COLUMN
METRO MANILA RETAIL MARKET CONTINUES TO RECOVER
By : Joey Roi Bondoc
Photo from The Guardian
Joey Roi Bondoc is Colliers ’ Associate Director and Head of Research . He covers residential , office , retail , leisure , and industrial segments and conducts macroeconomic analysis and regularly assesses the impact of economic growth to the real estate sector . He handles client engagement activities through market overview presentations to equity analysts , property investors , and real estate firms , and has become quite a familiar face in the local and even regional real estate news circles as his reports have consistently been cited by national news programs and major broadsheets .
Holiday spending stoked the country ’ s retail segment in Q4 2022 . An upside for the sector is that Filipinos continue to spend even after the festive season despite elevated prices . Given a sanguine macroeconomic and consumer confidence outlook , Colliers believes that the retail sector will continue to grow over the next 12 months , resulting in greater absorption of mall space and marginal rise in lease rates . However , the delivery of substantial new supply starting H2 2023 will be a major concern .
Colliers Philippines believes that now is an opportune time for landlords planning to take advantage of retail sector ’ s recovery to launch retail REITs . Lease rates are starting to increase that ’ s why retailers should be quick in locking in prime spaces in major business districts . Meanwhile , given the growing interest from foreign retailers , Colliers recommends that mall operators seize the demand from these firms by taking into account their sizes and fit out requirements . Online and offline shopping will continue to complement each other , which should compel mall operators and retailers to ramp up their omnichannel strategies .
Launch of retail REITs
Colliers believes that property developers with retail footprint should consider divesting malls into their REIT portfolio especially now that the retail segment is recovering . Malls generate recurring income and are now a viable REIT asset class as vacancies are declining and lease rates are starting to increase . In our view , developers should carefully assess which retail outlets to add to their REIT portfolio and should consider projected mall space absorption as well as profiles of retailers willing to take up brick-and-mortar spaces .
Developers should take advantage of renewed interest from foreign and homegrown retailers as well as continued expansion of Philippine economy mainly driven by personal consumption expenditure .
Lock in space in prime locations
Colliers believes that retailers should be quick in securing mall spaces in key business districts across Metro Manila now that vacancy rates are declining while rents are gradually increasing . In our view , this trend is likely to persist in the market as footfall is rebounding across the capital region . We still see substantial vacancies in selected malls in Quezon City , Bay Area , and Alabang and retailers should further explore the viability of opening physical space in these locations . Looking forward , we see a heightened competition for prime retail space especially in key business districts that will house new and expansive office and residential towers .
Seize the demand from foreign retailers entering the Philippine market
Colliers sees an improving demand for physical space from foreign retailers . We attribute this to improving consumer demand on the back of sustained macroeconomic expansion as well as the enactment of measures that further relax the country ’ s retail regulatory environment . Mall operators should capture demand from foreign retailers planning to enter the country by taking into account their sizes and fit-out requirements .
Mall space take-up improves
In Q1 2023 , vacancy across malls in the capital region dropped to 14 % from 15.4 % in Q3 2022 . Major developers have been reporting that consumer traffic has now reverted to 90-100 % of pre-Covid levels . Some mall operators even noted that footfall especially in Q4 2022 was even greater than pre-pandemic levels . With rising purchasing power due to improving consumer confidence ( according to the latest central bank survey ) and personal income tax cuts implemented by the government , retailers have been active in taking up physical mall space . Colliers believes that while online shopping will remain relevant among Filipino consumers ( especially among young shoppers ), in-store shopping will continue to rebound , as shown by relentless absorption of physical mall space within Metro Manila .
Colliers believes that mall operators should not consider online presence as competition but as a necessary complement to retailers ’ omnichannel strategies . Both retailers and mall operators unable to update their omnichannel presence will be left behind .
Colliers is optimistic that sound macroeconomic fundamentals are likely to support the retail sector ’ s growth over the next 12 months . The reactivation of high-density retail , staging of various events at malls ’ activity centres , and renewed interest in experiential retail should entice more Filipinos to visit physical malls and further stoke spending .
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