Office leasing in Metro Manila posted its weakest quarter in five years in the second quarter of the year, as corporate occupiers downsized footprints amid economic uncertainty and artificial intelligence-driven (AI) efficiency gains.

In a briefing, Bryan Michael David, CBRE Philippines senior director, said that headline office demand fell to 161,160 square meters in the second quarter, a 37 percent drop in transaction volume to 109 deals from 173 in the prior quarter.

The weakness comes amid structural shift in Metro Manila’s real estate dynamics, where prime central business districts remain selective safe havens while overall absorption struggles.

David said demand was buoyed by pre-leasing arrangements and internal transfers. About 31 percent of second-quarter transactions involved uncompleted buildings or developer reallocations, including Ayala Land Inc.’s takeover of an office site in Circuit Makati.

Strip out that internal transaction, and underlying net demand dropped to 111,060 square meters.

“The IT-BPM sector is no longer the explosive growth engine it was over the past decade, performing at only 65 percent of its three-year average in Metro Manila,” David said. “Occupiers are right-sizing footprints amidst global economic uncertainties and AI-driven workflow efficiencies.”

The market now faces the steep challenge of leasing 500,000 square meters in the second half to match last year’s record performance—a milestone never achieved in the post-pandemic era.

Meanwhile, vacated secondary space remains above 1.01 million square meters for the fourth consecutive quarter, representing an accumulated overhang equivalent to 2.5 years of new supply.

Despite soft absorption, Metro Manila’s overall office vacancy rate artificially tightened to 19.2 percent in the second quarter from 19.5 percent in the first quarter and 20.3 percent in late 2025. The movement was driven by developers freezing new project launches rather than genuine occupier expansion.

Occupiers continue to concentrate in core urban areas, with Metro Manila capturing 82 percent of total national real estate demand while provincial demand dropped 29 percent quarter-on-quarter.

While IT-BPM tenants accounted for 55 percent of volume, they represented just 28 percent of deal count. Traditional corporate tenants drove 65 percent of total transactions, albeit through smaller office footprints.

Major national developers secured 66 percent of second-quarter demand. Robinsons Land Corp. led transactions with 38,000 square meters, followed by SM Prime Holdings Inc. with 28,400 square meters, Megaworld Corp. with 21,200 square meters, Ayala Land Offices with 14,100 square meters, and Innoland Development Corp. with 6,900 square meters. SM Prime emerged as a counter-cyclical winner, registering a 62 percent year-on-year expansion in first-half leasing activity.