APPD Market Report Article

Manila

February 28, 2022

-7.3%

PHP 1,542

Rents
Falling

Net absorption posts highest figure in the last six quarters

  • Net absorption hit 285,400 sqm in 4Q21, supported by store take-up of renovated and re-opened spaces, as well as newly opened wings in anticipation of the holiday season. The first branch of IKEA in the Philippines opened and occupied 65,000 sqm in MOA Square. Key F&B stores such as BCN by Las Flores in S Maison and beauty & wellness concepts like Look in SM Megamall opened in the quarter.
  • Greenbelt 3 which houses luxury brands such as Dior, Louis Vuitton and Fendi also opened in the quarter. Meanwhile, relocations within same developments were observed such as Rimowa and Patek Philippe Geneve which closed their stores in Greenbelt 5 to transfer to Greenbelt 3.

Vacancy rate improved as retailers operate for the holiday season

  • Vacancy improved to 6.2% in 4Q21, down by 148.9 bps in 4Q21. The improvement is driven by the re-opening of renovated and previously closed-off spaces with new tenants in time for the holiday season. Meanwhile, closures observed were mostly relocations within the mall.
  • The opening of the Phase 2 of Ayala Malls Manila Bay, the 4th Phase of Mall of Asia known as MOA Square, and re-opening of Greenbelt 3 collectively added around 207,000sqm of retail space to the market. Uptick in vacancy rates may be expected by 2022 due to anticipated weak retailer activity and large volume of incoming stock.

Rentals continue to fall despite improved leasing demand

  • Retail rents contracted by 11.0% q-o-q, settling at PHP 1,474 per sqm per month. Lease terms remain mixed with some landlords slashing rents while some are only requiring sales turnover.
  • Capital values experienced an incremental uptick in 4Q21 settling at PHP 235,821 per sqm, up by 0.8% q-o-q, driven by the positive investment sentiment during the quarter.

Outlook: Retailer activity to remain muted

  • Retailer activity may remain muted in general and may see positive momentum in early 1Q22 and entering 4Q22. This subdued leasing activity combined with supply pressure from new mall space may contribute to higher vacancy. Local and foreign F&B, Fashion, Beauty and Wellness brands may to continue drive retail demand moving forward.
  • Retail rents may see continued flexibility in rental terms and register gradual improvement in the medium-to-long term. The forecast rental growth may be driven by improved retailer activity owing to projected positive economic conditions and greater lease demand due to the holiday season.

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

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