Designing Rental Units in Secondary Cities: What Makes Them Profitable?
For many Filipino property owners, building rental units sounds simple:
Build a few rooms, find tenants, collect rent, and let the property pay for itself.
In reality, rental property is a small business—and the building itself is the product.
A beautifully designed rental property can still perform poorly if the rent is too high for the area, the units are too large, the layout wastes space, or the property is inconvenient for the people who actually live and work nearby.
This becomes even more important in secondary cities and emerging urban centers such as Iloilo, Bacolod, Dumaguete, Cagayan de Oro, General Santos, Naga, Legazpi, and similar growth areas.
The opportunity is real. The Philippine Statistics Authority reported that 55.2% of the country's population lived in urban barangays in 2024, up from 54.0% in 2020. (Philippine Statistics Authority) Meanwhile, Colliers has identified strong residential take-up outside Metro Manila, including markets such as Cebu, Bacolod, Iloilo, and Davao. (Colliers)
But profitability does not come simply from being in a growing city.
It comes from designing the right property for the right tenant at the right cost.
1. Start With the Tenant, Not the Building
One of the most common mistakes property owners make is deciding what to build before determining who will rent it.
A better question is:
Who is most likely to rent this property every month?
For example, a property near a university may attract:
students
young professionals
faculty members
university employees
A property near a hospital may attract:
nurses
doctors
medical staff
patient companions
hospital employees
A property near a commercial district may attract:
office employees
small-business owners
sales personnel
young couples
A property near an industrial or infrastructure development may attract an entirely different market.
Each group has different expectations regarding rent, unit size, privacy, parking, cooking facilities, internet, and location.
The design should follow the tenant profile.
If your target tenant is a single young professional, a 20–25 sqm efficient studio may be more attractive than a large 40 sqm apartment that costs substantially more to build.
If your target market is a young family, however, a larger one-bedroom or two-bedroom unit may command a better rent and achieve longer tenancy.
The goal is not to build the biggest unit possible.
The goal is to build the unit people in that location are willing to pay for.
2. Location Matters More Than Luxury
In secondary cities, renters are often highly sensitive to convenience.
A modest but well-located unit can outperform a more expensive property in a less convenient location.
Before designing the building, study its relationship to:
universities
hospitals
government offices
business districts
industrial areas
transportation terminals
major roads
shopping and commercial areas
schools
employment centers
Ask:
How long will my tenant need to travel to work or school?
This is often more important than whether the property has expensive finishes.
For example, a tenant may prefer a clean 18 sqm studio that is a short walk or tricycle ride from work over a 30 sqm unit that requires a longer daily commute.
This is one reason secondary-city rental properties should not simply copy condominium projects in Metro Manila.
The local market is different.
3. Smaller Units Can Produce Better Returns—But Only If They Are Livable
For many small rental developments, one of the biggest opportunities is efficient unit planning.
Instead of building a few large apartments, an owner may be able to create more appropriately sized units.
Consider a simple example:
Option A
4 large apartments
higher construction cost per unit
higher rent per unit
fewer tenants
versus:
Option B
8 compact but comfortable studios
lower rent per unit
more tenants
potentially better total rental income
The second option can be more attractive—but only if the additional units do not create excessive construction, utility, maintenance, parking, or management costs.
This is why rental-property design should be evaluated through total project economics, not simply rent per unit.
4. Don't Confuse "Small" With "Cramped"
Efficient planning does not mean squeezing everything into the smallest possible room.
A good small rental unit should still provide:
a comfortable sleeping area
adequate ventilation
natural light where appropriate
a usable bathroom
space for clothing and storage
a small kitchen or pantry when appropriate
convenient electrical outlets
internet connectivity
reasonable furniture placement
privacy
A 20 sqm unit can feel surprisingly comfortable when properly planned.
A poorly designed 25 sqm unit can feel smaller.
This is where architectural design creates value.
Good planning can reduce wasted circulation space, improve furniture placement, simplify plumbing layouts, and make compact rooms feel larger without significantly increasing floor area.
