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The global real estate services firm said disruption in the Strait of Hormuz weighed on the country's growth outlook by stoking inflationary pressures, prompting developers to cut back on new launches, tighten underwriting standards and slow vertical residential construction.
The big picture
"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 chair and CEO Rick Santos said.
Office demand remained steady despite limited new supply, helping Metro Manila vacancy ease further, Santos said.
Renewable energy, e-commerce and digital infrastructure have also joined manufacturing and logistics as key drivers of industrial demand.
In the residential segment, developers are pulling back on new launches to absorb existing inventory even as Manila remains among the world's top prime residential markets.
Hospitality has likewise stayed resilient as international visitor arrivals continued to rise despite higher fuel and travel costs.
Metro Manila recorded net office absorption of 257,000 square meters in the first half, up 28.5 percent from the same period last year, driven largely by IT-BPM expansions and relocations.
Office vacancy declined to 18 percent from 21 percent at the end of 2025, with more than 439,000 square meters of fresh office space due for completion before year-end.
Taguig remained the tightest office market with a 9-percent vacancy rate and the highest average asking rent at P1,368 per square meter per month, followed by Makati with an 18-percent vacancy rate.
Residential slowdown
The residential market, however, is moving in the opposite direction. Santos Knight Frank said developers have slowed construction of new condominium projects after global market volatility earlier this year, opting instead to focus on selling completed and existing inventory.
Prime villages in Metro Manila have also experienced softer pricing as buyers became more value-conscious. Despite the moderation, Manila ranked second in Knight Frank's Prime Global Cities Index in the first quarter after posting a 19-percent year-on-year increase in prime residential prices, keeping the capital among the region's more affordable luxury housing markets.
"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 said.
Looking ahead
While the residential sector is easing off the accelerator, Santos Knight Frank believes the next major real estate boom could emerge from an initiative that has drawn as much political debate as investor interest.
Despite objections and political noise surrounding the Luzon Economic Corridor and the US-backed Pax Silica network, Santos Knight Frank said the twin initiatives have the potential to transform Luzon into a strategic hub for semiconductors, artificial intelligence, critical minerals and advanced manufacturing.
At the center of that vision is the planned 4,000-acre Economic Security Zone in New Clark City, Tarlac, envisioned as the first AI-native Industrial Acceleration Hub under Pax Silica.
Together with the country's rapidly expanding data center pipeline, these projects, Santos Knight Frank notes, could trigger a new wave of industrial, logistics and commercial property investments that would reshape Luzon's economic landscape over the coming years. —Ramon C. Nocon| Ed: Corrie S. Narisma
