Regional office markets seen to recover unevenly as delayed supply enters 2026

REGIONAL OFFICE markets are expected to recover unevenly as construction delays that stalled project completions across key hubs in the second half of 2025 push new supply into 2026, according to Savills Philippines, a real estate consultancy.

Office completions across major regional hubs such as Cebu, Clark, Bacolod, and Davao City stalled in the second half of last year as construction delays and supply chain issues pushed project timelines back, Savills Philippines said in its regional outlook report released last week. Iloilo City was the only exception, delivering 24,000 square meters (sq.m.) of new office space for the year.

The slowdown reflects a more cautious stance among developers amid fluctuating interest rates, while temporarily easing vacancy pressures in select markets, according to the report.

Delayed projects are expected to come online from 2026, with Cebu and Davao City accounting for much of the incoming supply, Savills Philippines said.

These include Cebu’s 166,200 sq.m. Grade A office pipeline and 76,900 sq.m. across four Davao developments by 2027, which could push vacancy levels higher, it said.

“While the influx of space may cause a temporary uptick in vacancy rates by 2027, it positions these cities as the primary beneficiaries of the ongoing corporate decentralization away from Metro Manila,” Savills Philippines said.

In 2025, regional office markets in the Philippines remained active and resilient, posting positive net take-up in Cebu, Clark, Iloilo, and Davao, while Bacolod continued to record negative absorption, according to the report.

The business process outsourcing (BPO) sector remained the main driver of demand, pushing some submarkets close to full occupancy and supporting a pipeline of new developments expected to sustain medium-term growth, it said.

Performance varied across key cities, with Cebu leading expansion, while Davao recorded the lowest vacancy rate, Savills Philippines said.

Cebu’s office vacancy rate fell to 11% in 2025 from 16.6% in 2024, driven by strong leasing activity and demand in key areas such as IT Park and fringe locations, according to the report. Much of this demand came from BPOs and multinational firms favoring LEED-certified buildings for efficiency and workplace quality.

“Looking ahead, office supply in 2026 is projected to reach its highest level since 2023. A significant portion of this pipeline will be concentrated in fringe locations, particularly the North Reclamation Area and Lapu-Lapu City,” the report said.

The additional supply could increase vacancy in newer submarkets but may also shift demand beyond traditional hubs and expand Cebu’s overall office footprint, it added.

Davao’s prime office market remains supply-constrained, keeping Grade A buildings fully occupied, with vacancies largely confined to non-PEZA Grade B spaces in mixed-use developments, according to Savills Philippines.

“The absence of new Grade A completions in 2026, with the next wave of supply expected in 2027, positions existing prime assets to sustain high occupancy levels and potentially command firmer rental rates,” the report read.

“At the same time, this supply gap creates an opportunity for early consolidation and pre-leasing strategies ahead of upcoming developments, further underscoring Davao’s medium-term investment potential,” it added.

Clark’s office market demand shrank by 11,600 sq.m. in late 2025, but strong activity earlier in the year kept total demand positive at 15,100 sq.m., helping lower vacancy to 22.5% from 25.3%, Savills Philippines said.

Iloilo’s office market recorded about 22,600 sq.m. of transactions in 2025, but net demand rose by only 7,600 sq.m. as most activity came from tenant relocations and upgrades rather than expansion, according to the report.

Bacolod’s office market also softened in 2025, with tenant footprint reductions and negative net take-up of 9,000 sq.m. due to consolidation, limited expansion, and demand shifting to newer spaces in Bacolod East, widening the performance gap among submarkets, Savills Philippines said.

Entering 2026, rental rates in provincial hubs are forecast to hold steady rather than decline, creating a price floor despite shifting vacancy rates, according to the report.

“This resilience is underpinned by a sustained “flight to quality,” where the concentration of demand for Grade A and LEED-certified spaces allows landlords to maintain — or even modestly escalate — headline rents,” Savills Philippines said.

Rental rates in regional hubs increased through the fourth quarter of 2025 alongside higher vacancy levels, with growth largely driven by demand for Grade A office spaces, it added.

Davao recorded the highest increase, with rents rising by P11.9 per sq.m. to an average of P503.5. “This outperformed established markets like Cebu and Clark in terms of percentage growth, signaling a tightening of grade A supply in the Davao region,” the report stated. — Alexandria Grace C. Magno