THE recent 0.25 percentage point cut in the Bangko Sentral ng Pilipinas (BSP) policy rate to 5.25 percent, along with hints of two more rate cuts this year, is sparking renewed optimism on the domestic real estate industry, particularly in the residential and retail segments.
Despite the Philippine economy growing by 5.4 percent in the first quarter, below government forecasts, the central bank’s rate cut aims to make borrowing cheaper, encouraging businesses and consumers to spend and invest more.
“Cooling inflation and lower interest rates should be a plus for the Philippine property. We have yet to see significant reduction in mortgage rates but the eventual drop for the remainder of the year should complement the Philippine property market’s recovery,” said Joey Rol Bondoc, director of Research at Colliers.
Lower interest rates are expected to help small and medium-sized companies expand, potentially increasing demand for office spaces. The retail sector is already benefiting from higher consumer traffic and sales compared to pre-pandemic times, with positive effects spilling over to the hospitality industry, which is focusing more on domestic tourists amid weaker international arrivals.
Faster Than Expected Retail Recovery
According to Colliers, the Philippine retail sector is bouncing back strongly. The entry of new foreign retail brands and expansion of existing ones have helped mall spaces in Metro Manila reach near pre-pandemic occupancy levels. This has resulted in lower retail vacancies and a recovery in lease rates, especially in established business hubs.
Colliers projects that retail mall vacancy rates will return to pre-COVID levels by the end of 2026, reflecting Filipinos’ growing preference for shopping in physical malls. More malls are also expected to open outside Metro Manila, signaling confidence from foreign brands in key provincial cities.
To continue attracting retail tenants, mall developers are encouraged to update their retail spaces and consider popular segments such as home furnishings and personal accessories, which require larger spaces.
Residential Market and Mortgage Rates
While the interest rate cut sends a positive signal for the residential market, Colliers notes that condominium sales in Metro Manila will likely only pick up once mortgage rates fall, which is expected to happen by the third quarter of 2025.
An additional 0.25 percentage point rate cut this year could particularly help the mid-income condominium market, with units priced between P3.2 million to P12 million, move toward a full recovery.
Outlook
Colliers remains optimistic that the lower interest rates will boost real estate demand across residential, office, retail, and hospitality sectors throughout 2025 and beyond.
“In our view, lower interest rates should buoy investors and end-users appetite to buy residential units as well as encourage office and industrial locators to execute their expansion plans,” Colliers said.
“Lower interest rates will also entice more Filipinos to spend which could bolster demand in the retail and hospitality sectors,” it added.
