Philippine economic growth needs “a major impetus” after slowing to its weakest pace since the pandemic recovery period, with rising inflation, higher interest rates, and the prolonged Middle East conflict expected to weigh on the country’s property sector, according to property consultancy Colliers Philippines.

In a report on Friday, May 29, Colliers noted that the country’s gross domestic product (GDP) grew by a “paltry” 2.8 percent in the first quarter of 2026, the slowest quarterly expansion since the 2021 pandemic year.

The report, authored by Colliers Philippines research director Joey Roi Bondoc, senior analyst Martin Aguila, and research analyst Brent Respicio, said it helps that remittances from overseas Filipinos (OFs) continued to grow while revenues from the country’s information technology and business process management (IT-BPM) sector remained steady.

For Colliers, these two top dollar-earning segments would continue to support demand for office, retail, and residential properties across the country.

“Despite the upside from these sub-segments that help lift office, retail, and residential demand across the country, more institutional reforms are necessary to completely pivot and steer the Philippine economy and property towards more sustainable expansion beyond 2026,” Colliers said.

Bondoc said the country’s property sector could no longer afford to merely wait for conditions to improve.

“The Philippine economic expansion continues to show signs of weakening momentum. The country’s economy is persistently troubled by geopolitical tensions, and these are stifling the Philippines’ ability to weather the debilitating impacts of the Middle East conflict. Aside from the ensuing hike in fuel prices, the rise in inflation and potential rise in mortgage rates are likely to hamper growth of the residential sector. Developers and investors’ actions must go beyond wait-and-see; stakeholders should be quick in aggressively implementing proactivity,” Bondoc said.

Colliers noted that the Bangko Sentral ng Pilipinas’ (BSP) 25-basis-point (bp) interest rate hike in April, which brought the policy rate to 4.5 percent, marked the central bank’s first rate increase since October 2023.

The property consultancy added that the rate hike came as inflation surged to a more than three-year high of 7.2 percent last month, driven by higher food and transport prices amid oil price shocks linked to the Middle East conflict.

Moving forward, Colliers said elevated inflation would likely result in higher interest rates, again threatening the recovery of the Metro Manila condominium market, which still had 78,600 unsold units as of the first quarter of 2026.

The report said previous aggressive rate cuts by the BSP had not translated into lower mortgage rates, making any reduction unlikely after the April rate hike.

Still, Colliers said the Metro Manila condominium market showed early signs of recovery in the first quarter, with remaining inventory life improving to 6.8 years from a peak of 13.4 years in mid-2025.

This was driven by a 765-percent year-on-year surge in pre-selling take-up during the quarter, concentrated in the economic and affordable segments.

Colliers said aggressive promotions and flexible payment terms offered by developers proved effective, especially for ready-for-occupancy (RFO) units.

However, the report said overall market conditions remained fragile, with vacancy projected to reach a record high of 25.6 percent by the end of 2026. Oversupply risks were especially pronounced in Bay Area, while lease rates were expected to remain flat.

Colliers said capital value recovery would likely be delayed by geopolitical risks, inflationary pressures, as well as elevated interest and mortgage rates.

To navigate volatility, Colliers urged developers to tap demand in the affordable as well as economic housing segments both within and outside Metro Manila.

The report also said property companies should explore other OF markets like Hong Kong, Japan, Singapore, and North America, given the challenges facing the Middle East.

In the office segment, Colliers said Metro Manila’s office market remained resilient before the full impact of the Middle East conflict, with traditional firms continuing to drive transactions in the capital region.

It said expansions and new setups from IT-BPM firms also supported demand, although average area requirements declined across tenant classes.

However, provincial office markets posted lackluster performance in the first quarter compared with the same period last year, with Iloilo overtaking Cebu as the latter faced limited inventory within its IT and business parks.

Colliers said it was seeing longer due diligence periods, but continued expansion of managed offices and co-working spaces showed that landlords as well as occupiers were ready to adjust their development and leasing strategies.

The report said office occupiers as well as landlords should integrate alternative office delivery models, including operating expense (opex)-based and flexible workspace solutions, to better navigate near-term volatility.

For retail, Colliers said total retail stock in Metro Manila reached 7.9 million square meters (sqm) as of end-March 2026, after about 96,000 sqm were completed from the fourth quarter of 2025 to the first quarter of 2026.

From 2026 to 2028, Colliers projected annual average completion of 113,000 sqm of new retail supply, significantly lower than the 332,000 sqm completed annually from 2017 to 2019.

Metro Manila retail vacancy improved to 10.8 percent in the first quarter of 2026 from 11.4 percent in the third quarter of 2025, supported by sustained take-up from food and beverage (F&B), clothing, as well as footwear tenants.

However, Colliers said several brick-and-mortar stores closed after their leases expired. Given geopolitical tensions in the Middle East, the firm said vacancy would likely return to pre-pandemic levels only by the first half of 2027.

Colliers said upscale and premium malls would drive the next phase of retail growth as developers double down on experiential as well as high-value formats.

It said differentiation, tenant curation, more F&B concepts, as well as seamless online-offline integration would be crucial in sustaining retail recovery amid inflation-driven consumer caution.

Colliers warned that the Middle East crisis and the resulting rise in oil prices could disrupt supply chains, raise construction material prices, as well as temper demand.

The report said property developers were closely monitoring the situation since remittances from the Middle East accounted for nearly a fifth of total OF remittances in 2025.

Households dependent on remittances from the war-torn region could hold off major big-ticket purchases, including property, while the retail and leisure sectors could face headwinds from slower remittances as well as rising inflation, Colliers said.

The industrial segment is expected to remain relatively resilient, although higher oil prices could increase logistics costs and shift demand toward warehouses near ports, major roads, as well as residential areas.

Colliers said facilities with strategic access and modern, efficient designs would likely see stronger demand as companies seek to optimize costs.

The report said developers with large retail and office portfolios remained cautiously optimistic, as foreign mall tenants as well as office occupiers continued to take up space despite the ongoing Iran conflict.

“In our view, recurring income derived from key business segments such as leasing are important in shielding developers from the adverse impacts of global economic crises,” Colliers said.