The objective is:
Maximum usefulness per square meter—not maximum floor area.
5. Design the Building Around Efficiency
Rental properties have a different economic logic from owner-occupied houses.
Every square meter has a cost.
But not every square meter directly produces rent.
For example, excessive corridors, oversized lobbies, decorative spaces, or unnecessarily complicated roof forms can increase construction cost without increasing rental income.
A profitable rental project therefore tries to balance:
Rentable Area + Construction Cost + Operating Cost + Tenant Experience
A good layout may:
stack bathrooms vertically
group kitchens and plumbing
simplify structural grids
minimize unnecessary corridors
use repetitive unit layouts
standardize doors and windows
simplify electrical distribution
make maintenance access easier
These decisions may not be visible in the final property listing.
But they can have a major effect on the owner's long-term return.
6. Plan for Utilities From the Beginning
Utilities can become a significant operating problem in multi-unit properties.
Before construction, determine how you will manage:
Electricity
Will every unit have its own meter?
Water
Will tenants have individual meters or will water be included in the rent?
Internet
Will each unit have independent service, or will the property provide centralized connectivity?
Drainage
Can wastewater and stormwater be properly managed without expensive future modifications?
Garbage
Where will tenants place and collect their waste?
These decisions should be incorporated into the architectural and engineering plans.
Trying to solve them after construction can be considerably more expensive.
7. Parking Can Make or Break a Project
Parking is particularly important in Philippine secondary cities because tenant expectations vary considerably by location.
A property intended for students may need relatively little car parking but may benefit from:
motorcycle parking
bicycle parking
safe pedestrian access
A property targeting professionals or families may need significantly more vehicle parking.
The important point is that parking should be based on the actual target market and applicable regulations, rather than simply copying another property.
Overbuilding parking wastes valuable site area.
Underproviding it can make the property difficult to rent.
8. Don't Spend Too Much on Finishes
Rental properties are not usually the place to showcase the most expensive finishes.
Tenants generally care more about:
cleanliness
safety
water pressure
reliable electricity
ventilation
privacy
security
internet
functional kitchens
comfortable bathrooms
convenient location
This does not mean the building should look cheap.
It means the investment should go toward durability and usability rather than unnecessary luxury.
For example, a durable, easy-to-clean floor may be a better investment than expensive decorative materials.
Similarly, a well-designed bathroom with good ventilation may contribute more to tenant satisfaction than an expensive feature wall.
9. Think About Maintenance Before Construction
A rental property is used harder than a typical owner-occupied house.
Different tenants will occupy the units over the years. Things will break. Walls will get dirty. Plumbing fixtures will need replacement.
Therefore, design for maintenance.
Consider:
easily accessible plumbing
durable wall and floor finishes
replaceable lighting fixtures
accessible electrical components
properly protected exterior finishes
practical drainage
adequate ventilation
service areas that can be accessed without entering another tenant's unit
A property that is inexpensive to maintain can be more profitable than one that initially looks more impressive.
10. Privacy Is a Competitive Advantage
Tenants do not only rent floor area.
They rent privacy and peace of mind.
Poorly designed rental buildings often have:
bedroom windows facing directly into another unit
noisy common corridors
bathrooms sharing thin walls with bedrooms
kitchens directly beside sleeping areas
doors opening directly toward another tenant's door
These problems can affect tenant satisfaction and retention.
Even relatively simple design decisions can improve privacy:
strategic window placement
appropriate setbacks
acoustic separation
staggered doors
controlled common areas
separation between bedrooms and noisy spaces
A tenant who enjoys living in the property is more likely to stay.
And lower tenant turnover means fewer vacant months, fewer repairs between tenants, and lower advertising costs.
11. Natural Ventilation and Daylight Are Valuable
In the Philippine climate, natural ventilation can make a substantial difference to comfort.
Where site conditions permit, provide:
operable windows
cross ventilation
shaded openings
appropriate building orientation
protected outdoor spaces
Natural light also makes compact units feel more spacious.
However, passive strategies should not be treated as a substitute for proper mechanical systems where required. The design should respond to the actual site, climate, orientation, and applicable building requirements.
