Premium pipeline seen to recast Davao’s office landscape by 2027

Davao’s office market is running hot. Across Davao City, demand is vastly outpacing supply, an uncommon state for office markets in the Philippines which are mostly still in the recovery stage. A visible cue to this is how mixed-use assets are evolving, with several developments leaning into offices as demand deepens.

Damosa IT Park is realigning its development strategy to address strong office demand, building on the full occupancy of its Topaz and Diamond Towers. At Felcris Centrale, an overflow of requirements has pushed office users into areas first intended for retail. Additional office space is also slated for SM Lanang’s renovation and expansion. These shifts set up the discussion that follows why Davao holds one of the most promising office markets in the nation.

COMPETITIVE COSTS, GENEROUS INCENTIVES, AND ENGLISH-PROFICIENT TALENT POSITION DAVAO AS ONE OF THE MOST COMPETITIVE PROVINCIAL OFFICE MARKETS
Davao City stacks up well for office locators on cost, talent, and government incentives. A large regional labor pool feeds the city from nearby cities such as Panabo and Tagum in Davao del Norte, Digos in Davao del Sur, and General Santos in South Cotabato. The Davao region’s English skills are also second only to the Cordillera Administrative Region outside of Metro Manila according to Education First’s English Proficiency Index.

Entry rates for customer service representatives in Davao are also competitive. As reported by Indeed, the average monthly wage for the role is around PHP 18.2k per month, below other key office hubs such as Metro Manila, Cebu City, Iloilo City, and Clark. Expanding or new locators also benefit from LGU incentives. The Davao City Investment Promotion center grants up to 3 years’ business tax exemption, 2 years of real property tax exemption, and Mayor’s Permit, fees and licenses exemptions under its Investment Incentive Code.

DAVAO’S TIGHT 95% VACANCY SIGNALS READINESS FOR NEW OFFICE DEVELOPMENTS
Given these solid fundamentals, statistically, Davao is positioned as a promising emerging office market with comparatively limited stock, yet it posts the highest overall occupancy (95.6%) among key Philippine office hubs. Furthermore, for Grade A buildings specifically, the vacancy level narrows to around 2-3%. Despite this state, Davao City’s average lease rates are still among the lowest, positioning Davao as an attractive market for tenants and leaving headroom for rental growth as additional supply comes online.

BPOS REMAIN THE PRIMARY OFFICE DEMAND DRIVER IN DAVAO, ACCOUNTING FOR ABOUT 91% OF H1 2025 REQUIREMENTS
Cumulatively, this has made Davao City an attractive market specifically for Information Technology and Business Process Management (IT-BPM) companies. According to the Davao City Investment Promotion Center, IT-BPM companies serve as one of the largest employers for the city, employing 75,000 individuals in 2023 and injecting around PHP 15-20 billion annually in the city’s economy. Given an annual growth rate of 8-10%, these companies which contribute to 70.4% of GDP derived from the services sector in Davao have become a cornerstone of the local economy.

Under IT-BPM, prominent Business Process Outsourcing (BPO) companies already maintain a substantial, multi-site presence in Davao. Alorica occupies multiple floors in Matina IT Park; VXI takes up nearly all of Felcris Centrale’s 1 building and operates additional sites in Robinsons Cybergate and SM City Davao; Concentrix anchors much of Abreeza Corporate Center and is also present in Damosa IT Park. IBEX Global’s remarkable expansion to a second site at Felcris Centrale in 2024 also stood out as one of the city’s major office movements of the year, setting the tone for continued growth into 2025, with PRIME Philippines guiding the expansion. With BPOs accounting for over 91% of first-half office requirements in 2025, these types of firms are expected to sustain the city’s leasing momentum and absorb a significant share of both new and existing spaces.

THE INFLUX OF BPO REQUIREMENTS HAS PUSHED DEVELOPERS TO CONSTRUCT GRADE A PEZA-ACCREDITED OFFICE BUILDINGS
Nonetheless, these companies have specific preferences. BPOs in Davao look for frictionless, 24/7 operations so they prioritize PEZA-accredited, Grade A buildings with large floor plates, reliable backup power, and telecom redundancy at fiber-optic levels. Their requirements or wants also go as deep as variable refrigerant flow (VRF) air-conditions, numerous high-speed elevators, secure turnstiles/CCTV, and more. Additionally, within Davao City, space is limited in the metro. Particularly, commercial hotspots such as JP Laurel Avenue, which traverses Bajada and Lanang, are very much in demand for tenants.

This trend is not being neglected by developers, with another wave of Grade A office supply lined up for 2027. Robinsons Land is kicking off the 9.6-hectare Victoria Plaza redevelopment with a nine-storey office tower on J.P. Laurel targeted for 1H 2027. Megaworld is doubling down in Lanang, signaling additional towers in and around Davao Park District. including an office tower behind SM Lanang by 2027, and another Grade A, PEZA-accredited building within the township. In parallel, SM is preparing an office expansion within SM Lanang Premier precinct.

FLIGHT-TO-QUALITY IS LIKELY TO TRIGGER UPON THE COMPLETION OF NEWER DEVELOPMENTS POSITIONED IN MIXED-USE ESTATES
All in all, premium additions from major developers are likely to grace the market blessed by high leasing velocity. Furthermore, combined with the continuous demand from BPO’s and other outsourcing firms, a surge in average rent is expected. However, these new additions will further accentuate the segmentation of lease rates between Grade A to Grade B and C buildings, tempering the lease rates for the latter. As a result, existing office inventory from Grade B and C developments will be encouraged to enhance their offerings and/or provide leasing flexibility to align with newer projects. Overall, tenants are expected to increasingly favor flexible, plug-and-play leasing options, and locations integrated in townships aside from typical Grade A office specifications.

Jet Yu is the founder and chief executive officer of PRIME Philippines, a commercial real estate advisory firm.