Nowhere are the effects of the Philippines’ sustained economic growth more apparent than in the construction industry, which is benefitting from pent-up demand and a positive outlook for future growth. This favourable momentum has driven the industry to one of the country’s highest growth rates, with data from the Philippine Statistics Authority (PSA) reporting growth of 11% in 2014, 10.4% in 2015 and a jump to 14.6% in 2016.

As a result, the construction industry’s economic contribution has increased from P802.9bn ($17bn) in 2014 – worth 6.3% of national GDP – to P1trn ($21.5bn) in 2016, comprising 7% of GDP.

Local Projects

Largely driven by private sector investment, the number of construction projects undertaken each year continues to rise. Indeed, the number of active construction permits has increased from 120,775 in 2013 – with a cumulative floor area of 24.6m sq metres – to 132,006 permits totalling 29.3m sq metres in 2015.

The combined value of these projects likewise increased from P293.1bn ($6.2bn) to P331.6bn ($7bn) over the same period. Strong interest continued in 2016, reflected by 140,380 construction permits issued for a total of 30.5m sq metres. The value of projects that received permits that year stood at P346.2bn ($7.3bn).

Residential buildings continue to dominate the sector, as the number of housing projects increased by 7.7% from 90,201 reported in 2014 to 97,174 in 2015. Construction of single houses (9.5%) and duplex or quadruplex houses (5.8%) were the primary growth drivers in the segment, but those figures were somewhat offset by decreases in the categories of apartments, residential condominiums and other types of residential construction, which contracted by 3.9%, 4.8% and 20.5%, respectively.

Construction of non-residential facilities also exhibited growth in 2015, with a total of 16,126 projects. This amount is up 6.2% from the 15,191 recorded in 2014. Within this segment, each category showed positive growth. Other non-residential and institutional buildings posted double-digit increases of 72.2% and 17.7%, respectively, while smaller gains were made in commercial (1.9%), agricultural (1.3%) and industrial (0.4%) projects.

The majority of growth in recent years has been private sector-driven, reflecting expansion of the business process outsourcing sector, which continues to attract investment to the country (see BPO chapter). Cash-laden local developers have been pushing the construction industry forward in the greater Metro Manila area and, more recently, in secondary markets including larger provincial capitals.

At the same time, public spending in the industry has lagged behind planned levels as development of large-scale infrastructure projects remain stalled and budget deficits pile up.


The backlog of public spending now effects a wide range of projects, including infrastructure, utilities, education, health care and housing, all of which are being addressed with plans that will stretch well into the next decade. The current administration has signalled its intent to prioritise implementation of these much-needed public works projects, with infrastructure spending set to account for 5.4% of the country’s GDP in 2017.

At P860.7bn ($18.2bn), the 2017 targeted allocation will be 13.8% greater than 2016 levels. The emphasis on urgent projects is expected to continue, with public infrastructure spending forecast to increase to approximately 7% of GDP by the end of the president’s six-year term, and total roughly P7trn ($148bn) between 2017 and 2022 .

The Department of Public Works and Highways (DPWH) is heading up the development of many of the new projects, and the recent expansion of the department’s budget reflects this new surge in activity. The DPWH received a national budgetary allocation of P351.3bn ($7.4bn) in 2015, which was followed by a 13% increase to P397.1bn ($8.4bn) in 2016 and a proposed P458.61bn ($9.7bn) for 2017. Other projects, many of which are being developed under the popular public-private partnership (PPP) model, fall under the purview of other departments such as the Department of Education, the Department of Health, and the Department of Transportation and Communications.

With worsening traffic and relatively inefficient inter-modal transportation costing the country substantial losses every year, improving the transportation sector is one of the most pressing issues being addressed in these plans. Seeking to remedy the shortfalls, many of the most capital-intensive ongoing or planned construction projects in the pipeline target the country’s roads, ports, airports, rail system and mass transport facilities.

Planned Undertakings

As of November 2016 some of the largest PPP projects contracted or in the construction phase included the P17.5bn ($370m) Mactan-Cebu International Airport passenger terminal building, phase two of the Ninoy Aquino International Airport Expressway, costing P17.9bn ($379m), and the third stage of the Metro Manila skyway, at P37.4bn ($792m).

A number of big-ticket items have also had contracts awarded and are in the pre-construction phase. Among them are the P64.9bn ($1.4bn) light rail transit (LRT) Line 1 Cavite extension, the P35.43bn ($750m) Cavite-Laguna Expressway and the P69.3bn ($1.5bn) Metro Rail Transit Line 7.

Looking ahead, the number of high-value items still slated to have contracts awarded is even greater, which should provide private construction firms ample opportunities for major projects for years or even decades to come. Some of the largest of these include the NLEX-SLEX connector road, with an estimated price tag of P23.2bn ($491m); airport development, operations and maintenance projects for airports at Laguindingan (P14.6bn, $309m), Davao (P40.6bn, $859m), Bacolod (P20.3bn, $429m) and Iloilo (P30.4bn, $643m); the LRT-6 project (P65.1bn, $1.4bn); the Ninoy Aquino International Airport PPP project (P74.6bn, $1.6bn); the national North-South Railway south line (P214bn, $4.5bn); and the mammoth Manila Bay Integrated Flood Control, Coastal Defence and Expressway, estimated to cost approximately P5trn ($105.8bn).

