Metro Manila’s office market continued to improve in the first quarter of 2026, while industrial estate vacancies remained structurally low and investor appetite for prime office assets stayed resilient despite rising interest rates and accelerating inflation triggered by the ongoing war in the Middle East, according to property consultancy Cushman & Wakefield.

In the three latest Philippine MarketBeat reports published last May 4, Cushman & Wakefield Philippines director and research consulting and advisory services head Claro Cordero Jr. said steady leasing activity, sustained industrial demand, and investor preference for high-quality assets continued to support segments of the country’s commercial real estate market despite mounting macroeconomic headwinds.

The Metro Manila Office report showed that prime and grade “A” office vacancy rates eased to 17.1 percent in the first quarter from 17.9 percent in the previous quarter, supported by “steady leasing momentum and limited new supply” across both central business districts (CBDs) and decentralized markets.

According to the Office report, vacancy rates in CBDs remained tight at around 10 percent, while decentralized markets continued to face elevated vacancies of 24.4 percent.

Office demand also recorded positive net absorption of 62,000 square meters (sqm) during the quarter, driven largely by expanding information technology and business process management (IT-BPM) companies, particularly business process outsourcing (BPO) and shared services firms.

Leasing activity was concentrated in Makati CBD and Bonifacio Global City (BGC), as occupiers pursued “flight-to-quality strategies,” the report noted.

Despite improving vacancies, average headline office rents softened to ₱959 per sqm per month as landlords in high-vacancy submarkets offered more competitive rates to attract and retain tenants.

The Office report noted that the broader Philippine economy was slowing amid the oil crisis caused by Middle East tensions, while inflationary pressures persisted despite earlier gains from policy easing and strong domestic demand.

Still, the Office report said “robust domestic demand and the positive effects of earlier policy rate cuts” by the Bangko Sentral ng Pilipinas (BSP) continued to support short-term economic recovery, alongside steady remittance inflows, public-private partnerships (PPPs), and foreign investment reforms.

Meanwhile, the Philippines Industrial Land report showed that vacancy levels across the country’s industrial estates remained low at 4.2 percent nationwide across approximately 9,000 hectares (ha) of inventory, signaling “sustained occupier demand and limited excess capacity.”

The report noted that the provinces of Cavite, Laguna, and Batangas, or CALABA, had the strongest industrial fundamentals, with Batangas operating near full occupancy at a vacancy rate of 1.7 percent and Laguna at 3.6 percent.

Cavite posted a relatively higher vacancy rate of five percent, which the report attributed to ongoing expansions in the province.

According to the Industrial Land report, industrial demand continued to be driven by “strategic capital deployment within Philippine Economic Zone Authority (PEZA)-accredited and established ecozones,” particularly in semiconductors, aviation maintenance, repair, and overhaul (MRO), precision engineering, and logistics.

Among the projects cited were Lufthansa Technik’s $400-million hangar expansion in Clark and Tong Hsing Electronics’ advanced cleanroom facility in Laguna.

This came despite the Industrial Land report noting that the manufacturing sector slowed as geopolitical tensions in the Middle East disrupted supply chains and raised fuel and raw material costs.

Meanwhile, the Metro Manila Investment report likewise showed that prime office assets in Makati City, BGC in Taguig City, and Ortigas CBD remained resilient even as the BSP raised policy interest rates last April to contain inflation pressures fueled by rising oil prices and a weaker peso.

Average office yields slipped to 6.7 percent in the first quarter, down 110 basis points (bps) quarter-on-quarter and 112 bps year-on-year.

Still, the Investment report said prime office assets remained stable due to “scarcity, tenant preference, and stronger amenities,” while non-prime properties faced “higher vacancy risks and weaker demand.”

“With the BSP raising policy rates, borrowing costs are higher, but the resilience of prime offices underscores investor preference for quality, while non-prime assets remain more exposed to cyclical pressures,” the report said.

But the report warned that “geopolitical volatility, currency depreciation, and rising global production costs” were driving up construction costs, while global supply chain disruptions could further delay project completions.

The Investment report added that developers and investors were increasingly prioritizing liquidity preservation and defensive assets amid heightened uncertainty.

“Liquidity preservation has become the overriding benchmark of resilience,” the report said, noting that some developers had deferred project launches and expansion plans.

At the same time, the report said industrial and warehousing assets continued to benefit from strong logistics demand and supply chain requirements, making them increasingly attractive “safe havens” during prolonged economic uncertainty.