After years of turbulence in the real estate sector, the Philippine office market is displaying tentative signs of stabilization in the first quarter of 2025, with vacancy rates easing slightly and transaction activity on the rise. This development offers a glimmer of hope for an industry battered by the lingering effects of the pandemic and the exit of Philippine offshore gaming operators (POGOs), though challenges remain as global economic pressures continue to weigh on sentiment.
A Slow but Steady Decline in Vacancies
According to data from Leechiu Property Consultants (LPC), a leading real estate advisory firm in the Philippines, total office vacancy reached 3.2 million square meters by the end of Q1 2025, accounting for approximately 17 percent of the country’s total inventory. While this figure represents only a marginal improvement from the 3.3 million square meters recorded in the previous quarter, industry observers see it as a meaningful step toward recovery. The gradual absorption of oversupply, a persistent issue since the pandemic disrupted workplace dynamics, suggests that the market may be finding its footing.
The reduction in vacancy rates, though modest, reflects a broader trend of stabilization. The exit of POGOs, which once occupied significant office space, had left a void in the market, exacerbating oversupply. However, the pace of space being returned to the market is slowing. LPC reported that approximately 277,000 square meters of office space was returned in Q1 2025, an 11 percent improvement compared to the previous quarter. This decline in contractions indicates that fewer companies are downsizing, with many now focusing on consolidating or optimizing their existing footprints. 
Key Districts Drive Demand
Demand for office space remains concentrated in prime business districts, with Makati and Bonifacio Global City (BGC) leading the way as the most sought-after locations. These areas, known for their modern infrastructure and proximity to multinational corporations, continue to attract tenants despite high vacancy rates across the broader market. The Ortigas, Mandaluyong, and San Juan corridor also saw notable take-up during the first three months of 2025, reinforcing the appeal of established urban centers for businesses seeking to expand or relocate.
Beyond Metro Manila, provincial hubs such as Cebu and Davao are emerging as key markets for growth, particularly for firms in the IT and business process management (IT-BPM) sector. These regional cities have become attractive destinations for companies looking to diversify their operations and tap into local talent pools. The growing interest in these areas underscores a broader confidence in the Philippines as a hub for outsourcing and technology-driven industries, even as urban centers remain the focal point of activity.
IT-BPM Sector Fuels Growth
The IT-BPM sector continues to be the backbone of the Philippine office market, driving much of the demand in Q1 2025. LPC reported that approximately 355,000 square meters of office space was transacted during the quarter, marking a 7 percent increase compared to the same period last year. Global in-house centers (GICs), which provide specialized services for multinational corporations, accounted for a significant portion of this growth, highlighting the sector’s resilience amid global economic uncertainty.
The leasing pipeline also reflects a healthy appetite for expansion. LPC noted that 462,000 square meters of office space requirements are currently in progress, with an additional 85,000 square meters already under negotiation. High-growth industries such as healthcare, finance, and technology are leading the charge, with many firms seeking to capitalize on the Philippines’ reputation as a cost-effective and skilled outsourcing destination. This trend is particularly pronounced in regional hubs, where IT-BPM firms are increasingly establishing operations as part of their long-term growth strategies.
POGO Exit and Market Rebalancing
One of the most significant factors shaping the Philippine office market in recent years has been the departure of POGOs, a sector that once occupied vast swathes of commercial space. Following President Ferdinand R. Marcos Jr.’s announcement last year to crack down on offshore gaming operations, most POGO spaces have now been vacated, reducing the volume of returned inventory. LPC anticipates that contractions will continue to slow in the coming quarters, allowing the market to gradually rebalance as new tenants move in to occupy previously vacant spaces.
While the exit of POGOs initially deepened the oversupply crisis, it has also created opportunities for other industries to fill the gap. The IT-BPM sector, in particular, has been quick to absorb available space, especially in prime districts where infrastructure and connectivity remain strong. However, the pace of recovery varies across different regions and property types, with some secondary locations still struggling to attract tenants.
Challenges on the Horizon
Despite these positive developments, industry experts remain cautiously optimistic about the Philippine office market’s trajectory. Vacancy rates, though slightly improved, are still in the double digits and remain well above pre-pandemic levels. Global macroeconomic forces, including inflation, interest rate hikes, and geopolitical tensions, continue to influence investor and tenant sentiment, creating uncertainty about the sustainability of the current momentum.
Moreover, while transaction activity and leasing pipelines point to growing stability, the market is not yet fully out of the woods. The pace of recovery depends on the ability of developers and property consultants to adapt to evolving tenant needs, such as flexible leasing arrangements and hybrid work models. As companies reassess their real estate strategies in the post-pandemic era, the demand for traditional office spaces may face long-term shifts, requiring the industry to innovate to stay competitive.
Economic Context and Broader Implications
The Philippine office market’s tentative recovery must be viewed within the broader context of the country’s economic fundamentals, which remain robust despite global headwinds. The nation’s young, skilled workforce and strategic location in Southeast Asia continue to make it an attractive destination for foreign investment, particularly in the outsourcing and technology sectors. Government initiatives to boost infrastructure development and ease business regulations have also bolstered confidence among investors, even as challenges like inflation and currency fluctuations persist.
At a regional level, the Philippines competes with other Southeast Asian countries, such as Vietnam and Indonesia, for a share of the global outsourcing market. While Metro Manila remains a key hub, the rise of provincial cities like Cebu and Davao could position the country as a more diversified player in the region, reducing reliance on a single urban center. This decentralization trend, if sustained, may help mitigate some of the risks associated with oversupply in Metro Manila while spreading economic benefits to other parts of the country.
Looking Ahead
As the Philippine office market enters the second quarter of 2025, stakeholders are hopeful that the positive trends observed in Q1 will carry forward. If the current momentum holds, more balanced market conditions could emerge by the second half of the year, potentially marking the beginning of a sustained stabilization cycle. However, success will hinge on the industry’s ability to navigate broader economic shifts and respond to the changing needs of tenants in a post-pandemic world.
For now, the slight easing of vacancy rates and the uptick in transaction activity offer a promising start. As developers, consultants, and policymakers work to address lingering challenges, the question remains whether this early recovery can withstand global pressures and translate into long-term growth for the Philippine real estate sector.
