Prolonged delay of store openings leads to leasing volume decline

• Net absorption settled at about -200 sqm in 2Q23, almost unchanged due to fewer store openings and closures. Store openings fell further by 26.8% q-o-q due to the lean season and postponed opening of select stores. F&B accounted for 31.8% of store openings, while Clothing & Apparel made up 12.6% of the pie. Major store openings included Putien in Pasig City and Zara in Quezon City.
• Store closures, on the other hand, declined by 29.0% q-o-q in 2Q23. F&B brands accounted for 24.4% of all store closures, including closed spaces by Pancake House and Fiery Style in Paranaque City. Meanwhile, Sports & Fitness made up 19.9% of store closures, such as Fitness First in Quezon City. 

Vacancy remains constant with no new supply

• No new retail supply was recorded in 2Q23 due to the postponement of the completion dates for Gateway Mall 2 and One Ayala to 3Q23. The completion of these developments is expected to increase the vacancy rate in the second half of the year.
• The vacancy rate stayed at 6.2% in 2Q23, unmoved from the previous quarter. The overall lack of activities in the retail market in 2Q23, as well as the absence of new supply, contributed to the stagnant vacancy rate.

Rents stay unchanged as market activities remain muted

• Average retail rents were maintained at PHP 1,683 per sqm per month due to the weaker retail market, prompting operators to hold rates to induce demand.
• Capital values fell by 0.5% to PHP 229,237 per sqm, the first drop in the last five quarters, as investment activity remained subdued due to ongoing economic headwinds. Likewise, foreign investment participation has also declined by 17.6% q-o-q, reflecting a leaner market. 

Outlook: Peak season anticipated to propel the market in 2H23

• An increase in leasing volumes is anticipated in the latter half of the year, driven by the peak holiday season, and a large volume of new supply is slated to come online with new stores. The steady uptick in soon-to-open stores scheduled within the year are also likely to keep leasing activities up for the remainder of the year. 
• Nonetheless, the scheduled opening of the new developments within the year may continue to challenge the recovery of vacancy levels. Meanwhile, rental growth is expected to pick up towards the year-end in tandem with healthier leasing activities.