THE Philippine real estate sector weathered a challenging first half of 2026 as geopolitical tensions and higher oil prices slowed development activity, but strong demand in office, industrial, hospitality, and prime residential markets kept the industry on a stable footing.
According to global real estate services firm Santos Knight Frank, disruption in the Strait of Hormuz dampened the country’s economic growth outlook and pushed inflation higher. In response, developers adopted a more cautious approach by scaling back new project launches, tightening investment decisions, and delaying some vertical residential developments.
“The Philippine real estate sector has continued to demonstrate resilience, as underlying occupier demand and long-term investment appetite held firm despite the Middle East conflict and oil price shock, amid a more selective stance among developers,” said Rick Santos, chairman and chief executive officer of Santos Knight Frank.
Santos said office demand remained steady as vacancies continued to decline despite limited new supply.
“The industrial sector remains a bright spot, with renewable energy, e-commerce and digital infrastructure now joining manufacturing and logistics as key demand drivers,” he said.
He added that Manila continues to rank among the world’s strongest prime residential markets even as developers slow new launches to absorb existing inventory. Meanwhile, hospitality remains resilient despite higher travel and fuel costs.
“This is the kind of moment we’ve told investors to watch for,” Santos said. “Short-term uncertainty creates long-term entry points. Prices are still adjusting, financing remains favorable for buyers who move now, and long-term leases signed today can lock in value ahead of the recovery.”
Office demand strengthens
Office net absorption reached 257,000 square meters in the first half of 2026, up 28.5 percent from the same period last year, driven largely by expansions and move-ins from information technology and business process management (IT-BPM) firms.
Metro Manila office vacancy declined to 18 percent, down from 21 percent in the fourth quarter of 2025.
More than 439,000 square meters of office space is scheduled for completion in the second half of the year, while another 864,000 square meters is expected to enter the market over the next five years.
Business process outsourcing companies continue to favor Metro Manila, particularly with the rollout of WiredScore certifications that recognize office buildings for digital connectivity and technology readiness.
Taguig remained the strongest office market, posting the lowest vacancy rate at 9 percent while commanding the highest average asking rent of ₱1,368 per square meter per month, about 16 percent above the metro-wide average of ₱1,148.
Makati followed with an 18 percent vacancy rate and an average asking rent of ₱1,286 per square meter per month.
Residential developers ease construction
Developers slowed construction of new condominium projects following the global market uncertainty that emerged during the first quarter.
Prime residential villages in Metro Manila also recorded softer prices as buyers became more cautious.
Forbes Park continued to command the highest land values at about ₱800,000 per square meter, followed by Dasmariñas Village at ₱750,000. Urdaneta Village averaged ₱580,000, Bel-Air ₱550,000, and San Lorenzo ₱520,000 per square meter.
Despite softer domestic demand, Manila ranked second in Knight Frank’s Prime Global Cities Index for the first quarter of 2026 after posting a 19 percent year-on-year increase in prime residential prices.
Santos Knight Frank said Manila remains one of Asia-Pacific’s more affordable luxury residential markets, offering buyers stronger value than many regional peers.
Industrial sector accelerates
Renewable energy, e-commerce and data centers continued to fuel industrial demand, but Santos Knight Frank said the biggest development in the first half was the Philippines’ entry into two major US-led initiatives—the Luzon Economic Corridor (LEC) and the Pax Silica network.
The initiatives position Luzon as an emerging hub for semiconductor manufacturing and critical minerals supply chains.
A key project is the planned 4,000-acre Economic Security Zone in New Clark City, Tarlac, which will serve as the first AI-native Industrial Acceleration Hub under the Pax Silica initiative.
Demand for data centers also remained strong. Local capacity is projected to nearly triple to about 500 megawatts by 2028, up from roughly 150 MW today, as major developments, including STT Fairview and VITRO’s Cavite campus, move ahead.
Foreign manufacturers also continue to expand operations in the Philippines, attracted by the country’s lower data center development costs compared with regional competitors.
Tourism stays resilient
International tourist arrivals reached 2.9 million in the first half of 2026 despite temporary flight suspensions during the Iran-US conflict.
The United States remained the country’s largest source market with 531,000 visitors, followed by South Korea with 501,000 and Japan with 226,000.
The hospitality sector is expected to sustain that momentum, with more than 3,700 hotel rooms scheduled for completion by year-end.
Among the major openings are the return of the Mandarin Oriental in Makati and Sofitel in Cebu City.
Hotel operators also continue to partner with local developers to expand the luxury segment as demand grows from higher-spending international travelers.
The meetings, incentives, conferences and exhibitions (MICE) sector is likewise expanding beyond Metro Manila, with Metro Cebu emerging as a major hub. The opening of the SM Seaside Arena in July further strengthens Cebu’s position as a growing MICE destination.
Retail shifts toward experiences
Retail growth in Metro Manila has moderated, but Santos Knight Frank said the sector is evolving rather than slowing.
Luxury and lifestyle brands continue to expand in the capital even as overall foot traffic softens, highlighting the widening gap between premium and mass-market retail performance.
Outside Metro Manila, developers continue to invest in fast-growing provincial markets. New projects include SM City General Trias, SM Tagum, SM City Iligan, SM Nuvali, and Ayala Mall Gatewalk Cebu, reflecting confidence in rising household incomes and urbanization.
Retail formats are also changing as malls devote more space to food and beverage, fitness, entertainment, and lifestyle concepts, responding to consumers’ growing preference for experience-driven destinations over traditional shopping. PR
