Demand for office and outsourcing space in Manila’s most popular commercial areas managed to keep pace with a surge of new supply in 2015. That said, 2016 is expected to see a slight rise in vacancy rates. Foreseeing this trend, however, and wary of flooding the market, builders and developers have already pared down plans for future launches.

Nearly 600,000 sq metres of office space was added to Metro Manila’s supply in 2015, about double the 2014 level, with more than half of this occupied by offshoring and outsourcing tenants. For 2016 Colliers International, a US-based global real estate firm, predicted that an additional 700,000 sq metres could enter the market. As a result, vacancy rates in the region could rise to 6% in 2016, according to Carlo Javiniar, senior director of CBRE Philippines up from 4.5% in 2015. According to Colliers, 1.85m sq metres of space is expected to be added to Metro Manila between 2015 and 2017. As a result of the rise in supply, office rents, which grew only 1.46% in the final quarter of 2015, are expected to continue showing sluggish growth in 2016.

Metro Manila

Offices in Makati Central Business District (CBD) continued to be highest in demand, with a vacancy rate of 1.42% in the fourth quarter of 2015. Premium rentals in Makati commanded P1116 ($24.78) per square metre. Grade A office space in Makati and in the recently established Bonifacio Global City (BGC) maintained high occupancy rates in 2015, even with the launch of four major developments in the third quarter of 2015. In 2015 seven office developments opened in BGC alone. Among them were BDO Corporate Centre, Net Park and Cocolight. Vacancies were on the rise in Grade A buildings in BGC, doubling to 8% by the end of the year, according to Colliers. Colliers further predicted that the 700,000 sq metres of new office space scheduled for completion in 2016 would see vacancy levels rise as demand is not expected to match capacity. That trend is on track to continue in the new year, as BGC is slated to add 278,000 sq metres of new office space in 2016. New supply was much more limited in Ortigas Centre, although the 65,072-sq metre BDO Corporate Centre opened there in 2015. The office vacancy rate in Ortigas fell to less than 2% in the fourth quarter of 2015.

Decentralising Outsourcing

The rise of the business process outsourcing (BPO) industry in the country has dictated the design of these larger buildings. When call centres and other off-shoring companies began arriving in the Philippines at the turn of the millennium, they originally moved into cheaper office space, in which a single floor – the “floor plate” – would typically be 900 sq metres. Now office towers are built with a floor plate of 2000 sq metres without columns to accommodate the needs of BPO companies.

The country’s BPO industry now requires an additional 6m square feet a year. “This has created three times the demand for commercial space than in Singapore and Tokyo,” Rick Santos, chairman of CBRE Philippines told the local media. These buildings typically house between 15 and 20 tenants, which together may employ up to 12,000 employees. When a multinational – such as Accenture, AIG or Procter & Gamble – leases a floor in these high-rise offices, 80% of the floor will typically be occupied by BPO operations and the remaining 20% by the offices of managers and other staff. Many BPO tenants in Manila now plan to expand to other urban centres, with Cebu City the top choice. Convergys’ call centres have led the way with operations in Baguio, Cebu, Clark and Davao. In an attempt to discourage migration to Manila, the government is encouraging decentralisation with an initiative called Next Wave Cities. However, three quarters of BPO operations are still located in the Manila area. “High-density developments are natural to areas like Metro Manila, given high property prices,” Manuel Paolo Villar, president and CEO of integrated property developer Vista Land, told OBG. “As a result, Metro Manila will inevitably only continue the trend of vertical construction, as more people prefer the convenience of being close to the economic centres.” Indeed, newcomers to the Philippines still generally start operations in Manila and then grow organically, sometimes spreading to several cities but locating close to transport hubs like the Manila Metro Rail Transit System. Although Philippine BPOs attract the most international attention, demand for other kinds of office space may be more pressing. “Demand has quadrupled in three years but we can only triple our business. It’s a landlord’s market,” said Lars Wittig, Philippines country manager of Regus, which operates serviced offices in 120 countries. The company rents large office spaces, often on 10-year leases, and then sublets work stations.