In addition to these projects, there are more than a dozen major PPP projects on the docket awaiting evaluation and feasibility studies, keeping the construction industry busy for the foreseeable future.

Building Blocks

The concrete industry has kicked into high gear as domestic cement producers continue to add production in order to meet the needs of the construction sector.

Cement sales have been rising since 2011 and reached 24.5m tonnes in 2015 – a 14.3% increase over the 21.4m tonnes sold the previous year, according to the Cement Manufacturers’ Association of the Philippines (CeMAP). The bullish trend continued in 2016, with cement sales growing 10.7% in the first half of the year compared to the first semester of 2015. However, due to faltering volumes in the fourth quarter, full year growth eased to 6.6%, with a total of 26m tonnes in sales.

The vast majority of cement used in the country is sourced from a small number of domestic producers, with only a fraction shipped in from companies overseas. Roughly 75-80% of domestic cement is produced by the country’s top-three players: Cemex, Holcim and Lafarge. Republic Cement, Taiheiyo, Northern Cement and Eagle Cement are also significant producers in the Philippines.

While foreign-produced cement is not subject to import tariffs and is often cheaper – particularly material sourced from Vietnam and China, which produce at a lower cost and currently maintain excess capacity – there are some non-tariff trade barriers that benefit local companies. These include quality control checks, packaging requirements and price controls that discourage dumping of oversupplied products at cost into the Philippine market.

The Philippines imported 3.8m tonnes of cement and clinker from Vietnam in 2016. The majority of imports are typically routed to more remote locations in Visayas and Mindanao, which are further from domestic supply points and susceptible to shortages and higher prices.

Gearing Up

The strong growth pattern exhibited by the cement industry is expected to continue in the short term. “We anticipate double-digit growth in cement demand over the next three years, so there will be a need to increase capacity in the industry,” Renato Sunico, the chair of CeMAP, told OBG. “With the increased demand we will also see more imported cement supplying the domestic market. We don’t want any shortages when it comes to supporting large national infrastructure projects.”

As of mid-2016 many manufacturers were operating at approximately 75% of capacity, which allows some room for growth in the near term, but also signals a probable need for expansion in the years ahead. As the majority of producers invest in increasing capacity to meet future demand, expansion should not be limited to primary growth areas in Luzon, but should extend to other areas such as Davao in Mindanao as well. “Overall, this is one market I am optimistic about as, the Philippines is one of only a few countries where cement demand is still increasing,” said Sunico. “In terms of risk, there is not much to be concerned about.”


Like concrete, the steel industry has been expanding at impressive rates over the past decade as the construction sector continues to snatch up as much construction-grade steel as the country can produce. To date, domestically produced steel has been limited almost exclusively to rebar used in all manner of construction projects, from bridges to luxury high-rise apartment towers.

Of the domestic supply, the largest share of rebar is produced by SteelAsia Manufacturing, which has been aggressively growing its capacity over the last 10 years and accounted for 42% of the rebar market in 2015. Since 2006 the company has boosted its domestic production of rebar from just 278,859 tonnes to approximately 2m tonnes in 2016. The company has plans to expand further by adding four new mills in the country between 2017 and 2019, which will bring an additional combined 3.1m tonnes of capacity on-line in Luzon and Visayas.

In addition, with domestic demand for rebar across the country now largely addressed, SteelAsia is turning its attention to the production of other steel products used in the construction sector. Plants to produce wire rods, steel plates and H-beams are all under development to serve the needs of construction projects in the Luzon area, with production of these inputs expected to take place before the end of the decade.

Domestic Workforce

While the country continues to boost domestic capacity for building materials in order to curb the shortfall of inputs as demand trends upward, attracting and retaining skilled and unskilled workers to man construction sites could prove to be a more difficult task.

“Considering the enormous backlog of infrastructure projects, the only thing that concerns us is the manpower mismatch at the moment in terms of construction workers. For example, the number of skilled workers, equipment operators, engineers and others may be insufficient to cope with the demands of future projects,” Ibarra Paulino, executive director of the Philippine Constructors Association told OBG.

This human resource shortage is the result not only of the increased demands of the sector, but also because of the high number of skilled Filipino labourers employed abroad at more competitive wages. Although the number of workers in the domestic construction field has actually increased from 2.6m in 2014 to 3.5m as of July 2016, this growth is still inadequate to fill the increasing number of positions available in the sector. In order to compete, local companies may have to boost salaries to make them more competitive with foreign companies.

Average daily basic pay for construction workers sat at just P345.71 ($7.31) per day in October 2015, up marginally from the P319.07 ($6.75) paid in 2013. This is less than other domestic jobs, as the average non-agricultural job paid out P406.70 ($8.60) per day and the service sector paid average daily wages of P428.69 ($9.07) in 2015.

