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New supply as Cebu demand diversifies

Outsourcing and offshore gaming companies continue to account for the bulk of office space demand in Cebu. Read more.

Manila, 9 May 2019 - Outsourcing and offshore gaming companies continue to account for the bulk of office space demand in Cebu. Meanwhile, absorption from English tutorial centres is gaining ground.

Colliers recommends that developers be strategic with their office projects. We encourage them to provide flexible office cuts to English language centres and explore parcels of developable land around the proposed infrastructure projects which form part of the government’s ‘Build, Build, Build’ push.

Meanwhile, occupants should lock in available space in the Cebu IT and Cebu Business Park and their outskirts and consider new space in Mandaue, especially for non-outsourcing firms.

Metro Cebu breaches 1 million sq m mark; Mandaue and Mactan chip in to supply

Metro Cebu has breached the 1 million sq metre mark in terms of leasable office space. In 2018, Metro Cebu’s office stock reached 1,051,100 sq metres (11.3 million sq feet), 9% higher than the 970,000 sq metres in 2017. About 82,500 sq metres (887,700 sq feet) of new office supply was delivered in 2018.

Among the new office towers are HM Tower, Pacific World Tower, Mabuhay Tower 1, and Tech Tower. About 67% of new supply was completed in the Cebu IT and 18% in Cebu Business Park. Developers continue to build office towers in the main business districts as spaces are easily absorbed by outsourcing firms.

However, the lack of developable land within the business districts has compelled developers to look for other locations such as Mactan and Mandaue. While we expect Cebu IT Park and Cebu Business Park to account for 41% of new supply from 2019 to 2021, we also see major projects in Mandaue from 2019 to 2021 including Oakridge IT Center 3 and The Space. 

Among the new office towers due to be completed in Cebu IT Park and Business Park over the next three years are Latitude Corporate Center, Mabuhay Tower 2, Central Bloc 1 & 2, Skyrise 3B & 4B, PNB Tower and Johndorf Tower.

Another major building due to be completed during the period is Arthaland’s Cebu Exchange Tower, considered the largest office tower to be built in the Visayas-Mindanao area with a Gross Leasable Area (GLA) of 107,000 sq metres (1.15 million sq feet). Cebu Exchange will offer large floor plates (approximately 5,000 sq metre), flexible unit cut-ups, a smart building management system, among others. It is registered with U.S. Green Building Council, Leadership in Energy and Environmental Design (LEED), Philippine Green Building Council, and Building for Ecologically Responsible Design Excellence (BERDE).

From 2019 to 2021, Colliers projects the completion of 453,700 sq metres (4.9 million sq feet) of new office supply, 62% higher than the annual average from 2016 to 2018.

Vacancy down from 9.7% to 6.5%

Despite the completion of 82,500 sq metres (890,000 sq feet) of new leasable space in 2018, we recorded more than 90,000 sq metres (990,000 sq feet) of transactions, resulting in a 6.5% vacancy for 4Q 2018. This is significantly lower than the 9.7% vacancy we recorded in 4Q 2017.


Among sub-locations, Cebu Business Park’s and IT Park’s vacancies remain the lowest in the metro, at 1.7% and 1.6%, respectively.

For the entire Metro Cebu, we see vacancy reaching an average of 8% per year from 2019 to 2021 despite the substantial amount of new supply due to be completed during the period. Colliers projects greater absorption of Mandaue space as we see the business district capturing a fraction of offshore gaming operations from Mactan. The local government of Mandaue recently allowed offshore gaming firms to operate in the area.  

Among the major outsourcing deals recorded in 2018 include Teledirect Telecommerce, The Company Cebu, GigaBook and an offshore gaming firm currently operating in Mandaue.

Moving forward, we still see outsourcing companies such as call centres as well as offshore gaming firms driving office space demand in the Metro. Mactan will probably continue to be a hub for offshore gaming operations and the expansion of these firms should spill over to Mandaue. At present, the latter attracts several non-outsourcing businesses such as banks and insurance firms.

A sector with significant potential to become a key office demand driver is the English as a Second Language (ESL) tutorial segment. Among the ESL centres already in Cebu IT and Business Parks are QQ English, Newtype International Language School, TOMAS English Training Center, Access E-Talk Plus Inc., Winkey Online English Academy, and Nexseed.

Rents to grow 4%

Cebu Business Park  and IT Park continue to command the highest lease rates as they attract both BPO and traditional firms. Much of the office demand still gravitates towards the two business districts.

Meanwhile, we see lease rates in Mactan and Mandaue being primarily driven by offshore gaming operations. 

Colliers sees average Metro Cebu rents growing by a slower 4% from 2019 to 2021.


Expansion site outside Manila

Cebu’s skilled manpower and adequate IT infrastructure makes it one of the most competitive outsourcing locations in the world. In Tholons’ 2018 survey of the most attractive outsourcing sites in the world, Cebu ranked 11th from 12th in 2017. It fared well in terms of talent, infrastructure, and regulatory environment for innovation. We see this being sustained by a steady pool of competent college graduates capable of handling voice support and higher-value outsourcing services such as medical and legal transcription and software engineering. Although retaining its position in the Top 20 might be a challenge moving forward. Colliers believes that companies planning to locate outside Manila should include Cebu among their options.

Assess ESLs’ office space requirements

Colliers is seeing the emergence of ESL companies as a key driver of office space demand in the city. Among the ESL firms occupying space in the Cebu IT and Cebu Business Park is the Seiha English Network Philippines. Colliers sees continued expansion of existing ESL centres as well as the entry of new players. We encourage developers to assess the office space requirements of these firms. Most ESLs initially require smaller office cuts then occupy larger space as they expand. 

Provide smaller office cuts

Cebu remains one of the preferred investment destinations outside Manila. Aside from outsourcing firms, several traditional and non-BPO companies continue to open shop in Cebu City and Mandaue, requiring smaller office cuts. Colliers believes that developers should be more flexible and mindful of the expansion of non-outsourcing businesses such as banks, insurance firms, manpower agencies and law firms.

Infrastructure-led township development

Being one of the most dynamic metropolitan areas outside of Manila, Cebu is among the major beneficiaries of the government’s ambitious infrastructure programme. Colliers believes that developable land near the proposed Cebu-Cordova Link Expressway; Cebu Bus Rapid Transit (BRT); and the Iloilo-Guimaras-Negros-Cebu bridge should further be assessed for their viability for township projects that feature offices, condominium, malls, hotels, and schools.

Non-outsourcing locators in Mandaue

Mandaue remains an attractive location for non-outsourcing firms such as banks and insurance companies due to cheaper lease rates and flexibility in office floor cuts. Colliers encourages these firms to look continuously for available space in the thriving business district as rates are cheaper than in more established business hubs in Cebu City such as the Cebu IT and Cebu Business Park.

Lock in space in business parks

Outsourcing companies continue to gravitate towards the Cebu IT and Cebu Business Park due to the convenience brought about by being in a master planned community. These integrated business communities are also near public transportation terminals. The expansive floor plates of buildings enable major outsourcing locators to consolidate operations and provide residential and retail options to employees. Office space in the business districts is easily taken up so we encourage tenants to immediately lock in available office space. For instance, the combined 70,000 sq metres (753,000 sq feet) of new office space completed in 2018 in Cebu IT and Cebu Business Park was absorbed in less than 12 months. This despite buildings in Cebu IT and Cebu Business Park having an average floor plate of 2,000 sq metres (21,500 sq feet), larger than Mandaue's average of 1,000 sq metres (10,700 sq feet) per floor.