Cebu's office market experienced a severe downturn in the first half of 2026, with demand plummeting 68.2% year on year to 20,200 square meters (sq.m.), according to CBRE Philippines. The provincial hub — the Philippines' largest business process outsourcing (BPO) center outside Metro Manila — is contending with decelerating BPO leasing activity, climbing vacancy rates, and a new wave of office completions entering the market.

The contraction represents a stark reversal from 2025, when Cebu posted 120,000 sq.m. of office demand during what CBRE characterized as a "massive bull run" that outperformed several major Metro Manila submarkets.

On a quarterly basis, demand continued to soften, declining to 9,200 sq.m. in the second quarter from 11,000 sq.m. in the first quarter.

"Because of the sheer lack of transaction in Cebu, it's completely negated any improvement that they've enjoyed in the average deal size," said Zoilo Paras, senior manager for office leasing at CBRE Philippines, speaking at the property firm's second-quarter market briefing.

Paras noted that transaction volume dropped to 11 in the second quarter, down from 30 in the preceding quarter.

CBRE reported that Cebu recorded the steepest decline among provincial office markets in the first half, driving an overall 37% contraction across key provincial office hubs.

The consultancy partly attributed the slowdown to Cebu's diminishing rental advantage over Metro Manila. Average office rents in Cebu Business Park have climbed to P617 per sq.m., compared with P586 per sq.m. in Alabang.

"As rent advantage goes away, the search for talent is as important as ever," CBRE stated.

Zory Mangelen, director for office leasing at CBRE Philippines, explained that rental costs are no longer the foremost consideration for BPO locators.

"It's basically where the impact is," Mangelen said. She added that third-party BPO firms are transitioning away from large outsourcing contracts toward smaller "island accounts" that typically require only 500 sq.m. to 2,000 sq.m. of office space, as the industry adapts to artificial intelligence (AI).

The shift toward smaller-footprint contracts reflects a structural change in an industry that has been a cornerstone of Philippine employment and office real estate demand. As AI tools automate routine voice and back-office tasks, BPO firms are recalibrating their space requirements, a trend that has implications for provincial office markets like Cebu that have been heavily reliant on large-scale BPO leasing.

Vacancies Expected to Rise

Cebu's office vacancy rate increased for the first time in five quarters, edging up to 13.9% at the end of June from 13.7% three months prior. CBRE projects vacancies will climb further to between 18% and 22% by yearend as new office supply enters the market.

The market currently holds approximately 181,300 sq.m. of available office space, with an additional 95,000 sq.m. scheduled for completion this year. The pipeline includes Cebu Landmasters, Inc.'s 16,470-sq.m. Astra Corporate Center, Grand Land, Inc.'s 19,000-sq.m. Grand Tower Cebu, and a 60,000-sq.m. office development by SM Prime Holdings, Inc. at SM City Cebu.

Astra Corporate Center is slated for completion in the third quarter, while Grand Tower Cebu and SM Prime's office project are expected to be delivered in the fourth quarter.

Bright Spots

Despite the broader market weakness, 54% of second-quarter demand was concentrated in the Cebu Information Technology (IT) Park, which maintained a lower vacancy rate of 11%.

Innoland Development Corp. emerged as the top-performing developer during the period, leasing 4,500 sq.m. of office space, followed by Megaworld Corp. with 2,000 sq.m.

"It's worth noting that the biggest deal in Cebu at 4,500 sq.m., it wouldn't even crack the top end in Metro Manila. So that's very different from how we've known Cebu the past several years, where it went toe to toe with a lot of Metro Manila's major subdivisions," Paras said.

— Reporting by Juliana Chloe A. Gonzales

Source: Bworldonline