Manila Office Demand Holds Firm

The Philippine office market entered 2026 in stronger shape than several other real estate segments: vacancy in Metro Manila eased slightly, rents in major business districts stayed broadly stable, and leasing was supported by traditional companies, government agencies, shared-services firms and the information technology and business process management sector. Geopolitical risk and expensive energy are already making tenants more cautious, but they have not yet broken demand for quality offices.

The office market absorbed the external shock

The Manila Times reported that global geopolitical developments have not visibly dented the Philippine office property market, with transactions and vacancies remaining stable despite pressure from the Middle East conflict, energy costs and more cautious tenant behavior. That matters because offices have looked more resilient than housing, hotels and parts of consumer-driven real estate, which are more exposed to inflation, tourism and household confidence.

Stability does not mean a rapid rebound. Companies are leasing more carefully, choosing ready-to-use spaces, limiting capital expenditure and watching electricity, service-charge and commuting costs. But the market has passed the most difficult stage after the exit of offshore gaming operators and the post-pandemic reassessment of office strategies.

Metro Manila vacancy edged lower

Colliers said Metro Manila office vacancy eased to 19.0% in the first quarter of 2026 from the previous quarter. The firm attributed the improvement to stable leasing activity, fewer space surrenders and the absence of new office completions during the period. Rents remained broadly stable across major central business districts, while Grade A and Premium buildings in Makati CBD posted slight rental upside because of limited availability of high-quality space.

The data show that the market is being supported not only by demand, but also by a temporary limit on new supply. If new buildings arrive before tenants accelerate expansion, vacancy could rise again. That makes the current stability conditional on construction timing, tenant retention and the conversion of leasing inquiries into signed deals.

Traditional occupiers led transactions

CBRE estimated Philippine office transactions at 178,300 square meters in the first quarter of 2026, up 8% quarter on quarter but still 19% below the previous year’s level. Demand at the start of the year was led largely by traditional companies, though average transaction size declined; deal volume rose to 179 transactions, while average deal size fell to 1,040 square meters. CBRE put Metro Manila vacancy at 19.5%, helped by the lack of major new completions and limited newly vacated space.

Traditional occupiers usually include non-IT-BPM tenants such as legal, engineering, construction, financial, government, professional-services and local corporate users. Their role has grown because some international outsourcing companies are becoming more selective, while employers increasingly prefer flexible formats and smaller spaces over large long-term commitments.

Leechiu sees net demand rising

Leechiu Property Consultants said office net absorption rose 77% year on year to 133,000 square meters in the first quarter. Gross demand reached 234,000 square meters, down 22% from the previous quarter, consistent with normal first-quarter seasonality. Traditional occupiers accounted for 143,000 square meters, or 61% of total demand, while information technology and business process management firms contributed 79,000 square meters, or 34%.

Net absorption measures how much occupied office space increased after subtracting space that was vacated. It is more important than gross demand because it captures the market’s real occupancy change. Rising net demand alongside fewer exits suggests companies are no longer surrendering space at scale, but are instead recalibrating offices for new work models.

Makati and BGC keep the quality premium

Demand across Metro Manila remains uneven. Makati attracted transactions because of available fitted spaces and the prestige of Ayala Avenue addresses. Bonifacio Global City, or BGC, maintained lower vacancy than the broader market because of modern buildings, infrastructure, multinational tenants and limited supply of quality space.

That is widening the gap between high-quality and older buildings. Tenants are willing to pay for energy efficiency, transit access, reliable building systems and the ability to move in quickly without heavy fit-out spending. Older assets in weaker locations are forced to compete through discounts, rent-free periods and fitted-space offers.

Outsourcing remains a pillar, but not the only one

Information technology and business process management, or IT-BPM, remains a key source of office demand in the Philippines. The sector covers outsourced office, customer-service, finance, technology and business functions for global companies. According to IBPAP, the industry was on track to reach $40 billion in export revenues and 1.9 million jobs in 2025, adding around 80,000 jobs and $2 billion in revenue.

The office market, however, can no longer rely on a single engine. After the pandemic, IT-BPM companies have used hybrid work more actively, split teams between Manila and provincial hubs and optimized space requirements. Market resilience now depends more on global capability centers, local corporations, government agencies, professional services and financial firms.

Energy has become the new office risk

Colliers warned that energy volatility is becoming a strategic risk for Philippine office real estate. Electricity is among the largest operating costs for office buildings, and the Philippines imports more than 90% of its oil requirements, making the economy exposed to external price shocks. Higher oil and gas prices can raise utility charges, pressure landlords and reduce net operating income for energy-inefficient buildings.

For tenants, that means office decisions increasingly depend not only on base rent, but on total occupancy cost. Companies are looking at building energy efficiency, service charges, transport access and the ability to scale space flexibly. Buildings with lower operating costs can therefore gain an advantage even when their headline rent is higher.

The economy slowed, but services kept growing

The Philippine economy expanded 2.8% year on year in the first quarter of 2026, while the services sector grew 4.5%. Agriculture fell 0.2%, industry declined 0.1% and gross capital formation contracted 3.3%. For offices, this is a mixed signal: overall growth is weak, but the service economy that drives office demand remains the positive part of the macro picture.

Slower gross domestic product growth limits expansion plans, especially among local companies tied to consumer demand. But service-sector growth supports employment in office-using industries including finance, business services, outsourcing, public administration, education, healthcare and digital services.

Quality assets are diverging from older stock

Cushman & Wakefield said Metro Manila office conditions improved in the first quarter of 2026, with Prime and Grade A vacancy rates dropping to 17.1% from 17.9% in the previous quarter. Average office yields slipped to 6.70%, while prime assets in Makati, BGC and Ortigas remained stable because of scarcity, tenant preferences and better amenities.

That means investors and tenants are increasingly separating the market into two categories. The first is modern buildings with good transit access, resilient systems, employee amenities and credible environmental, social and governance standards. The second is older stock that needs capital upgrades and must compete mainly on price.

Provincial markets are uneven

Outside Metro Manila, demand remains concentrated in established outsourcing hubs and infrastructure-linked corridors. Cebu, Iloilo and Clark continue to attract tenants because of labor availability, lower costs and regional diversification. But provincial markets are more sensitive to the quality of available stock: if a key business park lacks suitable space, demand can move to another city even when corporate requirements remain intact.

For companies, provincial offices help reduce costs and limit exposure to Manila. For second-tier cities, they create jobs, tax revenue, retail demand and housing demand. But their durability depends on transport, internet connectivity, power supply, universities and the ability of local governments to support large corporate projects.

Stability does not mean immunity

The defining feature of the Philippine office market in 2026 is stability without excess confidence. Vacancy is easing slowly, deals continue, quality buildings retain tenants, but geopolitics, energy, inflation and expensive money are already making companies more selective. If the Middle East conflict continues to keep fuel prices high, tenants may move faster toward cheaper locations, flexible offices or hybrid work.

For landlords, that means investing in building upgrades, energy efficiency, fitted solutions and more flexible lease terms. For investors, it means more selective asset buying: the market no longer rewards every office building simply because it is in Metro Manila. It rewards quality, controllable operating costs and the ability to retain tenants during external uncertainty.

As experts at International Investment report, the resilience of the Philippine office market looks real but fragile: the sector is being supported by services, outsourcing and the absence of new supply in the first quarter, not by a full investment boom. The critical risk is that expensive energy and slow economic growth could quickly turn stable vacancy into pricing pressure for landlords, especially in older buildings and weaker submarkets.