Middle East shockwaves hitting property industry–Leechiu
The interest rate-sensitive real estate industry is facing renewed pressure as the Iran oil shock threatens to derail monetary easing and economic recovery, Leechiu Property Consultants (LPC) warned.
In its first-quarter 2026 report, LPC said the Philippine property sector has endured six consecutive crises since 2019 that weighed down the macroeconomy and investor sentiment.
It noted that the Philippine Stock Exchange Index (PSEi) has dropped by 23 percent from 2019 levels, while the PSE property counter has fallen 45 percent over the same period.
In 2025 when economic growth slowed to 4.4 percent, real estate price growth nearly flattened.
Funding at risk
Meanwhile, LPC said the ongoing Iran conflict was a “fundamentally different” crisis, citing its direct impact on oil supply, inflation, remittances and interest rate expectations.
Fuel price spikes have already pushed inflation forecasts higher, raising the risk of policy tightening, marking a policy shift by the Bangko Sentral ng Pilipinas, which had cut rates by 225 basis points since 2024.
This puts pressure on capital markets, with LPC noting that the window to secure cheaper financing may soon close as rate hikes return to the table.
Despite these headwinds, early signs of recovery are emerging. Office demand rose 70 percent year-on-year in the first quarter, while residential demand increased 19 percent, LPC said.
However, high vacancy levels and excess supply continue to weigh down valuations, with office vacancy at 17.8 percent and unsold condominium inventory equivalent to 31 months.
Borrowing costs of 7 percent to 8 percent remain above rental yields, limiting upside for leveraged investors and slowing capital deployment.
LPC said industrial and retail assets remain the preferred investment plays, offering yields of 7 percent to 8 percent and more stable income streams.
Preferred plays
For capital allocation, LPC urged institutional investors to prioritize logistics and industrial assets, while treating retail as a defensive play backed by consumption.
Individual investors, meanwhile, are advised to focus on prime central business districts such as BGC in Taguig, Makati and Ortigas, where recovery is seen more advanced.
The firm also urged investors to lock in financing at current policy rates before inflation risks trigger tighter monetary conditions.
Despite near-term risks, LPC said structural fundamentals remain intact, including a young population, strong domestic demand and limited reliance on foreign capital.
“The market is running out of gas—but the engine is sound. The fundamentals that made 2019 a great year are still here, just buried under six layers of crisis. Smart capital positions now,” said Tam Angel, director of investment sales at LPC.
