The first half of 2026 tested the Philippine real estate sector’s resilience. According to global real estate services company Santos Knight Frank, the Strait of Hormuz disruption pushed the country’s growth forecast down and inflation up, prompting developers to respond with real caution: fewer new launches, more selective underwriting, and slower vertical construction starts.
Rick Santos, chairman and CEO of Santos Knight Frank, says: “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.”
“We continue to see steady demand in the office market with vacancy easing even as new supply stayed limited. The industrial sector remains a bright spot, with renewable energy, e-commerce, and digital infrastructure now joining manufacturing and logistics as key demand drivers. In residential, Manila continues to hold its position among the world’s top prime residential markets, even as developers pull back on new launches in favor of absorbing existing inventory. Hospitality is proving one of the more resilient sectors of all, with international arrivals remaining up even as the industry navigates higher fuel and travel costs.”
He continues: “This is the kind of moment we’ve told investors to watch for: when short-term uncertainty creates long-term entry points. Prices are still adjusting, financing terms remain favorable for those who move now, and long-term leases signed today lock in value ahead of the recovery.”
H1 Office Net Absorption records at 257k sq.m.
Net absorption this first half of 2026 records at 257,000 sq.m., 28.5% higher than last year’s same period (H1 2025), largely driven by move-ins and expansions from the IT-BPM industry. Metro Manila office vacancy has eased, coming from 21% in Q4 2025 to 18% in the first half.
More than 439,000 sq.m. of office stock is expected to be completed in the latter part of the year, with an additional of more than 864,000 sq.m. over the next five years.
More BPO companies continue to choose Metro Manila as their preferred office destination with the launch of Wiredscore certifications, enabling office buildings to identify as smart-enabled and IT-ready, especially in BGC, Taguig. Taguig continues to command the lowest vacancy at 9% and the highest average asking rate at PHP 1,368/sq.m./month, 16% higher than the overall average of PHP 1,148/sq.m./month. Makati follows at 18% vacancy and PHP 1,286/sq.m./month asking rate.
Residential Developers are slowing down on vertical developments
Heavily impacted by the global crisis that transpired this Q1, the residential sector is experiencing a bit of a slowdown with local developers pausing construction of vertical properties in the metro.
The same goes for prime villages in Metro Manila, which experience a price softening. Buyers are more conscious with their purchases compared to last year’s average prices. Forbes Park still commands the list with PHP 800,000 price per square meter, followed by Dasmariñas Village at PHP 750,000. Urdaneta Village, Bel-Air, and San Lorenzo register at PHP 580,000, PHP 550,000, and PHP 520,000, respectively.
Meanwhile, Manila ranks 2nd in Knight Frank’s Prime Global Cities Index in Q1 2026, with a 19% y-o-y increase in prices. On a global landscape, this still places Manila in an affordable luxury market, providing more value for its consumers comparing to other APAC markets.
Data Centers, LEC, and Pax Silica Reshape the Industrial Sector
Renewable energy, e-commerce, and data centers continue to drive demand across the industrial sector — but the defining story for H1 2026 is the Philippines’ formal entry into two major US-led initiatives: the Luzon Economic Corridor (LEC) and the Pax Silica network, positioning Luzon as a serious node in allied semiconductor and critical minerals supply chains. Anchoring this shift is the newly announced 4,000-acre Economic Security Zone in New Clark City, Tarlac — the first “AI-native Industrial Acceleration Hub” under Pax Silica.
Against this backdrop, the data center sector remains one of the sector’s most active demand drivers, with local capacity on track to nearly triple to approximately 500 MW by 2028, up from roughly 150 MW today, as major campuses — including STT Fairview and VITRO’s Cavite facility — move forward. Foreign manufacturers and locators continue to situate operations in the Philippines as well, drawn by the country’s positioning as a lower-cost data center build destination relative to regional peers.
2.9M International Arrivals Despite Flight Suspensions
Despite the brief suspension of flights amid the Iran-US conflict, tourist arrivals still registered at 2.9 million in the first half of 2026. The United States led international visitor arrivals with 531K tourists, followed by South Korea at 501K, and Japan at 226K.
This momentum is being matched by the hospitality sector, with more than 3,700 hotel keys expected to come online by the end of 2026, including the return of iconic properties such as the Mandarin Oriental in Makati and Sofitel in Cebu City. Major hotel operators continue to partner with local developers to expand the high-end segment, catering to a growing base of higher-spending tourists.
This growth is reinforced by the continued expansion of the MICE industry into regional hubs, led by Metro Cebu, where the SM Seaside Arena’s July opening underscores the province’s rising profile as a MICE destination
Experiential Growth Anchors Regional Expansion
While retail growth in Metro Manila has moderated relative to prior years, the sector’s underlying story for 2026 is one of diversification rather than slowdown. Luxury and lifestyle brands continue to expand within the capital even as broader foot traffic growth softens, reflecting a bifurcation between premium and mass-market retail performance.
The second half of 2026 pipeline reflects this: SM City General Trias, SM Tagum, SM City Iligan, SM Nuvali, and Ayala Mall Gatewalk in Cebu collectively represent a continued push into provincial growth corridors, where rising household incomes and urbanization are expanding the addressable market for organized retail.
Format is evolving alongside geography. Malls are leaning harder into lifestyle and experiential retail, recognizing that consumers are increasingly choosing destinations over transactions. This is reshaping tenant mixes across both new and existing developments, with operators allocating more space to F&B, fitness, entertainment, and lifestyle concepts rather than pure merchandise retail — a response to the broader consumer shift toward experience-led spending.
Image courtesy of Gemini