In Metro Manila Regus has 20 locations and the company opened locations in both Cebu City and Clark Airport in late 2015, and is eyeing other cities. Some tenants are Philippine start-up companies that initially require a few desks and work stations and then rent more as they expand. Others are companies with headquarters in one part of Manila that need remote branches in the sprawling metropolis or business travellers based in other countries or regions that need a temporary business lounge, a meeting room or long-term office space. After 13 consecutive quarters of tightening, banks kept commercial real estate lending standards unchanged in the fourth quarter of 2015, according to data from a survey conducted by the Central Bank of the Philippines (BSP). Demand for commercial real estate remained the same in the fourth quarter of 2015. However, banks have shown their confidence in the sector by finally easing lending.

Alveo, the office building division of Ayala Land, pioneered the concept of selling office space instead of leasing in the Philippines. In 2014 its office sales of $149m surpassed its revenue from leases, which totalled some $90m. In Metro Manila, Alveo has launched eight large office towers since 2012; the newest being the 49-storey Alveo Financial Tower in the Makati CBD. Additionally, the redevelopment of the as yet unfinished Jaka Tower on Ayala Avenue into a premium LEED-certified office and retail structure began in early 2016.

Industrial Property

Growth in industrial property construction was nearly flat in 2015, despite a growth in manufacturing of 5.7%.However, this did not match the 2014 level of 8.1%. Due to accelerated public spending in the second half of 2015, manufacturing should surge in 2016 and beyond as licences for industrial subdivisions grew by almost 33% in 2015. Officials with the Philippine Economic Zone Authority (PEZA) are expecting significant investments from four undisclosed Asian manufacturers in 2016, each of which would acquire from 25 to 30 ha of PEZA-administered land.

In the first half of 2015 prices for manufacturing and warehousing sites in the manufacturing centres of Cavite, Laguna and Batangas rose by almost 8% from the first half of 2015 to the end of the year to P59 ($1.31) per sq metre. As strong demand is expected in 2016 and sites are still in short supply, prices should continue to climb.

Housing Cools

Following a slowdown in project launches and issuance of condominium licenses in 2015, real estate professionals anticipate a cooling-off period in 2016, although economic performance will remain healthy, with GDP expected to grow 6.3%, according to the Asian Development Bank. The Housing and Land Use Regulatory Board issued 14.5% fewer licences in 2015 for residential development than in 2014. Builders are partly responding to anticipated changes in interest rates — now rising after a long period of record low mortgage rates — as well as a dampening of demand and global economic forces. “Developers themselves are limiting exposure, as supply has been growing faster than demand. 2014 and 2015 were historical highs for the completion of residential development. It’s not bad to practice self-control,” Javiniar told OBG.

The vacancy rate of prime residential properties remained at what JLL, a commercial real estate services firm, termed a “manageable level of 6.3%” in 2015, despite new supply. At nearly 9%, Makati’s CBD experienced among the highest residential vacancy rates. Rents there increased only 1%. Growth in middle-market to high-end sales and leases in Manila has been fuelled by the influx of foreigners working for multinationals. As many expatriate staff sought residences in Makati, BGC and the surrounding areas, housing projects responded by providing modern accommodations and amenities. Three high-end developments in these areas were completed in late 2015, adding nearly 2000 units. Colliers estimates that in 2015 a total of 6209 new condo units were added to the supply in Metro Manila’s five prime districts (Makati CBD, Rockwell Centre, BGC, Ortigas and Eastwood City). The vacancy rate is therefore expected to rise, reaching as high as 9% in these districts. As a result, rents might actually drop by the end of 2016. Condos in Rockwell Centre continued to command the highest rental rates in 2015, averaging P963 ($21.38) per sq metre. Up until 2018 the bulk of new supply will be in BFC and Makati CBD.

Middle-Market Housing

The broad middle-income market is the most competitive sector. At the low end, these properties have a price range of between $30,000 and $65,000. The mid-middle segment covers properties that sell for between $65,000 and $200,000. Overseas Filipino workers (OFWs) are typically buyers in both these segments. In the highest tier, prices range from $200,000 to more than $500,000. In 2015 middle-market developers appeared to be reining in growth, as licence applications for middle- and high-end condominiums fell almost 12%, Colliers noted.

Several major Philippine real estate firms operate in a variety of sectors. One such example is Megaworld, which caters to the top two tiers of the middle market, generates about 20% of its sales from Filipinos working overseas, according to Jericho Go, the company’s senior vice-president. To reach OFWs directly, Megaworld has dozens of sales offices in Asia, Europe, the Middle East, Canada and the US. Megaworld’s 20 “township” condo projects – in Manila and urban areas such as Davao, BFC, Mactan, Iloilo City and Bacolod – are also popular with investors. The ability to attract attention from OFWs has been critical to these projects.

