The Philippine property market reached the midpoint of 2026 in a paradox that runs through every sector: the long-term engine remains sound, while the near-term road has turned rough. The country crossed into upper-middle-income status on July 1, 2026, yet the same week brought inflation near three-year highs, another BSP rate hike, and a peso near historic lows. Across office, residential, capital markets, and tourism, demand has proven more durable than the headwinds would suggest, although growth has decelerated, caution has deepened, and the pace of any recovery now depends on how the second half unfolds.

Office Market: Demand Hits the Brakes, Not the War

Gross office demand reached 488,000 sqm in 1H 2026, down 32% year-on-year, as geopolitical uncertainty tied to the US-Iran conflict, higher construction and energy costs, and the 90% work-from-home PEZA policy weighed on occupier decisions. Activity was concentrated in smaller deals, with only nine of the 132 transactions closed in the half exceeding 5,000 sqm.

Net demand held up better at 293,000 sqm, cushioned as vacated spaces fell 57% to 195,000 sqm, a sign that occupiers have largely completed right-sizing and chose to retain space amid uncertainty. Metro Manila anchored activity with 83% of national take-up, or 404,000 sqm, led by Makati City at 106,000 sqm, equivalent to 138% of its 1H 2025 level.

Underlying demand looks deferred rather than lost. The active requirements pipeline stands at 353,000 sqm, led by IT-BPM at 155,000 sqm, with Global Capability Centers accounting for the majority. Traditional occupiers follow at 128,000 sqm and the government sector at 70,000 sqm. With Metro Manila vacancy steady at 18%, BGC tightest at 8%, and no new supply entering the Makati CBD or Ortigas Center until after 2028, prime districts remain positioned for rental stability. BGC continued to command the highest rents at PHP 900 to PHP 1,100 per sqm.

"This is more of a pause than a pullback. Companies remain committed to growth, and as businesses adapt to the evolving geopolitical environment, real estate decisions are expected to gain momentum in the second half of the year." — Mikko Barranda, Director of Commercial Leasing

Residential Market: Persistent Demand

Metro Manila's condominium market continued to register demand through 2Q 2026 despite geopolitical tension, inflationary pressure, and affordability concerns. Take-up held at 7,255 units for the quarter, relatively stable and down about 6% quarter-on-quarter, while new launches increased 48% quarter-on-quarter to 2,586 units. Housing demand remained supported by end-user purchases, government housing initiatives, and financing support.

Even so, available inventory climbed to an all-time high of 82,900 units across 616 actively selling buildings, as new supply and cancellations outpaced absorption, equivalent to roughly 34 months of stock. Unsold units stayed concentrated in the Upper Mid and Upscale segments, even as new launches skewed toward mid and upper-mid product.

Growth continued to broaden beyond the capital. Corridors in Cavite, Laguna, Bulacan, and Pampanga benefited from infrastructure investment and improving accessibility, with land values for projects north of Metro Manila rising 15% to 16% in six months. The planned Pax Silica initiative in New Clark City points to a longer-term, technology- and manufacturing-led demand story across the Luzon Economic Corridor.

"Demand is still there, but people are being much more careful about where they put their money. The market continues to move, but caution remains a defining theme for both sides." — Roy Golez, Director of Research and Consultancy

Capital Markets: Richer on Paper, Priced Out in Practice

The Philippines crossed into upper-middle-income status on July 1, 2026, with GNI per capita of about USD 4,850. The milestone landed against a challenging macro backdrop: GDP growth slowed to 2.8% in 1Q 2026, a five-year low outside the pandemic; year-to-date inflation averaged 4.5%, above the BSP's 2% to 4% target; the policy rate stands at 4.75%, with markets expecting a further increase to 5%; and the peso traded at PHP 61.42 to the US dollar as of July 7, 2026, near historic lows.

The report's central theme is a widening affordability wall. Since 2019, Metro Manila residential prices have climbed 62% while incomes have risen only 20%, opening a 42-point gap between what homes cost and what households earn. The residential market is carrying about 82,900 unsold units, including roughly 37,000 RFO units, and the PSE Property Index has fallen 54% since 2019, from 4,155 to 1,917, the clearest signal yet that investors are pricing in a tougher environment.

The long-term engine, however, remains sound. Residential prices have weathered six crises since 2019 without a broad correction, supported by a market where about 95% of buyers are domestic. A median age of 26.6 years, the youngest in Asia, points to decades of household formation ahead. Household debt sits at just 13.6% of GDP, and OFW remittances reached a record USD 35.6 billion in 2025. With residential mortgages at less than 5% of GDP against 20% to 30% or more among regional peers, we frame the gap as runway rather than weakness, and point to Pag-IBIG's expanded PHP 10 million loan ceiling as the half's most meaningful affordability measure.

"Richer on paper, priced out in practice. The engine is sound, the road is rough, and Wave 2 lands in the third quarter. Dislocation is when patient capital positions." — Tam Angel, Director of Investment Sales

Tourism: Resilience Meets Reality

Tourism delivered its strongest first-five-month performance in five years, with foreign arrivals reaching 2.74 million from January to May 2026, an 8% increase year-on-year. Growth was broad-based: the United States led all source markets with 531,859 arrivals, up 7%; Chinese arrivals rebounded 63% to 187,478; Japan rose 7%; and Canada increased 17%. South Korea remained the primary drag, with arrivals down 10%.

Momentum, however, cooled sharply through the period. Month-on-month growth eased from a February peak of 17% to just 1% by May, averaging 7% over the five months, as the lingering effects of the Iran crisis and flight cancellations weighed on travel. In Metro Manila, corporate and MICE-driven demand held firm: the average daily rate rose to PHP 6,000 from PHP 5,800 a year earlier, while average occupancy increased to 66% from 65%.

Looking ahead, we flag four factors for the balance of the year: elevated inflation and fuel costs pressuring domestic travel, a weaker peso supporting inbound arrivals, the return of face-to-face ASEAN meetings lifting MICE demand, and the direction of fuel prices as the wildcard.

"The first five months of 2026 delivered the strongest arrival performance in five years. The momentum gives us a comfortable lead over last year, but we must remain prepared as the full effects of the global crisis have yet to be fully felt." — Alfred Lay, Director of Hotels, Tourism, and Leisure

Outlook for 2H 2026: What to Watch in the Second Half

Across all four sectors, the second half will test whether resilient demand can withstand a rougher operating environment. In office, recovery depends on how quickly deferred requirements convert into committed deals. In residential, elevated inventory and affordability pressure are likely to keep both buyers and developers cautious.

In capital markets, a second inflationary wave in food is expected to land in the third quarter as fertilizer costs and El Niño pressures build, even as long-term fundamentals hold. In tourism, the strength of any inbound rebound hinges on the direction of global fuel prices through the balance of the year.

The engine is sound. The road ahead is simply rougher. And rough roads are where patient capital pulls ahead.

This executive summary highlights key insights from our 1H 2026 Philippine Property Market Report. Download the full report at leechiu.com/market-insights.