Sustaining consumer traffic and occupancy as impact of revenge spending dissipates
COLUMN
Gearing up for holiday spending
Sustaining consumer traffic and occupancy as impact of revenge spending dissipates
by Joey Roi Bondoc | Research Director , Colliers Philippines
The impact of revenge spending across the country is starting to dissipate so the challenge for mall operators and retailers now is to sustain footfall and consumer spending .
Colliers sees holiday-induced spending partly offsetting this projected slowdown . We are optimistic of sustained interest from retailers especially those interested to occupy brick-and-mortar mall space in prime locations across the capital region . We are projecting a slight increase in vacancy starting 2024 due to substantial delivery of new mall space .
Colliers believes that mall operators and retailers should cash in on holiday spending across the country . Holiday marketing initiatives should be amplified while mall operators should use the festive season as an opportunity to reactivate activity centres and curate events to attract more mallgoers and entice them to spend more . Developers with upcoming malls should carefully assess the retail mix that they will offer to consumers . While operators and retailers continue to welcome more customers in-store , both should work together in improving the omnichannel shopping experience of Filipino consumers .
Amplify holiday marketing initiatives
Colliers believes that retailers need to ramp up their online and offline strategies especially now that demand is likely to increase due to holiday spending . In our view , holiday bonuses and additional remittances from Filipinos working abroad are likely to boost Filipinos ’ purchasing power in Q4 2023 and retailers and mall operators should seize this additional push for Filipinos ’ propensity to spend .
Reactivate activity centres and curate events
In our view , mall operators should maximize the consumers ’ willingness to visit brick-and-mortar mall spaces and participate in various activities held in malls ’ activity centres . Events such as wedding fairs , bazaars , and even housing summits can entice more consumers to visit malls , stay longer and even spend more . Colliers believes that mall operators and retailers should closely coordinate in curating events that will be held in malls ’ activity centres .
Reassess retail mix
In our view , mall operators should carefully reassess the retail mix that they will be offering their consumers given the entry of more foreign retailers and expansion of local ones . This will especially be crucial for new malls that will open in Q4 2023 and are planning to maximize holiday-induced spending from Filipino consumers . While majority of retailers that will occupy physical mall space will be from the food and beverage ( F & B ) segment , mall operators should thoroughly assess the ideal retailers that they will be featuring in their malls alongside the typical F & B , accessories , and personal care retailers . Mall operators should carefully study which retail mix will provide them with optimal level of spending from consumers as well as sustained footfall for the long term .
Ramp up omnichannel strategy and cash in on holiday spending
Mall operators and retailers should work hand in hand in improving the omnichannel shopping experience of their consumers . While Filipinos have returned to brick-and-mortar shopping , retailers should also consider the segment of Filipino shoppers that continue to buy items online . In our view , redesigning of physical mall spaces should be complemented by the improvement of retailers ’ online shopping platforms . We see a continued reconfiguration of physical mall spaces and we see this trend even after holiday-induced spending in Q4 2023 .
Tapered mall completion
From Q2 to Q3 2023 , we recorded the completion of 81,300 sq metres ( 874,800 sq feet ) of new retail space with the delivery of Parqal Mall in the Bay Area and Kai Mall in Caloocan City . We also noted the redevelopment of Nova Plaza Mall ( formerly Novaliches Plaza Mall ) in Quezon City and Greenbelt 4 in Makati CBD . In 2023 , we estimate the delivery of 315,300 sq metres ( 3.4 million sq feet ) of new retail space , lower than our previous forecast of about 439,000 sq metres ( 4.7 million sq feet ) in Q1 2023 . Among the malls likely to be completed for the remainder of the year include One Ayala in Makati CBD and Gateway Mall 2 in Quezon City . From 2024 to 2026 , Colliers expects the annual completion of 190,600 sq metres ( 2.1 million sq feet ) of new supply . Quezon City will cover nearly a third of the new supply .
Vacancy to increase in 2024
In Q3 2023 , vacancy across malls in Metro Manila rose to 14.4 % from 14 % in Q1 2023 due to new supply . Meanwhile , major developers have reported that revenues from malls grew between 40 % and 50 % YOY as of H1 2023 due to higher occupancy and rental charges . In 2024 , Colliers expects vacancy to rise to about 17 % as we project the delivery of about 385,900 sq metres ( 4.2 million sq feet ) of new retail space . Among the retailers that took up space from Q2 to Q3 2023 include : Nike Live in Alabang Town Center , American Eagle in Glorietta , Decathlon Connect in Robinsons Manila , Skoop in Uptown Mall , Clarks in Shangri-la Plaza , Yogorino PH in SM Sta . Mesa and MUJI in SM North Edsa .
Colliers Philippines believes that retail space take-up will further accelerate for the remainder of 2023 as mall operators and tenants zero in on holiday-induced spending . We are now seeing the impact of Retail Trade Liberalization Law on physical mall space absorption . With rising interest on the Philippine retail landscape , Colliers expects the entry of more anchor tenants particularly in major regional and super-regional malls across the capital region .
The Philippine economy is primarily consumption-driven , and this entices foreign retailers to invest in the country . The Philippine Franchise Association ( PFA ) also supports this positive sentiment on the country ’ s retail sector .
According to analysts , the impact of revenge spending is starting to dwindle . This potential decline in personal consumption is likely to be offset by holiday-induced spending , with the fourth quarter of every year traditionally a strong period for retail given the release of employees ’ holiday bonuses and a spike in remittances from Filipinos working abroad . Colliers believes that the challenge for retailers and mall operators is how to sustain footfall in physical retail spaces and entice consumers to stay longer and spend more . In our view , the careful curation of retail mixes and events in activity centres and high-density retail areas will likely play a crucial role in stoking retail spending for the remainder of 2023 .
Consumer confidence will also be a barometer of Filipino shoppers ’ purchasing power for the next 12 months . Latest data from the central bank show that Filipino consumers remain optimistic with outlook index at 18.9 % in Q3 2023 from 20.5 % in Q2 2023 .
Faster pace of rental growth
In Q3 2023 , average retail rents grew by 0.8 % HOH . By the end of 2023 , we expect rents to rise by 2.2 %, faster than the 1 % rental growth in 2022 . We attribute the rise to more space absorption from local and foreign retailers and the sustained rise in consumer traffic across Metro Manila malls .
Headwinds remain , but tailwinds are on the horizon
We see a strong Q4 retail due mainly to holiday-induced spending . But the challenge for mall operators and retailers is how to sustain footfall especially now that the impact of revenge spending is starting to dissipate . We project more foreign retailers opening shop , but the completion of additional malls in Metro Manila will likely raise vacancies and exert a downward pressure on retail rents starting 2024 .