Ayala Land, which is a leader in the overall Philippine real estate sector, is another company working to develop middle market housing through its subsidiary Avida Land. In the early 2000’s Avida primarily built houses in subdivisions, while more recently 65% of its sales are condos in high-rise towers. Its 73 housing projects are in 38 urban locations including in Cebu, Iloilo, Davao and Bacolod.

Affordable Housing

Particularly in Manila, many first-time buyers of urban housing are either young workers in the BPO sector or OFWs. At the lowest end, this housing typically consists of a studio or one-bedroom condo, ranging from 21 sq metres to 60 sq metres, and costs between $10,000 and $13,000, which is often dubbed the “low-income market” price range. Housing in this market is also said to fall in the “affordable” range of mortgages, although definitions vary. According to one government definition, “affordable” housing costs P750,000 to P1.25m (roughly $16,000 to $27,500). Others apply the term to a wider range – housing priced from $15,000 to $60,000. This is considered a very lucrative market for developers. The approximately 10m Filipinos working overseas sent home an estimated $25.8bn in 2015, and up to 60% of this sum may be spent on property for the workers themselves or relatives. One key area of growth in 2015 was the supply of condos in the middle band, costing around $25,000 to $40,000, with the stock of these units increasing by 3%. Megaworld’s Suntrust brand caters to the affordable market, but the biggest developer in this segment is Vista Land, whose founder and chairman is former senator Manuel Villar Jr. Vista Land has built over 300,000 houses and has a presence in 90 cities and 35 provinces. It is currently building a 1500-ha city, Vista City, in southern Metro Manila.

Socialised Housing

Despite the frenetic pace of housing construction since 2009, the Philippines still suffers from a shortage of housing for its lower and middle classes. The government estimates that the national housing backlog stands at 5.5m units and that the shortfall could reach 5.8m units in 2016. Affordable housing accounts for nearly 60% of the current backlog. The Subdivision and Housing Developers Association, the country largest organisation of real estate developers and lenders, has vowed to build 1m units of low-income housing in 2016. The fastest growing need is in the lowest-income “socialised housing” segment; units of this type sell for up to P450,000 ($9,990). Buyers can get government-subsidised interest rates and extended repayment periods. The government also provides incentives to private developers, such as value-added tax breaks, but developers are reluctant to undertake such projects because lower margins are harder to come by without first achieving significant scale. 2015 was a surprising bright spot for socialised housing, with units rising by some 82%.

The government also requires open market developers to allocate 5% of their units to socialised housing. With demand outpacing coming supply, the Organisation for Socialised Housing Developers believes that the government must take a more active role in financing socialised housing, through initiatives like housing vouchers and other direct subsidies. They also seek a change in policy to allow vertical condo developments in urban areas.


New hotels opened in Cebu City, Mactan and Boracay in 2015. However, most new hotel construction has been, and will continue to be, located in the Metro Manila area, where around 1739 new rooms were added in 2015. If all current projects proceed as planned in 2016, another 5768 rooms could be added to the national supply, according to the hotel consultants Horvath, with over 4000 built in the Manila area, and over a thousand at upscale hotels in the Entertainment City casino complex along Manila Bay (see Tourism chapter).

Hotel developers are mainly responding to the needs of business visitors and the surge in domestic travel, but Filipinos are also hoping that foreign tourist numbers, which numbered slightly less than 5m in 2014, will continue to rise. The 5.5m foreign visitors represented an 11.4% increase over 2014’s numbers. In Manila and nationwide, hotel room occupancy rates have hovered around 66% since 2010, according to hotel research company STR Global. Therefore, demand has kept up with new supply. Due to the Philippines role as host of the APEC forum in 2015, occupancy in Manila grew to an estimated 70%, according to a report by Colliers.


After half a decade of rapid growth, there are signs that builders of upper- and middle-market condo developments are reducing construction to prevent oversupply. The expected slowing of economic growth in many parts of the world in 2016 could affect overseas Filipino workers, who will be less likely to buy condo units and other housing back home and who will also scale back remittances to relatives. However, the influx of new prime office and BPO space that entered Metro Manila in 2015 is expected to grow in 2016 and beyond. Continued growth in manufacturing will also be a crucial factor in helping the real estate sector continue to expand and diversify as the market continues to mature.