Turned-over sold-out developments boost net absorption

• Net absorption bumped up to 1,148 units in 4Q23 due to take-up from recently turned-over sold-out projects. Executives, expatriates and white-collar employees continued to buoy leasing activity. However, an uptick in vacancy levels was also recorded on account of supply expansion, as well as a lack of improvement in RTO rates and office leasing activities.
• Investment activities in the residential segment remained resilient; however, investors saw a lower prime yield in 4Q23 as prices continued to progress at a more accelerated pace than rents, despite both improving by year-end.

Supply expansion heightens vacancy levels

• Two sold-out developments added 1,354 prime units in 4Q23, which caused a significant increase in vacancy levels. The coming year is expected to continue posing a challenge to the recovery of vacancy levels, as 3,466 units are slated to enter the residential leasing market.
• Vacancy rates have returned to an upward trajectory in 4Q23 at 7.3%, a 15.6 bps increase q-o-q. Elevated vacancy levels were recorded due to the fresh bulk of units that entered the residential leasing market, as well as the slow recovery of the office leasing landscape.

Capital values and rents up due to interest in Prime assets

• New Prime assets in 4Q23 have introduced relatively higher rents, lifting the market average to PHP 834.1 per sqm, per month, a 1% uptick q-o-q. Moreover, some unit owners of well-performing assets have cautiously increased rents while elevated interest rates remain present.
• Capital values remained resilient at PHP 292,612 per sqm, a 2.3% hike q-o-q, which was attributed to the continued interest of investors in Luxury and Upscale properties. Sold-out developments entering the investment market under the Upscale and Luxury segments aided to the positive trajectory of capital values.

Outlook: Rents and prices to sustain a slow recovery by 2024

• The volume of new supply anticipated to enter the market in the coming quarters, the slow uptick in RTO levels and economic headwinds are expected to raise vacancy levels in the near term. Likewise, investment activities are expected to gradually improve until the end of 2024, amidst uncertainty.
• Incremental upticks in rents and prices are still projected for 2024 and beyond, driven by new Prime assets slated to enter the market. These can lift the market average, as well as better-performing assets that have more room to raise rates. However, growth is likely to remain slow due to a leaner market.