The Philippine office market opened 2026 on familiar ground. First-quarter gross demand came in at 277,000 sqm, reflecting a slight 7% dip from the previous quarter but well within the seasonal patterns the market has come to expect at the start of each year. Beneath the headline, the story is more encouraging: net demand rose 135% year-on-year to 176,000 sqm, supported by a notable drop in vacated spaces. With geopolitical headwinds and an ongoing energy crisis in the background, however, the months ahead will test whether this momentum can hold.

Traditional Occupiers Continue to Drive the Market

Traditional office occupiers accounted for the bulk of 1Q 2026 leasing activity, taking up 160,000 sqm, or roughly 58% of total gross demand. IT-BPM firms contributed another 99,000 sqm, while managed facilities continued to gain traction at 37,000 sqm as more companies seek turnkey, move-in-ready solutions.

Expansion remained the dominant deal driver across both segments, with 126,000 sqm for traditional tenants and 57,000 sqm for IT-BPM firms. What stands out is that occupiers are not just taking space but committing to it for the long haul. Five-year lease terms accounted for the largest share of the sample at 44%, with 6-to-9-year and 10-year terms making up another 26% and 13%, respectively. Companies clearly still see value in locking in physical office space, even amid all the talk of remote work and hybrid models.

Net Demand: A Turnaround Story

The real headline of the quarter is the 135% year-on-year increase in net demand. At 176,000 sqm, this is a meaningful step up from the 75,000 sqm recorded in 1Q 2025. The improvement was driven less by a pickup in new leasing and more by a sizable reduction in vacated spaces, which fell 62% year-on-year to 101,000 sqm. The POGO-related exits that weighed on the market in prior quarters are now largely behind us, and occupiers appear to have completed their right-sizing exercises. In short, tenants are holding onto their space.

Makati City Takes the Lead

In a notable shift, Makati City emerged as the top-performing district in Metro Manila during 1Q 2026, recording 77,900 sqm in transactions. That figure already represents 55% of Makati's total demand for the entire year of 2025. Across the city, 63% of deals occurred along Ayala Avenue, and 70% involved semi-fitted or fitted handover conditions at rates ranging from PHP 650 to PHP 1,200 per sqm.

The numbers tell a clear story: occupiers are gravitating toward competitive rents and fitted spaces in established business districts. With a CBD vacancy rate of just 9%, Makati offers the combination of prestige and value that companies want right now.

Beyond Makati, Quezon City posted 39,600 sqm, followed by the Bay Area at 31,100 sqm and BGC at 27,700 sqm.

Provincial Demand: Concentrated, Not Broad-Based

Provincial take-up totaled 46,000 sqm in 1Q 2026, but the demand was highly concentrated. Clark led the way at 14,200 sqm, followed closely by Iloilo at 13,400 sqm and Cebu at 12,700 sqm. Rather than a broad-based provincial recovery, this pattern reflects the continued pull of established IT-BPM hubs and infrastructure-linked corridors. Companies expanding outside Metro Manila are picking their spots carefully.

Vacancy Holds Steady, Though BGC and Makati Are Tightening

Metro Manila's overall office vacancy rate held at 18% as of 1Q 2026, with total stock standing at approximately 2,700,000 sqm. Provincial markets, totaling 723,000 sqm, posted a 19% vacancy rate.

The more interesting story is at the submarket level. BGC continues to post the tightest availability at 8%, with Makati CBD close behind at 9%. These single-digit vacancies stand in contrast to districts like the Bay Area at 29% and Alabang at 21%. Pipeline supply across Metro Manila totals 807,000 sqm through 2028, with Quezon City accounting for the largest share at 240,000 sqm.

A Healthy Pipeline Points to Sustained Demand

Looking ahead, the active leasing pipeline stands at 227,000 sqm, split almost evenly between IT-BPM (114,000 sqm) and traditional occupiers (113,000 sqm). Within the IT-BPM pipeline, third-party outsourcers account for 61%, while Global Capability Centers (GCCs) represent a notable 39%, a segment increasingly on the radar of landlords and developers.

Five-year lease terms make up 71% of the pipeline, reinforcing the trend of occupiers committing to physical space for the medium term.

What to Watch in the Coming Months

The office market enters the second quarter of 2026 in a reasonably solid position. Net demand is healthy, the pipeline is visible, and the worst of the POGO-related disruptions are in the rearview mirror. That said, this is not a market without risk.

The escalating energy crisis and broader geopolitical tensions could slow deal conversions and dampen occupier confidence. Elevated vacancy in several districts continues to give landlords reason to be flexible on rents, though this flexibility is expected to normalize as occupancy gradually recovers. BGC and Makati CBD, with their tight supply and limited new construction, are best positioned for earlier rental recovery.

"At this point, the market remains on track, but the path forward is becoming less straightforward. Tenants are becoming more discerning and intentional in their real estate decisions, which must be matched by greater flexibility from the market. While the demand pipeline remains healthy, the key risk lies in conversion, as to whether these requirements can translate into actual transactions amid current uncertainties. This is something we will need to monitor closely in the coming months." — Mikko Barranda, Director of Commercial Leasing

The sector's trajectory in the quarters ahead will depend on how long external disruptions persist and how quickly pipeline deals turn into signed leases.

This blog covers the highlights of our 1Q 2026 Philippine Property Market Report. For the complete data and analysis, download the full report at leechiu.com/market-insights.