Cebu office market faces new challenges as demand slows across provinces

Local

PROVINCIAL office markets across the Philippines are entering a period of adjustment, with Cebu maintaining its lead despite a slowdown in leasing activity and growing concerns over rising vacancies and new supply.

Latest data from property consultant CBRE Philippines showed that office demand in key provincial hubs declined significantly during the first half of 2026, reflecting a more cautious approach among companies amid economic uncertainties and the growing influence of artificial intelligence on workforce planning.

Among the country's Tier 1 provincial markets, Cebu posted the highest office take-up at 9,200 square meters (sqm) in the second quarter, followed by Pampanga, Iloilo, Davao, and Bacolod.

"Cebu is still the strongest provincial market, but the environment has become more challenging. Companies are taking a more deliberate approach when it comes to expansion as they reassess future staffing requirements," said Zeth Soria, Director for Office Leasing at CBRE Philippines during a presentation of their market report on Tuesday, July 28.

CBRE reported that provincial office demand fell by 37% in the first six months of the year compared to the same period in 2025.

The decline comes as occupiers shift toward smaller office commitments, typically ranging from 700 sqm to 2,500 sqm, instead of the large-scale leases that previously characterized the market.

In Cebu, the effects are beginning to surface.

The province's office vacancy rate climbed to 13.9% in the second quarter from 13.7% previously, marking its first quarterly increase in more than a year.

While Cebu Business Park remained the healthiest submarket with a 9.1% vacancy rate, other areas continue to face elevated vacancies, including Mactan at 31% and fringe locations at 22.9%.

The situation could become more pronounced in the coming months as approximately 30,000 sqm of "shadow stock"—office spaces expected to be vacated—enters the market.

Combined with upcoming developments, Cebu's vacancy rate could reach 18.2% by year-end, according to CBRE estimates.

Despite the headwinds, industry analysts remain optimistic about Cebu's long-term prospects, citing its established talent pool, thriving IT-BPM sector, and strong tourism economy.

Meanwhile, Pampanga and Iloilo continue to gain traction.

Iloilo's office demand during the first half of 2026 has already exceeded its total transactions for all of 2025, while Clark's sustained infrastructure investments continue to attract occupiers.

Soria noted that provincial markets are increasingly competing on talent and operating efficiencies rather than rental rates alone.

"Rent is no longer the deciding factor it used to be," he said.

"Companies are now looking at the availability of skilled workers, cost of living, and long-term sustainability when choosing where to locate," he added.(MyTVCebu)