Is There a Bubble in Commercial Office Space Prices in the Philippines?
What is going on in the Philippines with their rapid rise in commercial real estate prices? The easiest answer is that the shortage of product is pushing up the prices. Globalization is really taking off in the Philippines as foreign companies continue to open up offices at historical rates. The shortage is not going to last long though with the absurd number of business parks that have popped up around the country within the last 5 years.
The BPO industry is expected to have steady growth for at least the next 5 years at about 10% annually. As of now, good quality office space is still hard to come by around the country especially in the most well-known business districts. This lack of supply is what has caused the recent surge in prices.
Office Space Rate Increases Since 2011 for Top 8 BPO Destinations in the Philippines
Makati, Manila. The capital business district in the Philippines has always lacked available space and the price of office space is the highest in the country. Prices here have actually been pretty stable since 2011 with only about 30% increase. Office space today goes for about $20 per square meter up from $14 per square meter in 2011.
Taguig, Manila. The home to Bonifacio Global City district has also seen a minimal increase in office space since 2011. Up just 30% the prices went from $12 to $17 per square meter.
Ortigas, Manila. The last major business district in Metro Manila is Ortigas which also has not seen quite the increase compared to other places in the country. Up just 20% since 2011 office spaces are now going for $12 per square meter compared to $10 seven years ago.
Quezon City. Outside of Manila is where the commercial office spaces have really started to increase. Back in 2011 the prices per square meter were less than $8. Today the same type of space is going for $13 per square meter which is up over 60%.
Clark, Pampanga. The fastest growing business district in the Philippines has seen an extreme increase in prices for commercial office space over the last 7 years. In 2011 office space was going for just $4 per square meter and now the price has more than doubled to over $8.
Cebu City. This area has had a steady increase in demand over the last 7 years and office space prices have followed suit. In 2011 prices were at $8 and have now increased to $14 per square meter for a healthy 70% increase.
Bacolod City. This is a new emerging business district in the Philippines and the popularity can be seen in its commercial space price hikes. In 2011 space was going for less than $4 and has now experienced a 100% increase to $8 per square meter.
Davao City. Prices in this area of the Philippines are a perfect example of the office prices being determined by the demand. Vacancies have been increasing over the last couple of years which has caused the prices to go down. In 2011 office space was less than $4 and quickly reached $10 in 2016. Now prices have settled back down to about $9 per square meter and will probably continue to go down in order to stay competitive with other business areas in the Philippines.
The rapid increase in commercial prices of the last 7 years was due to the BPO industry increasing at 17% per year. As seen in the business districts across the Philippines the increase in commercial office space is not a bubble. Prices have just been flowing with the demands of the market.
Prices will continue to increase in Clark and Bacolod city for the next 2 years while other areas of the Philippines will become more steady and could drop in some areas like Davao and Cebu. It is safe to assume that 5 years from now commercial office space in Manila will be at about $20 per square meter and at about $12 per square meter in other areas of the Philippines. This projected increase will not be anywhere near what the commercial real estate has experienced in the last 7 years. There is not a bubble in commercial office space prices in the Philippines.
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