The real estate industry has been booming in the country.  With many developers building houses and condominiums, the commercial and retail sectors has been also contributing to the growth. As what Jones Lang La Salle believes that office space demand is stable and there is no threat of it collapsing under a bubble scenario.

Bank loans to commercial sectors rose from P124.86B in the first quarter of 2008 to P219.60B in the last quarter of 2011.

Aside from the growth of Business Process Outsourcing and sustainment from the OFW remittances, many foreign companies are now taking a look to invest in the Philippines and this speculative demand will translate to effective demand when reforms continue and no new major external or internal crises develop. 

During the last and first quarter, traditional markets such as tourism, health, education, and electronics also contributed to the demand of commercial spaces.

Office space rentals rates have been recovering since 2010, with about only 15% less from 2088 levels, and with barring any change in demand factors, this will go back to normal at the end of the year or in early 2013.

Office occupancy rates are also up. New leases have been re-negotiated with the same or slight higher pricing. With the high occupancy rates and the positive economic factors, the demand will be fairly high for this year.

The Bonifacio Global City. (Photo source:

JLLS also mentioned the migration of different companies in Makati Central Business District to Fort Bonifacio Business District. One of the main reasons is an upgrade in office space or a new one. This trend has been going on since 2004 and this indeed true because what makes Fort Bonifacio  superior  to Makati CBD is  because of infrastructure and planning wherein it is more greener and more spacious compared to Makati. Currently, GBC capital values are about 30% higher than in Makati.  New companies are also setting their sights to Fort Bonifacio.

Because of this migration, Grade A and B buildings in Makati are now being affected. Grade A buildings have not been recovering lease rates and the rates has gone down from 5 years to 3 years.

Because of this downturn, the Ayala Corporation, the primary developer of Makati CBD, is planning to convert it into a residential and commercial area whilethe Fort CBD will become the location for A1 corporate addresses. Makati CBD office leases may eventually be lowered to perhaps 10% less of current levels given prevailing demand and supply factors by 2015.

The strong remittances by OFW workers and the BPO growth also contributed to robust demands for retail spaces selling consumable goods like supermarkets and malls for the families of OFWs and electronic stores for BPO companies. One example is SM. They are not only expanding their malls in the country and in China but they are also expanding their supermarket and hypermarket chains in every community in the country. For electronics, SM already has as a place for electronic needs, Cyberzone, in some malls. New retailers for these two drivers generally thrive today.

High end renting for retails are the spaces in malls and luxury boutiques in star-rated hotels with an average of US$20 per square meter per month. It also includes extremely high-density places in Binondo Manila and Quiapo and Divisoria, also in Manila, which have high pedestrian traffic. On the other hand, a rate of US$4  per square meter per month applies to those retails stores outside the traditional shopping and CBD in less well-travelled areas but with their own attendant, localized markets.

SM has been expanding its mall and supermarket franchise around the country. (Photo source: /

The demand for retail spaces were high in the last quarter of 2011 and it carried over to the first quarter of 2012. Price increase was relatively flat, with increases observed to range from 0% to 5% in new contracts.

For occupancy rates, capacity utilization has been high in prime retail spaces but tepid in other categories.  High occupancy rate is location-specific and high pedestrian and vehicle traffic is not an automatic indicator for high occupancy levels.

In general, the prime retail spaces have better demand-management systems compared to lower-tier but high-traffic retail spaces.  Prime retail spaces typically exhibit less volatility in occupancy rates in the previous and current quarter unlike the non-prime and old space segments.  This differentiation is a holdover from the impact of the 2007-2008 global financial crises, which was only felt in the retail sector in late 2008 and 2009.

OFW remittances tend to increase during crises in the short run and the decrease in remittances usually manifest with a lag of a 8 to 24 months.  Off-shoring businesses are positively affected by overseas economic depression but only in the short term.  This is why the retail sector is the more resilient segment of the commercial property sector.

During the first quarter of 2012, the revenue growth from residential sector was the major contributor of growth to the property market. It was generated mostly from the sales of middle cost and low cost housing and were snapped-up by both OFW and non-OFW families.  The data in Philippine Stock Exchange shows listed companies increasing their revenues by 55% in first quarter, up from the average of 11% in 2011. With positive economic trends, the housing sector is seen to continue its trend up to 2013.

However, there is the possibility of oversupply risks, what bankers referred-to recently as an emergent mini-bubble, as real estate developers’ residential property projects are leveraged at an all-time high, and the most at risk are probably luxury condominium units, which risk oversupply if demand abates due to the expat market shrinking if there is a new spate of external financial crises.  In contrast, low and middle cost housing that caters to endemic domestic demand, OFW families and IT-BPO employees will experience sustained demand even in the event of an external crises on account of a lagged income effect.

The Sofitel Philippine Plaza, one of the top hotels in Metro Manila. (Photo source:

Tourism has been good this year and the Department of Tourism is expecting to reach their target of 4.9 million tourists at the end of the year. Government-accredited hotels have been reporting high occupancy rates for the whole year. Hotel occupancy rates during peak season are usually at full capacity, which are prompting new investments in the hospitality sector.

Many real estate companies such as Robinson’s Land and SM Properties have committed billions of pesos on hospitality CAPEX for 2012 and 2013.  This is on top of the large investments foreign hotel chains and casinos are installing in the market.  Tourism is one of the bright spots and a main growth driver of the Philippine economy.


Institute for Philippine Real Estate Appraisers (IPREA)

Bank Sentral ng Pilipinas (BSP-Central Bank)

Philippine Stock Exchange (PSE)

Department of Tourism (DOT)


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