Iloilo, Cebu Face Rising Office Surplus in 2024

By Francis Allan L. Angelo

Iloilo and Cebu, two of the Philippines’ most prominent secondary cities outside Metro Manila and Luzon, are poised to face an office space surplus in the coming quarters, driven by aggressive development and shifting demand dynamics.

According to the CBRE Q2 2024 Market Report, both cities are experiencing significant momentum, driven by strategic investments, infrastructure improvements, and shifting market trends. It also provides a closer look at the challenges confronting these markets.

Iloilo’s Balanced Market, With Risks of Oversupply

Iloilo has seen steady growth in its office sector, fueled by demand from local businesses and BPOs. The city’s growing economic base and infrastructure improvements have positioned it as a rising star in the provincial property market.

Iloilo’s total office supply is estimated at 400,000 square meters, with rental rates averaging PHP 400 to PHP 700 per square meter per month.

The report highlights an existing vacancy rate of around 10%, suggesting a balanced market for now.

Upcoming developments in Mandurriao and other areas aim to address the surging demand, including over 80,000 square meters of Grade A office spaces, with an additional 20,000 square meters set for completion by early 2025.

Iloilo’s competitive leasing rates and improving infrastructure have attracted companies seeking alternatives to Metro Manila, CBRE analysts noted.

The region’s accessibility and business-friendly urban development policies have further bolstered its attractiveness to IT-BPM firms and other industries.

Iloilo, however, has entered a period of increasing vacancies in commercial office space, with upcoming projects—amounting to over 50,000 square meters of new supply—could tilt the market toward oversupply.

Local developers, who have become more active in Iloilo’s real estate landscape, are expected to deliver much of this additional inventory.

This also puts developers in a bind as despite the increase in Real Property Taxes, they are unlikely to increase rental rates. This puts a squeeze on their profitability as costs increase while prices are likely to remain flat.

Cebu’s Growing Surplus in Prime Office Hubs

Cebu’s property market is a cornerstone of the Visayas economy, with its IT Park and Business Park serving as major hubs for business process outsourcing (BPO) firms and multinational companies.

However, upcoming supply in these areas is expected to outpace demand.

According to the report, new office developments in Cebu have pushed total office supply to over 1.5 million square meters of gross leasable area (GLA). Rental rates for prime spaces currently range from PHP 650 to PHP 950 per square meter per month, depending on the location and building classification.

Despite robust demand, the market is bracing for a surplus, as approximately 200,000 square meters of new office space is set to enter the pipeline by the first quarter of 2025.

CBRE analysts noted that slower-than-expected absorption rates, coupled with increasing construction, may lead to downward pressure on rental prices in the short term.

Experts also emphasized a shift in tenant preferences in both Cebu and Iloilo, with firms prioritizing eco-friendly and flexible workspaces.

Real estate professionals see this shift as a response to evolving business needs, supported by the completion of key infrastructure projects, such as airport expansions and expressways, which have significantly boosted investor confidence in the Visayas region.

“Regional markets like Cebu and Iloilo are crucial in decentralizing the Philippine property market,” the CBRE report stated. “They have the potential to alleviate pressure on Metro Manila’s crowded spaces and drive economic recovery in the provinces.”

Local developers such as DoubleDragon Properties and Ayala Land are playing an active role in Iloilo’s growth, while smaller, homegrown firms are beginning to make their mark.

Surplus Concerns Loom for Both Markets

CBRE analysts caution that the combination of sustained development and economic uncertainties may lead to longer vacancy periods for landlords in both Cebu and Iloilo.

In Cebu, the risk is more pronounced, as larger projects are being completed within a short timeframe. Iloilo, while relatively stable, faces a similar challenge as demand growth may not keep pace with new supply.

To mitigate these risks, experts recommend measures such as diversifying tenant mixes, offering flexible lease terms, and exploring adaptive re-use strategies for underutilized spaces.