Local developers will continue to reckon with elevated construction costs, weak investor sentiment, and project execution risks.
Nevertheless, the Philippine construction industry is still expected to enter a period of greater stability in 2026, according to the latest Construction Market Outlook 2026 released by Hearn and Hearn Consulting.
Backed by stronger construction lending, increased building permits, and sustained investments in infrastructure and industrial developments, the industry delivered solid construction output in 2025. However, the sector also faced significant headwinds, including high material and labor costs, supply chain bottlenecks, slower foreign direct investment, and delays in securing permits.
The report said inflation has eased considerably after several years of sharp increases. But prices remain well above pre-pandemic levels, creating what Hearn described as a ‘structurally high-cost environment.’ The consultancy expects construction cost growth to remain muted at around 1 percent to 2 percent in 2026, providing greater short-term price predictability but leaving the market exposed to shifts in government spending, commodity supply, and external shocks.
To restore confidence in the property sector, Hearn said it will require stronger project governance, transparent procurement, and wider adoption of digital technologies. Hearn said developers that embrace disciplined cost management, model-based quantity surveying, artificial intelligence, and advanced project management tools will be better positioned to improve efficiency, reduce risk, and strengthen decision-making.
Citing data developed in partnership with Colliers Philippines, Hearn expects Metro Manila office vacancy to remain elevated but improve gradually as new office supply slows sharply from pre-pandemic levels. Makati, Bonifacio Global City, and Ortigas are forecast to outperform the broader office market.
In the residential sector, Hearn said the mid-income condominium segment is driving the market’s recovery, helped by aggressive discounts and flexible payment schemes. Retail property is projected to benefit from continued mall redevelopments and a shift toward experiential shopping. Major developers are also expanding into fast-growing provincial markets such as Pampanga, Cebu, and Davao.
The hospitality sector is likewise expected to improve, supported by domestic tourism and the recovery of meetings, incentives, conferences, and exhibitions (MICE).
Hearn sees green building is increasingly moving beyond certification toward measurable operational performance, supported by stronger ESG requirements and advances in digital technologies.
Despite ongoing uncertainties, Hearn said the industry’s long-term outlook remains positive, provided government policy becomes more predictable and developers continue investing in innovation, digitalization, and stronger project governance to improve productivity and resilience.
AGandP remains bullish
Atlantic Gulf and Pacific (AGandP) Industrial Philippines recently broke ground in Batangas as part of expanding its manufacturing footprint with the development of an 85-hectare modular fabrication yard that aims to position the Philippines as a larger player in the global industrial infrastructure supply chain. The yard is expected to have an annual fabrication capacity of 80,000 metric tons.
‘The facility is designed to serve the energy sector, including LNG, petroleum, clean and renewable fuels, as well as power, refining, chemicals, digital infrastructure, and industrial infrastructure projects from around the world. Given its purpose as a global modular fabrication hub, most of its output is expected to support international projects across North America, Europe, Australia, Asia, Africa, and other key markets,’ AGandP president and CEO Alex Gamboa told the
BusinessMirror in an email interview.
He said the investment comes as demand for modular construction continues to grow globally, with developers increasingly seeking off-site fabrication to reduce project costs, shorten construction timelines and address labor shortages. By expanding its operations in Batangas, AGandP is seeking to capture a larger share of that market while strengthening the Philippines’ role as a regional manufacturing and engineering hub.
Gamboa said the San Pascual facility will replace the company’s long-serving fabrication yard in Bauan, Batangas, which has operated for more than 40 years.
The new yard will include a dedicated wharf, large assembly areas and specialized heavy-load-out facilities, allowing massive industrial modules to be fabricated and shipped directly to overseas project sites. The company also plans to deploy its proprietary ‘Modstruction’ manufacturing system, which shifts a greater portion of construction work into controlled fabrication environments to improve productivity, quality and safety while reducing carbon emissions associated with conventional field construction.