APPD Market Report Article

Manila

August 26, 2022

Janlo de los Reyes, Head of Research, Philippines

-6.8%

PHP 1,539

Rents
Stable

Notable volume of move-ins pushes net absorption positive

  • Net absorption bounced back to 23,800 sqm in 2Q22, following a contraction of -7,295 sqm posted in 1Q22. Accelerated new store openings as well as the relaxation of restrictions, which drove increased mall foot traffic, aided the recovery of leasing volumes. F&B, footwear, and clothing and apparel dominated new leases with 22.1%, 11.1%, and 10.0% of total move-ins, respectively.
  • Notable new store openings seen in the quarter included Muji, which opened its 1,400 sqm store in Bonifacio Global City, as well as Nike’s refreshed 1,300 sqm facility in Taguig City, which was also its largest store in Southeast Asia. Upcoming store openings rose by 14.6% q-o-q, with previously vacant spaces taken by stores set to come online, mirroring the trend of the recovering market.

Rise in leasing volume leads to vacancy rate contraction

  • Vacancy rate declined by 39.9 bps q-o-q, settling at 5.8% as of 2Q22. The improving volume of store openings and slowdown of store closures led to a decrease in vacancy levels. Pull-outs were mostly made up of local F&B stores such as Barcino and New York Slice Pizza, as well as footwear brands like Rubi Shoes.
  • Retail supply remained stable in 2Q22 as the completion of developments, such as One Ayala in Makati City and Ayala Malls Arca South in Taguig City, was pushed back to the remaining quarters of the year. Roughly 403,000 sqm of new retail space is expected to be added to the supply by end-2022, potentially slowing down the recovery of vacancy rates.

Rents increase slightly as leasing demand improves

  • Retail rents inched up by 0.8% to PHP 1,539 per sqm per month, owing to the improved volume of leasing demand. Lease terms have started to normalise and return to pre-pandemic levels. Select operators have begun charging for base rent plus a percentage of sales, after waiving base rent during the height of the pandemic.
  • Capital values increased by 1.5% q-o-q to PHP 223,400 per sqm, driven by the overall improved situation and outlook for the retail sector. Further recovery of the market is anticipated in the remaining quarters of the year, aided by the manageable pandemic situation in the country which enticed foreign brands such as HaiDiLao to enter the country.

Outlook: Sustained uptick in leasing volumes likely to induce recovery

  • Less stringent restrictions and economic measures, specifically the Retail Trade Liberalization Act, are seen as key tailwinds which may propel the rise of leasing volumes and the recovery of the retail sector in the remaining quarters of the year. The uptick in stores coming online in 2Q22 is also anticipated to temper the rise of vacancy levels.
  • Rents are projected to continuously rise in the short term, in tandem with the anticipated healthy volume of new leases. Lease terms are expected to normalise and return to pre-pandemic levels across operators. The rising inflation rate may slow down the recovery of the sector as the continuous price hikes on essential goods may potentially lower the disposable income of consumers.

Note: Manila Retail refers to metro Manila's overall prime retail market.

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