Net absorption falls to negative levels as store closures rise and new supply opens with high vacancies

• Net absorption turned negative at -12,300 sqm, driven by a slower retail market and significant store closures in malls undergoing pre-holiday renovations. The debut of Opus Mall in Quezon City, with around 60.0% vacancy, further contributed to the downward trend.
• Food and beverage (F&B) still dominated new openings in Q3 2024. Nonetheless, new malls such as One Ayala in Makati City, Parqal in Paranaque City and Gateway Mall 2 in Quezon City continued to open stores during the quarter, keeping the retail market active.

Vacancy rises as significant supply enters the market

• Opus Mall in Quezon City opened in Q3 2024, adding almost 45,000 sqm of leasable retail space to the market. Meanwhile, over 8,000 sqm of retail space has been removed from Megamall in Mandaluyong City as the mall undergoes substantial restoration and expansion.
• The expansion is bringing an additional 20,000 sqm of new space to the market. Meanwhile, the vacancy rate rose by 76.2 bps to 8.0% in Q3 2024, mainly due to the large supply generated by the opening of Opus Mall in Quezon City, which had 64.1% vacancy when it opened.

Rents remain muted, while prices see notable upticks

• Average retail rents fell 0.8% to PHP 1,689 per sqm, per month, driven by Opus Mall’s below-average rates. Most malls retained their current rents, but increases are likely by year-end, aligning with the holiday season and expected rate escalations in some developments.
• Capital values rose by 1.4% q-o-q to PHP 233,599 per sqm as the market remained generally stable. Prices could climb in the coming quarters, if the central bank cuts interest rates in the second half of the year as inflation remains under control, boosting investment.

Outlook: The retail sector anticipates a holiday season surge

• Store openings are anticipated to increase in Q4 2024, driven by the approaching holiday season. Vacancy rates are likely to remain stable due to limited new retail supply expected in upcoming quarters.
• Rents are projected to climb in Q4 amid a strengthening leasing market. Capital values are also expected to expand, aided by anticipated growth in retail sector activities.