Demand for office spaces in the country fell 32 percent in the first half of 2026, as geopolitical tensions from the Iran war forced corporations to pause expansion plans.

Mikko Barranda, Leechiu Property Consultants director for commercial leasing, said The contraction reflects immediate corporate cost-cutting after the outbreak of the war sent fuel prices surging, driving up the cost of goods.

Simultaneously, Barranda said that companies faced intensifying pressure from employees demanding hybrid or work-from-home arrangements alongside additional inflation-related allowances.

However, he noted that deferred leases are beginning to trickle back into the market for the second half of the year.

"We have seen that there has been some softening in the second quarter 2026 demand and first half in general,” Barranda said. “The biggest takeaway we need to understand is that there's softening in numbers, but it doesn't mean that the office sector is in a downward trajectory.”

Barranda noted that the drop indicates occupiers are executing decisions with heightened scrutiny given global macroeconomic volatility. Companies have become more cautious, careful, and discerning when committing to significant capital expenditures like long-term office leases.

Signs of stabilization are emerging for the consecutive six months. Barranda pointed to the growing acceptance of prevailing economic realities among multinational firms, evidenced by an active leasing pipeline of approximately 350,000 square meters.

Even with domestic inflation and interest rates remaining elevated, corporate occupiers are actively preparing to sign leases before the end of the year.

The information technology and business process management (IT-BPM) industry remains the primary growth driver for local commercial real estate. Growth is particularly pronounced within the Global Capability Center (GCC) sector—the captive corporate centers of multinationals—as foreign firms continue to leverage the country’s lower labor costs.

While GCC demand has historically concentrated in Bonifacio Global City, a severe supply crunch in the district is altering tenant strategies.

“Instead of companies just looking at Bonifacio, given the limited amount of space available, we'll now see a spillover of requirements to the other districts,” Barranda said.

He cited neighboring Makati City as the primary beneficiary of this spillover, hosting the majority of central business district transactions during the first half of the year.

Leechiu Property Consultants expects this decentralization trend to spread to other submarkets across Metro Manila in the coming months.

The office market recovery remains heavily centralized in the capital region. Metro Manila accounts for roughly 70 percent of total GCC leases, while provincial markets hold a 30 percent share. This gap has widened as third-party business process outsourcing companies scale back their countryside expansions, causing provincial commercial real estate demand to decline.

Compounding the private sector pipeline, government agencies are poised to emerge as unexpected drivers of office demand in the second half of 2026.

After years of evaluation, multiple state agencies are accelerating plans to vacate aging public buildings in favor of modernized, upgraded commercial spaces to improve employee working environments.