Years of investment and strong economic development in the Philippines have fostered a robust real estate sector that now extends outside of the greater Metro Manila region and into secondary markets around the country. Economic development and a growing middle class continue to fuel demand for new, high-grade residential units, while commercial investment drives an ever-increasing amount of retail and office space.

Fortunately for the Philippines, less exposure to international markets and heavy investment in the business process outsourcing (BPO) industry have shielded the country’s property market from some of the worst effects of global and regional financial downturns. As companies continue to turn to the Philippines for more of their outsourcing needs, demand for office and residential space will follow.

Current Position

From the beginning of 2014 to the end of 2016 quarterly growth rates in the real estate sector’s gross value added (GVA) averaged 9.6% at current prices, according to the Philippine Statistics Authority. In 2016 the total GVA of the real estate sector tallied P443.3bn ($9.4bn), compared to P408.3bn ($8.6bn) recorded the previous year. The renting and other business activities category displayed even more impressive gains, with the segment’s GVA reaching P992.3bn ($21bn) in 2016 versus P841.3bn ($17.8bn) the previous year, and quarterly growth rates averaged a very strong 15.5% from quarter one of 2014 to quarter four of 2016. This upward trend is expected in 2017 as well, as demand continues to outpace supply.

Much of this growth has been driven by a cash-rich private sector, as many major developers continue to invest in a long pipeline of large-scale projects. The majority of this surging private sector spending comes from large developers such as Aboitiz, Ayala, DMCI, Megaworld, Metro Pacific Investments, San Miguel and SM Development, while an influx of US dollars from overseas Filipino workers adds further liquidity to the financial system and helps bolster demand for housing.

Perhaps the only weight on the sector is the uncertainty surrounding the future economic and political environment, as a new presidential administration assumed power in mid-2016. The election of President Rodrigo Duterte has caused hesitance among some investors who are adopting a wait-and-see approach as Duterte outlines various policy shifts. Specifically, Western governments and private businesses have voiced concern regarding changing relationships between the Philippines and traditionally strong investment and trade partners such as the US and European nations.

“Investors and developers remain in a cautiously optimistic mode,” Claro Cordero Jr, local director of research, consulting and valuation at JLL Philippines, told OBG. “They are still going along with launching big projects as planned over the past few months and will continue to do, so but you cannot deny that risks are growing,” he added. In spite of these reservations, strong underlying financial fundamentals have continued to sustain previous growth trends in the real estate sector through the 2016 and show little sign of dipping in the near future.

Capital Planning

The political and economic heart of the country – the web of cities and towns that together form the greater Metro Manila region – continues to drive the real estate sector. However, once a leading example of modern mass transit and city planning as far back as the introduction of the street car in the early 1900s, the infrastructure serving greater Metro Manila has only grown in fits and spurts over the ensuing decades as the population swelled.

Over the years, various administrations developed master plans for the city’s future depending on the government’s priorities. This resulted in partially realised plans such as the Metro Manila Transport, Land Use and Development Planning Project of 1976, and a competing plan drawn up by the Japan International Cooperation Agency at the same time. The result of decades of this irregular expansion is a range of intermittently connected areas around the region, each with its own development focus.

Business Central

At present, the central business districts of Makati and Ortigas, along with the newer upscale Fort Bonifacio area, remain bastions of high-end retail and commercial demand in the city. However, the traditional business district of Makati is one of the few pockets of Metro Manila that has remained relatively static in terms of new development in recent years, as undeveloped land has become scarce.

The older, smaller commercial buildings in the area spark little interest from companies in the BPO sector, and the lack of available space for development led 2016 to see a smattering of new towers. One major grade-A office project was realised in the first half of 2016: the MJ Corporate Plaza added 16,600 sq metres of new office stock to Makati upon its completion in the second quarter. This building was joined by two residential projects, Two Central and Salcedo Square, which were also completed in the second quarter.

There are some more projects taking place in the district, with Makati stalwart Ayala putting up a trio of office towers and a new hotel at the heart of the district, known as Ayala Triangle. The central area includes the Ayala Triangle Gardens, restaurants and an existing high-grade office tower with 38 floors.

As the area has grown and expanded, some of the older buildings are now ripe for redevelopment. According to Cordero, more than 60% of buildings in the area are more than 30 years old and operate far below their floor area ratio (FAR) limitations. As such, significant opportunities exist to construct newer, larger projects on the existing footprints. Still, these redevelopment schemes are not without their challenges. Many of the existing buildings are apartment and condominium towers occupied by tens or hundreds of individual owners, each of whom must agree to any new redevelopment plans, posing perhaps the largest obstacle.

