US-led projects lift Philippine industrial property demand

By Francis Allan L. Angelo

MANILA — The Philippine industrial property market gained momentum in the first half of 2026 as renewable energy, e-commerce, data centers, and two U.S.-led investment initiatives reshaped demand, according to global real estate services company Santos Knight Frank.

The Luzon Economic Corridor and Pax Silica could attract advanced manufacturing, semiconductor, critical-minerals, and digital infrastructure investments, but their public value will depend on whether they generate stable jobs, strengthen domestic suppliers, and deliver infrastructure benefits beyond designated economic zones.

The improvement in industrial activity came as geopolitical tensions and an oil price shock tested the broader real estate sector’s resilience.

Santos Knight Frank said the Strait of Hormuz disruption lowered the country’s growth outlook and pushed inflation higher.

Developers responded with fewer property launches, more selective project underwriting, and slower starts for vertical construction.

“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,” Santos Knight Frank Chairman and CEO Rick Santos said in a statement.

“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 remain up even as the industry navigates higher fuel and travel costs.”

“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,” Santos added.

Office net absorption reached 257,000 square meters in the first half, up 28.5% from the same period in 2025.

Santos Knight Frank attributed the increase largely to office move-ins and expansions by the information technology-business process management industry.

Metro Manila’s office vacancy rate eased to 18% in the first half from 21% in the fourth quarter of 2025.

More than 439,000 square meters of office space is scheduled for completion in the second half of 2026.

An additional 864,000 square meters is expected to be completed over the next five years.

More business process outsourcing companies continue to select Metro Manila as an office destination, supported by the introduction of WiredScore certifications identifying buildings equipped with smart and information technology-ready infrastructure.

The trend is particularly visible in Bonifacio Global City in Taguig.

Taguig posted the lowest office vacancy rate at 9%.

The city also commanded the highest average asking rent at PHP 1,368 per square meter a month.

Taguig’s asking rent was 16% above the Metro Manila average of PHP 1,148 per square meter a month.

Makati followed with an 18% vacancy rate and an average asking rent of PHP 1,286 per square meter a month.

Residential developers, meanwhile, slowed vertical construction after the global crisis in the first quarter affected market confidence.

Santos Knight Frank said some local developers paused construction of condominium and other vertical projects in Metro Manila.

Prices in the capital’s prime residential villages also softened as buyers became more cautious compared with the previous year.

Forbes Park remained the most expensive prime village at PHP 800,000 per square meter.

Dasmariñas Village followed at PHP 750,000 per square meter.

Prices stood at PHP 580,000 per square meter in Urdaneta Village, PHP 550,000 in Bel-Air Village, and PHP 520,000 in San Lorenzo Village.

Despite the local slowdown, Manila ranked second in Knight Frank’s Prime Global Cities Index in the first quarter of 2026 after prime residential prices increased 19% year over year, Santos Knight Frank said.

The firm said Manila remained relatively affordable in the global luxury housing market, offering greater value to buyers than several other Asia-Pacific cities.

The industrial sector’s defining development was the Philippines’ formal participation in the Luzon Economic Corridor and Pax Silica network.

The initiatives position Luzon as a potential node in allied semiconductor, critical-minerals, advanced manufacturing, and technology supply chains.

The Philippines became the 13th country to join Pax Silica, a U.S.-led initiative covering critical minerals, advanced manufacturing, computing, and data infrastructure.

A planned 4,000-acre Economic Security Zone in New Clark City, Tarlac, is expected to serve as the first “AI-native Industrial Acceleration Hub” under Pax Silica.

The proposed site is equivalent to about 1,620 hectares and lies within the Luzon Economic Corridor, where the Philippines, United States, and Japan have committed to increasing infrastructure investments.

The project remains subject to further agreements on its long-term framework, economic priorities, and operating arrangements.

Data centers also remained among the industrial property sector’s most active sources of demand.

Philippine data center capacity is projected to nearly triple to about 500 megawatts by 2028 from roughly 150 megawatts at present.

Major developments moving forward include STT Fairview and VITRO’s Cavite data center facility.

Foreign manufacturers and other locators continue to consider the Philippines because of its positioning as a lower-cost market for constructing data centers compared with regional competitors, Santos Knight Frank said.

The hospitality sector also showed resilience despite temporary flight suspensions related to the Iran-U.S. conflict.

The country recorded 2.9 million international tourist arrivals in the first half of 2026.

The United States was the largest source market with 531,000 visitors.

South Korea followed with 501,000 arrivals.

Japan accounted for 226,000 visitors.

Hotel developers are expected to complete more than 3,700 rooms by the end of 2026.

The pipeline includes the launch or return of prominent hotel brands, including the Mandarin Oriental in Makati and Sofitel in Cebu City.

Major international hotel operators continue to partner with Philippine developers to expand the high-end accommodation segment for higher-spending visitors.

The meetings, incentives, conferences, and exhibitions industry is also expanding into regional centers.

Metro Cebu is leading that expansion, with the SM Seaside Arena’s opening in July strengthening the province’s position as a meetings and events destination.

Retail growth in Metro Manila moderated compared with previous years, but Santos Knight Frank said the sector was diversifying rather than experiencing a broad downturn.

Luxury and lifestyle brands continued to expand in the capital even as overall foot traffic growth softened.

The divergence reflected stronger performance in premium retail than in the mass market.

The second-half retail pipeline includes SM City General Trias, SM Tagum, SM City Iligan, SM Nuvali, and Ayala Mall Gatewalk in Cebu.

The developments represent a continued shift toward provincial growth corridors where rising household incomes and urbanization are expanding the market for organized retail.

Shopping mall formats are also changing as consumers increasingly favor destinations and experiences over transactions.

Operators are allocating more space to food and beverage outlets, fitness centers, entertainment venues, and lifestyle concepts instead of relying primarily on merchandise retailers.

The changes indicate that industrial infrastructure and regional development may support the property market’s next phase of growth, even as high operating costs and global uncertainty keep developers selective.