Good environmental design can improve tenant experience while potentially reducing dependence on artificial lighting and mechanical cooling.
12. Safety and Code Compliance Are Part of the Investment
Rental properties must be designed and constructed in accordance with applicable Philippine regulations, including the National Building Code of the Philippines (PD 1096) and its implementing rules, as well as relevant fire-safety requirements. DPWH's National Building Code Development Office administers the technical implementation of PD 1096 and its IRR. (DPWH)
Fire safety is particularly important for multi-unit residential buildings.
The Revised Fire Code of the Philippines of 2008 (RA 9514) applies to buildings and structures and establishes requirements concerning fire safety construction, protective systems, warning systems, exits, and means of egress. (Lawphil)
Accessibility requirements may also apply depending on the building classification and number of units. The IRR of BP 344 includes provisions affecting apartment houses, townhouses, dormitories, and similar residential occupancies. (National Council on Disability Affairs)
These are not merely permit requirements.
They are part of protecting the owner's investment.
A property that cannot legally operate as intended is not a profitable property.
13. Understand Rental Regulations
Rental-property investors should also understand applicable rental regulations.
For example, Republic Act No. 9653, or the Rent Control Act of 2009, establishes coverage and rules for certain residential units based on location and rental level. Its provisions include rules concerning rent increases, advance rent, and security deposits for covered units. (Lawphil)
This is particularly important when developing lower-cost rental housing.
Don't simply assume that you can set or increase rents however you want.
The applicable law, current regulations, lease agreement, and local requirements should be reviewed before establishing the project's financial assumptions.
14. Calculate the Numbers Before Designing the Building
This is perhaps the most important lesson.
Do not design first and calculate profitability afterward.
Start with a preliminary financial model.
For example:
Total Project Cost
Land
construction
professional fees
permits
financing costs
utilities
site development
contingency= Total Investment
Then estimate:
Gross Annual Rental Income
Monthly rent × number of units × 12
But don't stop there.
A realistic model should account for:
vacancy
maintenance
repairs
utilities paid by owner
property taxes
insurance
administration
security
common-area electricity
internet, if provided
property management
financing costs
This gives you a more realistic picture of the property's net operating income.
15. Don't Assume 100% Occupancy
One of the easiest ways to make a rental project look profitable on paper is to assume every unit is occupied every month.
Real properties experience turnover.
There may be months when:
a tenant leaves unexpectedly
a unit is being repaired
a new tenant has not yet moved in
the property is being repainted
seasonal demand declines
Therefore, financial projections should include a realistic vacancy allowance.
For example, if a project has 10 units at ₱8,000 per month:
Maximum annual gross rent:
10 × ₱8,000 × 12= ₱960,000
But if you assume 5% vacancy:
₱960,000 × 95%= ₱912,000 effective rental income
That difference matters when determining whether the investment makes sense.
16. The Best Rental Property Is Not Necessarily the One With the Highest Rent
Suppose you have two possible designs.
Design A
₱15,000 monthly rent
expensive to construct
small target market
potentially longer vacancies
Design B
₱9,000 monthly rent
cheaper to construct
larger potential tenant market
easier to maintain
potentially lower vacancy
Design A has the higher rent.
But Design B may produce the better investment.
This is why investors should look at return on total investment, not just monthly rental income.
17. Secondary Cities Reward the "Affordable but Better" Strategy
One promising strategy in emerging cities is to position a property slightly above the most basic rental housing without pushing it into the luxury market.
Think:
Affordable + Clean + Safe + Convenient + Well Designed
For example, instead of competing with the cheapest boarding houses, a landlord might offer:
private bathroom
better ventilation
reliable internet
secure entry
laundry area
motorcycle parking
small kitchenette
clean common areas
The additional construction cost can potentially justify a higher rent—provided the local market is willing to pay for those improvements.
The key is value, not luxury.
18. Design for Flexibility
Markets change.
The tenant profile you expect today may be different five or ten years from now.
Whenever practical, consider layouts that can accommodate different uses.
