitality are poised to continue their positive performance during the upcoming holiday season.

Office leasing, vacancies stable as rents continued to fall

Office leasing rose to 31.2% year-on-year in the third quarter. Corporate tenants, led by a government agency, dominated demand by 54.4%. While BPO firms took a smaller share, their expansions are poised to drive sector activity in the coming months.

Despite stable demand and leasing take-up, reducing vacancies to 19%, total released space increased by 6.5% year-on-year. Low pre-commitment levels on new supply could bump vacancy levels to 20% in the medium term.

Given the softer leasing conditions, rentals are expected to continue downward to a low of Php 970/sqm/month.

“Leasing conditions, particularly vacancies and rentals, are largely influenced by supply pressure and firms rationalizing their office spaces based on downsizing or expansion strategies,” shared de los Reyes, adding that the firm forecasts hybrid work arrangements to continue into the next year.

Retail sector shows strength ahead of holiday season

Retailers are gearing up for a robust season as the end-of-year holidays approach.

The retail segment saw a steady increase in store openings during the third quarter. Food and beverage remained the strongest retail category across both store openings (27.6%) and closures (26.1%).

Though new malls brought vacancy levels up to 6.9%, these rates are expected to fall to 6.5% by the end of the year as local and foreign brands continue expansions in time for the holidays and a lack of new supply is expected to enter the market.

Hospitality sector rebound also driven by holiday demand

The hospitality sector emerged as a bright spot, with hotel occupancy rates reaching 76.9% in the third quarter. This growth was supported by strong tourism numbers, with international tourist arrivals reaching 4.4 million as of September 2024, representing a 9.9% year-on-year increase.

Average room rates also showed improvement, reaching PHP 7,971 per room per night, marking a 2.2% quarter-on-quarter and 3.8% year-on-year increase. Rates are expected to reach at least Php 8,000 per room per night by year-end.

Supply pressure, key policies loom large on all segments

Looking ahead, Metro Manila real estate faces supply pressure across all segments with 1.1 million square meters of office space, 283,000 square meters of retail space, and 3,900 new hotels entering the market until 2028.

“Metro Manila’s real estate performance is largely driven by space rationalization strategies and supply pressure. It’s essential to monitor these key indicators over time as they inform developers and decision-makers about how to strategize amid leasing conditions in the coming months,” added de los Reyes.