Foreign Labour

However, the largest problem regarding labour is not with domestic competition, but instead with higher-paying construction jobs abroad, in which an army of overseas Filipino workers are employed in locations around the world.

The majority of construction contractors in the country are limited in scope, with numerous smaller companies banding together and pooling resources to take on larger builds. Of the 3376 construction businesses listed with the PSA as of October 2016, only 246 employed more than 200 workers; 747 companies had 50 or more employees, while 883 firms retained between one and four workers.

This could leave an opening for further competition from larger foreign companies in the future, should the demand for big-ticket infrastructure projects not be met by local companies. Large Chinese construction companies in particular could have a significant impact on the market, given President Rodrigo Duterte’s much more accommodating stance towards the region’s largest economic power.

That being said, the Philippines is in a relatively strong position at the moment, with ample cash circulating in banks and among private developers. As a result, the government may not have to follow traditional infrastructure development models in partnership with China, which generally consist of large, low-interest loans accompanied by stipulations requiring that only Chinese companies with a Chinese workforce can build the projects for which the loans are granted.

Going Green

Given the strong demand for commercial space in the Philippines – particularly in the Metro Manila area – many developers and contracted construction companies have been focused on adding as much new floor space as possible in a quick time frame in order to move on to the next project. Although many of the newer projects have been built to modern standards, with high-tech, aesthetically pleasing details, only recently have environmental concerns become a relevant component of building design and construction.

Already employed liberally in more developed economies around the world, environmentally minded construction is guided by the principle of reducing the carbon footprint of a building through lessening electricity and water usage, creating green spaces and utilising a variety of recycled materials. A myriad of global certification programmes exist to promote green construction practices, such as the LEED green building rating programme developed by the US Green Building Council.

In order to support growing domestic interest in this movement, the Philippines Green Building Council (PHILGBC) initiated a study in 2016 to quantify the economic benefits of adopting certain levels of green certification. By quantifying anecdotal evidence of increased demand – particularly from western companies – and the ability to charge premiums rents for certification, the PHILGBC hopes to further accelerate the adoption of these standards. “We observed that there was very little interest in or awareness of green building practices only 10 years ago, and although there are now only a handful of fully certified green buildings in Manila, at least the level of awareness has increased substantially to the point that most developers now integrate green building features as part of their projects,” Ramon Rufino, co-president of real estate developer The Net Group and chairman of PHILGBC, told OBG.

From a cost-benefit standpoint, utilising green building practices has not been shown to be detrimental to the bottom line in the limited examples already present in Manila. The Zuillig building is the Makati district’s first – and so far, only – building to obtain LEED platinum certification; it also happens to command the highest rents in the area.

Sustainable Initiatives

As a whole, the government has taken a carrot-and-stick approach to green building practices, albeit enforced to varying degrees in different locales around the county. In addition to the national building code, which requires little in the way of mandatory green building practices, some local governments on the municipal and provincial level have chosen to implement stricter building requirements and include incentives such as rebates on property tax or building permits for certain levels of green compliance.

The PHILGBC has also developed its own green certification system for the Philippines, known as the BERDE (Building for Ecologically Responsive Design Excellence). The voluntary green building rating system was originally adopted under the Philippine Energy Efficiency Project: Efficient Building Initiative of the Department of Energy, and is used to measure, verify and monitor the environmental performance of buildings that exceed existing mandatory regulations and standards. The system comprises a scale ranging from one to five stars.

The BERDE is more tailored towards domestic priorities than internationally recognised standards such as LEED; for example, placing more emphasis on water conservation than on power conservation, the latter of which companies have been more motivated to do on their own considering the relatively high price of power in the Philippines.

In general, green standards are aligned with achieving the country’s millennium development goals, with the BERDE taking into account a total of 11 factors: management, land use and ecology, water, energy, transportation, indoor environment quality, materials, emissions, waste, heritage conservation and innovation.


The bright growth prospects currently exhibited in the construction industry show little sign of dimming in the future and, in fact, look to be gaining momentum. The Duterte administration has expressed its intention to boost domestic spending, particularly on large infrastructure projects and socialised housing, both of which would trigger a sustained rollout of big-ticket items for the construction industry as the state ramps up its infrastructure spending to 7% of GDP.

Robust growth in private sector construction is also expected to continue, bolstered by sustained demand and steady economic growth. Looking at the country’s financial growth drivers, this expansion should prove resilient in the face of external shocks. Transportation projects in particular will create multiplier effects as the private sector looks to build a supply of residential, commercial and retail space in new enclaves sprouting up around recently completed transportation arteries.

Geographically, construction will remain heavily focused on Metro Manila and Luzon as a whole, although a host of new public works projects are expected for Mindanao. The shift presents another set of obstacles to construction companies, as many have less experience operating in the area due to past security challenges. As a result, Luzon-based firms, which represent the majority of domestic construction companies, will need to increase their presence and capabilities in the Mindanao area.