Weaker demand, shadow supply seen pressuring Cebu office market

PROPERTY consultancy firm CBRE Philippines said slowing take-up and looming shadow supply are expected to pressure rental rates and occupancy in Cebu’s office sector.

In its Start of Year 2026 Market Monitor report, CBRE said Cebu office demand fell 66% year on year to 11,000 square meters (sq.m.) in the first quarter, signaling a sharp slowdown following a strong 2025.

Average transaction size also declined to 445 sq.m. from 1,886 sq.m. a year earlier, although the number of deals increased to 30 from 17 a year earlier and 15 in the previous quarter.

CBRE described the market as “a busy but unproductive market,” as transaction volumes increased despite smaller deal sizes.

“After the bull run, a reckoning,” the consultancy said in the report.

The consultancy said the market is facing growing risks from “shadow supply,” or office spaces that are technically leased but remain unused and may re-enter the market.

“Shadow supply is starting to bear down on pricing in core sub-districts,” CBRE said.

CBRE now expects overall Cebu office vacancy to rise to between 18% and 22% by end-2026, higher than CBRE’s earlier 15.4% forecast.

Among Cebu submarkets, vacancy rates in the first quarter reached 30.4% in Mactan, 23.3% in fringe areas, 11.1% in Cebu IT Park, and 9.3% in Cebu Business Park.

The consultancy estimated adjusted vacancy in Cebu IT Park at 14% to 16%, while Cebu Business Park may see adjusted vacancy levels of 12% to 14%, reflecting the impact of shadow supply.

The consultancy also noted softening rental conditions in key districts. Fair market rents in Cebu IT Park fell 1.3% quarter on quarter to P541.19 per sq.m., while Cebu Business Park rents declined 1.4% to P627.55 per sq.m.

CBRE said the gap between published fair market rents and actual transacted rates has widened as landlords offer incentives to retain and attract tenants.

“The fair market rent is increasingly a ceiling, not a floor,” it said.

Despite the slowdown, Cebu’s office market posted its strongest year on record in 2025, with demand jumping 110% from 2024 levels.

The information technology-business process management (IT-BPM) sector accounted for 76% of office demand last year, while several major office buildings, including Bonifacio District’s Faustina Center, Central Bloc Corporate Center, and Filinvest Cyberzone Cebu Towers 3 and 4, reached full occupancy.

However, CBRE said the market may face additional pressure from incoming office supply, particularly in fringe locations.

Among the projects expected to add supply this year are the 60,000-sq.m. SM City Cebu office development, Astra Corp Centre, Grand Tower, and Masters Tower.

CBRE said rental gains in fringe and Mactan areas may prove temporary once SM City Cebu’s office project is completed in the fourth quarter.

The consultancy added that occupiers are expected to gain more negotiating leverage amid rising vacancy, while landlords may need to offer more flexible lease structures and fit-out support to remain competitive. — Juliana Chloe A. Gonzales