Office sector sees solid absorption, driven by notable leases in key business districts

• Net absorption surged to 22,300 sqm in Q1 2025, reflecting healthy leasing activity. Taguig City secured notable deals, including a 2,000 sqm BPO lease and a 3,000 sqm FMCG deal. Makati City recorded a 2,200 sqm BPO lease, underscoring the sector’s continued growth.
• Despite positive trends, the market experienced some turnover. A tech firm vacated a 4,000 sqm facility in Taguig City, while a BPO company left a 2,000 sqm space in Makati City. Some of the firms continued to adjust their space requirements.

Vacancy rates fell due to an absence of supply, but future completions may add vacancy pressure

• No new office completions occurred in Q1, with Altaire in Makati City postponing its launch to Q2 2025. With the delays, an additional 245,000 sqm of new office space is expected by year-end, reshaping the supply pipeline for the coming quarters.
• Vacancy rates fell to 16.3% in Q1 2025, a 45.8 bps decline q-o-q, driven by the healthy levels of leasing volume and lack of new supply. Nonetheless, the upcoming 245,000 sqm of new office space in 2025 may further challenge current vacancy levels.

Office rents decrease amid competitive market, while investment landscape shows stability

• Office rents declined by 1.8% to PHP 1,107.4 per sqm monthly in Q1 2025. Some developments cut rates to attract tenants, while others maintained current rents. The decline reflects the competitive nature of the market as landlords adjust strategies to occupier demands.
• Capital values stayed stable at PHP 186,532 per sqm in Q1 2025, indicating a steady investment climate. Further interest rate cuts are projected to boost investment activity in the coming quarters, potentially boosting the office sector’s appeal to investors.

Outlook: Office market poised for growth amid supply and demand challenges

• Rents may face pressure in the short-term due to new supply and competitive market conditions. However, high-quality assets could see stability or modest growth. Capital values are expected to remain stable, with potential for appreciation as interest rates ease.
• The office sector outlook remains cautiously optimistic, with BPO and traditional sectors driving demand. However, the upcoming supply of 245,000 sqm may impact vacancy rates. Landlords may need to offer competitive terms to attract tenants in the changing market.