Why the Manila office market is set to become increasingly two-tiered

As tenants prioritise quality, the market will strongly favor newer, high-quality buildings.

A recently released Savills report revealed that the Metro Manila office market in Q3/2025 saw resilient demand from the BPO and technology sectors, fueled by 5.5% GDP growth, but structural inflation led to a high-interest-rate environment.

“This climate forced tenants to prioritize efficiency and a "flight to quality." Despite the tough economic conditions, this selective demand resulted in a net take-up of 53,900 sq m, which tightened the overall vacancy rate from 20.7% to 20.4%. Market performance was divided: Makati CBD led with a strong 35,100 sq m net take-up, solidifying its premium status, while the Bay Area was the only district to record a negative net take-up,” the report said.

Here’s more from Savills:

High-interest rates and elevated construction costs are delaying new supply, as the increased capital cost pushes back completion timelines. This moderation of new inventory is a critical factor supporting the market's recent vacancy rate stabilization. Out of the 338,000 sq m of supply estimated for completion by Q3/2025, only 10% was finalised, with the remainder delayed for another quarter.

The market is now focused on the scheduled 2026 and 2027 completions. However, a prolonged high-rate environment risks further project deferrals beyond 2027, potentially leading to a supply shortage of new office space in the medium term. The prevailing economic climate has continued to exert downward pressure on rental rates across Metro Manila.

For Q3/2025, the average prime office rental rate settled at PHP825.4 per sq m per month, marking a 2.6% QoQ decrease. This decline was most pronounced in the top-tier Central Business Districts of Makati and BGC, despite their sustained high demand. The drop indicates that landlords are increasingly willing to offer significant rent concessions, even for prime assets, to secure quality tenants and drive the positive net take-up observed.

The Metro Manila office market will become increasingly two-tiered in the near future. Demand from BPO and technology companies is strong and will continue, especially for newer buildings in key areas like BGC driving the "flight to quality." These top locations should see their rents remain steady or rise slightly. However, older buildings and offices outside the major business districts will still need to offer lower rents and deals to fill space.

While current construction delays are helping to keep overall vacancies tight, the large number of projects scheduled for 2026 and 2027 could sharply increase the vacancy rate if tenant demand does not catch up quickly. The market will strongly favor newer, high-quality buildings over older ones.