COLLIERS PHILIPPINES said the Metro Manila real estate market is seeing “relatively stable” capitalization (cap) rates.

“In the near term, property cap rates are expected to be relatively stable,” Paul Vincent Ramirez, senior director and head of valuation at Colliers Philippines, said in an e-mail.

According to Colliers’ latest Asia-Pacific Cap Rates Report, the Metro Manila office market recorded a cap rate of 5% (low) to 6% (high) as of the fourth quarter of 2024, unchanged from a year ago. The capitalization rate is the rate of return on a property, calculated by dividing its net operating income by its market value.

“An increasing cap rate tends to indicate rising risk, whether due to higher vacancy, collection losses, or rental rate volatility,” Mr. Ramirez said. “Investors in real estate prefer higher-cap-rate properties, which drives up demand, increasing their prices and consequently lowering cap rates if rents remain stable.”

For the Metro Manila office market, the exit of Philippine offshore gaming operators (POGOs) pushed the vacancy rate above 20%, forcing developers to lower rental rates.

“In Manila, office rents are trending downward, aligning with capital values and resulting in stable cap rates,” the report stated. 

However, the office sector remains the “most volatile,” depending on demand from sectors such as business process outsourcing (BPO) and information technology (IT), Mr. Ramirez said. 

Companies implementing return-to-office mandates, as well as the rollout of new office buildings, will also contribute to stability in the sector.

As of the fourth quarter, cap rates in Metro Manila’s retail sector remained unchanged year on year at 7% (low) to 8% (high), Colliers said, noting a surge in consumer spending in late 2024. 

“All pandemic rent concessions have already been shed, and malls are improving their occupancy and rental rates. We see this as a positive sign for the retail segment, as we expect capital values to inch up alongside rent,” Mr. Ramirez said. 

The retail sector is expected to remain stable as malls continue to provide viable public spaces in a consumer-driven economy like the Philippines, he added. 

Meanwhile, Metro Manila’s industrial sector reported a cap rate of 8% (low) to 9% (high) as of the fourth quarter of 2024, unchanged from a year earlier. 

“The industrial sector is a stable property segment that will depend on the expanding manufacturing and export industries, the growing need for in-city and near-city logistics, and the rise of data centers and cold storage subsectors,” Mr. Ramirez said. 

Metro Manila’s industrial cap rates are based on land lease rates in industrial estates outside the capital region, such as Cavite, Batangas, and Laguna. — Beatriz Marie D. Cruz