A unit could potentially work as:
a studio for a single professional
a rental for a couple
a furnished short-term unit, where legally and operationally appropriate
a small office or professional space, if permitted
Flexible design can give the owner more options if market conditions change.
However, flexibility should not mean making the building unnecessarily complicated.
The best approach is usually simple layouts with multiple potential uses.
19. Secondary Cities Should Not Be Treated as One Market
"Iloilo," "Bacolod," "Dumaguete," "Naga," or "Davao" are not single rental markets.
Even within the same city, rental demand can vary dramatically from one barangay or neighborhood to another.
A property near a university can behave differently from one near a hospital.
A property near a city center can behave differently from one along a developing highway corridor.
Before investing, investigate:
Who lives nearby?
Where do they work or study?
What rental units are already available?
What rents are actually being achieved?
How quickly do properties get occupied?
What unit sizes are most common?
What amenities do competing properties provide?
What developments are planned nearby?
How accessible is the property?
What could change the area's demand in five to ten years?
This is essentially a small-scale market feasibility study.
20. Think Like a Developer—even If You Only Own One Lot
You do not need a large development company to think like a developer.
If you own a 200–300 sqm lot, you are still making a development decision.
You are deciding:
How can this piece of land generate the best sustainable return without overbuilding?
That may mean:
apartments
studio units
a small boarding house
townhouse units
a mixed-use building
a combination of owner-occupied and rental space
The right answer depends on the lot, zoning, market, regulations, financing, and target tenants.
There is no universal "best rental layout."
A Simple KDA D+A Framework for Rental Projects
At KDA Design + Architecture, we believe rental-property planning should connect design decisions with financial objectives.
A useful framework is:
1. MARKET
Who will rent the property?
2. LOCATION
Why would they choose this location?
3. PRODUCT
What type and size of unit will they actually pay for?
4. DESIGN
How can the units be comfortable, efficient, durable, and attractive?
5. COST
How much will the project really cost to build and operate?
6. INCOME
What realistic rent can the property generate?
7. RISK
What happens if occupancy is lower than expected?
8. RETURN
Does the investment justify the land and construction cost?
This approach changes the question from:
"How many units can I fit on my lot?"
to:
"What rental property can I build that gives tenants good value and gives me a sustainable return?"
That is a much better starting point.
Final Thoughts: Profitability Starts With Good Decisions, Not Expensive Construction
A profitable rental property in a secondary Philippine city does not necessarily need to be large, luxurious, or expensive.
It needs to be appropriate.
Appropriate to the location.
Appropriate to the tenant.
Appropriate to the local rental market.
Appropriate to the owner's budget.
And appropriate to the regulations governing the property.
The strongest rental projects often succeed because they get the fundamentals right:
good location + correct unit size + efficient planning + reasonable construction cost + useful amenities + low operating costs + realistic rent assumptions.
Architectural design plays an important role in bringing these factors together.
Because in rental development, good design is not simply about making a building look better.
Good design helps make the investment work better.
References
Philippine Statistics Authority. Highlights on the Urban Population Based on the 2024 Census of Population (2024 POPCEN). (Philippine Statistics Authority)
Colliers Philippines. Philippine Property Market Outlook 2025. (Colliers)
Colliers Philippines. Residential Property Market Report – Q1 2025. (Colliers)
Colliers Philippines. Residential Property Market Report – Q4 2025. (Colliers)
Republic Act No. 9653. Rent Control Act of 2009. (Lawphil)
Republic Act No. 9514. Revised Fire Code of the Philippines of 2008. (Lawphil)
Presidential Decree No. 1096 / National Building Code of the Philippines and its Implementing Rules and Regulations. DPWH National Building Code Development Office. (DPWH)
Batas Pambansa Blg. 344 and its Implementing Rules and Regulations on Accessibility. National Council on Disability Affairs. (National Council on Disability Affairs)
Note: Rental rates, construction costs, occupancy assumptions, zoning, and permitting requirements vary by city and property. A project-specific feasibility study and professional design review should be completed before construction.
Comments