To the east, the rapidly growing Fort Bonifacio Global City is now quickly approaching maturity after years of constant construction across its orderly, gridded framework. The majority of large new developments have already come to fruition, with most of the remaining ones already under construction and slated for completion by 2018 or 2019. But like Makati, the Fort – as it is sometimes locally referred to – still harbours value for developers looking to revamp existing buildings. Although the majority of structures are significantly newer than the central business districts and most other locales, an upgrade in quality is still possible given that some of the lower-grade office space developed for BPO companies 10 or 15 years ago could be reborn as new higher-value, grade-A space.

Building Pattern

A key part of the government’s strategy to address Metro Manila’s urban pressures has been to push growth and development outwards. With space limited in premier districts, new development is now being targeted in other areas of the capital region such as Quezon City, Bay City and North Epifanio de los Santos Avenue (EDSA), as well as in the Bulacan province that sits to the north of Manila. The key factor in common across all these areas is their proximity to new transportation infrastructure, including recently constructed bridges, skyways and rail systems, which is crucial to opening access to these new districts.

There are essentially two models of development that govern these aspiring growth pockets. The first is the more monochromatic township model, under which a single developer acquires a large, contiguous area and uses relatively uniform master plan designs to build mixed-use communities complete with residential, commercial, retail and office space. “There is a decrease in the demand for residential projects; however, commercial developments have been on the rise, largely due to increased BPO investments,” Daniel Terence Yu, president of architectural firm Visionarch, told OBG. “Mix-used projects, for instance, which have been a major trend in the industry, always include BPO space, which then provides consumers for the shopping malls and tenants for the residences.” The second model hosts competing developers in the same vicinity, each adding their own architecture and vision to the district.

Urban Sprawl

One area of concentrated growth is North EDSA at the foot of the North Luzon Expressway in Balintawak. The key advantage of this location is its proximity to both the Balintawak light rail transit station and the future site of the Skyway stage three off-ramp, which will allow residents to make a 20-minute drive straight to Makati, compared to the two-plus-hour commute that currently exists.

The principal builder of this Cloverleaf development is Ayala Land, which is converting an 11-ha site of a former textile mill into a centrally planned mixed-use development. Some 35% of the site will be allocated for residential projects, beginning with the 1.4-ha Avida Towers compound that will house approximately 2000 units upon completion and is planned for 2019, along with another 600 units in Alveo Towers coming in 2020. The rest of the project will be reserved for numerous retail and business developments, including a 40,000-sq-metre regional mall set to open in late 2017.

With space across all categories becoming harder to find in Metro Manila, the up-and-coming Bay Area, nestled into Pasig City, may be the city’s next coveted district. The Bay Area has attracted the attention of a number of developers looking to put their stamp on the area, the most active being SM Development, with thousands of new residential units under way. In all, about 10,000 condominium units were in the Bay Area as of September 2016, with another 18,000 units slated to be available by 2020.

Outside of Metro Manila, other up-and-coming areas being driven by commercial and tourism growth include Ilocos Norte, Pangasinan and Cebru. Land value in the latter is still comparatively low for the time being, although the rapidly increasing prices make the area fertile ground for developers looking to develop now and gather higher profits later.

Another area that should not be discounted is the president’s hometown of Davao, which could very likely receive increased investment in the up-coming national budgets. Furthermore, a unique area with large potential is the land surrounding Clark International Airport, which could prove beneficial in redeveloping the district, provided planned refurbishments and expansions are carried out at the airport, and mass transit and road links in Metro Manila are put in place.

Office Space

Demand for office space remained robust into 2016, but with vacancy rates among seven major Metro Manila business districts all less than 10% in quarter two of 2016, some of this growth is likely due to pent-up demand resulting from delayed 2015 projects that hit the market in 2016. According to a JLL report, the lowest vacancy rates of 1% were recorded in the McKinley Hill and Ortigas business districts, with Bonifacio Global City and Alabang following close behind at 3% each (new developments Filinvest Two and Filinvest Three reached full capacity in Alabang). The Makati district posted a 5% vacancy rate, followed by Bay City (6%) and Quezon City (8%). As of the second quarter of 2016 property values remained the highest in Makati. Capital values ranged from P105,000 to P192,000 ($2220-4060) per sq metre, and the district also commanded the most expensive office prices in the city, at lease rates ranging from P560 to P1,260 ($11.85-26.66) per sq metre per month. Bonifacio Global City ranked a close second in both values, averaging P110,000-150,000 ($2330-3170) per sq metre in capital value and P630-1,030 ($13.33-21.79) per sq metre for monthly rents.

