The office market in 2025 is at a crossroads. As new supply outpaces demand, questions arise about whether we are witnessing the formation of an office bubble. The rise in hybrid work, shifting tenant preferences, and high vacancy rates are shaping a narrative that developers and occupiers alike cannot ignore.
The situation
This year has seen a significant uptick in office supply across key cities, driven by projects initiated during the post-pandemic recovery. Rental prices are stagnating or even declining, and landlords are offering unprecedented incentives to retain tenants.
In our 2025 Real Estate Outlook Report, YTD completion of around 181,000 sqm office space brings the total Metro Manila supply to 8.6M sqm. Additionally, 260,000 sqm worth of new office projects are scheduled to be completed within the 2nd half of 2024, with another 420,000 sqm more expected until 2029.
The question remains: Is this a temporary adjustment or a sign of deeper market instability?
What is an office bubble?
Before declaring a bubble, it is important to define it clearly.
A real estate bubble occurs when excessive investment and speculative development lead to a significant imbalance between supply and demand.
In the context of office spaces, a bubble forms when there is a rapid increase in construction driven by optimistic growth projections that fail to materialize. Key indicators include high vacancy rates, falling rental yields, and pressure on developers to offload properties at discounted rates.
Historically, bubbles often burst when market corrections occur, leaving investors and developers with significant losses. The office market today exhibits some of these warning signs, but is it enough to declare a bubble?
Why is there an oversupply?
The oversupply in 2025 can be attributed to several factors.
During the post-pandemic recovery, developers anticipated a swift return to pre-2020 office demand levels. Many projects launched during this period are now entering the market, just as occupiers’ needs are evolving.
Additionally, the shift toward hybrid work has drastically reduced the need for traditional office space. Companies are prioritizing smaller, more efficient spaces tailored to collaboration rather than expansive floors for individual desks.
This mismatch between what developers built and what businesses now want is a key driver of today’s oversupply.
Experts weigh in on the ‘office bubble’
Lovelle Taleon, Santos Knight Frank Director for Consultancy, said, “The possibility of a commercial real estate bubble forming in the office market is unlikely. While the POGO exodus has contributed to increased vacancy rates, as highlighted in our 2025 outlook report, the impact is partial and does not indicate the formation of a bubble.”
She adds, “In fact, [office vacancy levels] are gradually improving, albeit at a steady pace. As highlighted in our 2025 outlook report, the Metro Manila office market has shown resilience, with the year-on-year vacancy rate contracting from 21.05% in 2023 to 20.09% in Q4 2024. While vacancy rates remain elevated compared to pre-pandemic levels, this would still be considered a healthy rate in most global markets.”
With the current trajectory, it suggests recovery rather than a cause for alarm.
Conclusion
The office market in 2025 is facing significant headwinds, but it also holds the potential for innovation and transformation. While oversupply is a pressing issue, it’s not yet clear whether it signals the bursting of a bubble or simply a period of adjustment.
Struggling to lease out your commercial property in this competitive market? Our team of experts is here to guide you. With deep market insights, a vast network of potential tenants, and customized marketing strategies, we ensure your property stands out. Reach us at +63 917 806 6315 or email at inquiry@santos.knightfrank.ph to learn more.
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