Squeezing the bottle does decrease its volume. Rather than a bottle, it may be more helpful to think of a full toothpaste tube; the mechanics will be the same.
If you squeeze the middle of the tube, the middle will collapse, the back will expand, and the front will expand and squirt out some toothpaste. Treating the toothpaste in the tube (or the water in the bottle) as incompressible, if the tube is full then
the volume of the inside of the tube = the volume of toothpaste inside the tube. When you squeeze, some of the toothpaste comes out, indicating there is now less toothpaste inside the tube. But the tube is still full of toothpaste. Therefore, the tube volume is decreased by the amount of toothpaste that came out.
Likewise, although it may look like the collapsing middle of the water bottle is offset by the expanding top and/or bottom of the bottle, it doesn't quite do it. Assuming the bottle is completely full of water, the decrease in the bottle's volume will be easily measured by capturing the water that spills out and measuring its volume.