The Makati and Oritgas districts were home to the largest concentration of office buildings, with a combined total of 2.7m sq metres of space. The remaining 3m sq metres of stock within the Metro Manila area is split among the other urban districts, with the most located in Bonifacio Global City, McKinley Hill, Bay City, Quezon City and Alabang. This total of 5.7m sq metres is expected to surge 49% over the next four years as developers rush to meet growing demand with 2.8m sq metres worth of new facilities. “Competition among real estate developers has grown more intense, with players trying to capture a share of the growing office market and the residential and retail opportunities that it brings with it, by accelerating the launch and delivery of their projects to boost revenues,” Jaime Ysmael, chairman, president and CEO of developer Ortigas & Company, told OBG. “Growth is centred on key urban sites because that is where employment and consumption spending is concentrated, which has also led to vertical mixed-use developments being the ideal solution for the industry to expand its portfolio.”

Some significant projects slated to hit the market by the end of 2020 include Alveo Financial Tower in Makati, developed by Ayala Land; Corporate Centre Two (Ayala Land) and Uptown Place Tower Three (Megaworld) in Bonifacio Global City; McKinley West Campus buildings in McKinley Hill (Megaworld); SM Three E-com (SM Development) and Filinvest Cyberzone Pasay Tower One (Filinvest Land) in Bay City.


Lower-end housing is expected to increase as well, with the government encouraging its development through a number of initiatives focused on providing homes for a backlog of less affluent residents. For buyers, the efforts come in the form of tax-free purchases and government-subsidised mortgage rates from the Home Development Mutual Fund, among other assistance. On the supply side, the state has long required developers of more profitable, high-end apartments and condominiums to construct affordable housing units at a set ratio related to their more upscale offerings, although compliance on this matter in the past has proved a bit inconsistent.

The 2015 slowdown in applications for the selling of residential units was short-lived, as the total number of licences issued by the Housing and Land Use Regulatory Board for the first five months of 2016 reached 144,753 – up 52% from the 95,532 licences issued during the same period in 2015. This uptick signals strong confidence in the residential segment, along with greater adherence to the government’s requirement of developing socialised housing, as sale permits for balanced housing compliance units surged 331% year-on-year in the January-May 2016 period.

Investment Trusts

The long-dormant real estate investment trust (REIT) mechanism is getting a fresh look by the Securities and Exchange Commission (SEC) of the new administration, with a view towards reviving the financial product after years of inactivity. When strict limitations were put on the investment vehicle in 2009, property developers largely turned away from the mechanism, as it was considered too restrictive and unprofitable. As a result, not a single REIT has been launched in the country in the five years since the 2009 act was originally passed.

One investor concern is the requirement that a majority share of the funds be floated publicly, meaning that the issuing company is only able to hold a maximum 49% share in the trust, and could therefore lose control of the development. In addition, real estate companies wishing to establish a REIT must pay 12% value-added tax on the total fair market value of the REIT.

Seeking to revisit this law, the SEC announced in July 2016 that it would review the policies governing REIT structure. The study was completed by October and a recommendation was made to lower the minimum public ownership requirement to 33%. The announcement was something of a false victory, however, as the revenue regulations that govern levies on the transfer of properties and shares of stock, as well as REIT operations themselves, must first be altered before the SEC can legally make any changes to the REIT structure.

Large corporations would likely be quick to jump on the bandwagon with tens of billions of pesos worth of assets if the terms were to become more agreeable in the future. If revised, the move would also provide alternative financing to mid-range players through minimum capital requirements of just P300m ($6.3m), as well as bring greater levels of transparency to the sector as a result of mandatory SEC filings, thus signalling a further maturation of the market.


Buoyed by a strong macroeconomic environment, cash-laden investors and a full pipeline of projects scheduled to be built over the next decade, the real estate sector will continue to exhibit strong growth in the coming years. A steady stream of new residential and mixed-use projects is under way at locations across the Metro Manila area, as well as other fast-growing secondary cities around the country.

The primary driver of the city’s growth has been the BPO industry, which initially spurred the construction of large-floor-plan buildings at relatively reasonable costs. This could change in the future, though, as rents inevitably begin to climb when the flow of new stock begins to trail off. A slowdown in the construction of new facilities would signal a shift not only of BPO companies moving on to less expensive pastures elsewhere in the country, but also possible redevelopments of existing stock in the densest areas. At the same time, strong growth is expected in rapidly expanding secondary districts of Metro Manila, most of which will further benefit from the completion of major transportation infrastructure projects linking them to other key districts in the region.