Acceleration of store openings drives absorption upwards

• Net absorption recorded around 27,500 sqm in 4Q22, a contrast from the negative values recorded in 3Q22. The opening of new stores as the peak holiday season started, as well as the reduction in store closures, contributed to the positive performance. F&B and Clothing & Apparel made up the majority of total store openings in the quarter, accounting for 26.8% and 11.6%, respectively.
• Panda Express, Shake Shack and MOS Burger are among the notable F&B store openings in 4Q22. Meanwhile, Clothing & Apparel brands which opened their doors in the quarter include Uniqlo and Urban Revivo. F&B still dominated store closures, accounting for 22.5% of total pull-outs. Some spaces previously allocated for government functions and vaccinations also reverted to retail spaces.

Absorption uptick leads to reduced vacancy despite new supply

• Around 15,000 sqm of retail space, from the first three floors of Mitsukoshi Mall in Taguig City, was added to the market. The opening of One Ayala, Gateway Mall 2, the last two floors in The Shops at Ayala, and the last floor in Mitsukoshi Mall have been delayed to 2023, bumping up supply for the year by about 253,000 sqm.
• Vacancy rate stood at 5.9% in 4Q22, down by 22.4 bps from 3Q22, as store openings regained momentum and closures tapered off. Improved vacancy was still recorded despite the additional retail stock from the first few floors of Mitsukoshi Mall in Taguig City.

Rents and leasing terms revert to pre-pandemic levels

• Retail rents picked up by another 5.2% q-o-q to PHP 1,658 per sqm per month, backed by a stronger leasing market. Rents inched closer to pre-pandemic levels while leasing terms have fully returned to their usual practices. Rents commanded by the newly-opened Mitsukoshi Mall in Taguig City are on the higher end, also contributing to the rental uptick seen in the quarter.
• Capital values grew by 0.7% to PHP 228,357, slower than previous quarters as investors tried to generate demand amid high interest rates. Meanwhile, foreign investment participation picked up in 4Q22, with foreign brand openings increasing by 101.0% q-o-q, due to the holiday season.

Outlook: Opening of delayed new supply to put pressure on vacancy

• The anticipated opening of delayed new supply, coupled with the typical lean mall season in the first half of 2023, are expected to push up the vacancy rate in the near term. Nevertheless, leasing volumes may sustain an upward trajectory due to store openings in new malls, as well as a growing number of soon-to-open stores which saw an 8.0% lift q-o-q.
• Rentals may continue to improve, supported by the anticipated healthy leasing market and the sustained high foot traffic. However, the rental uptick may be less steep, relative to 2022, as the rate of growth starts to normalise.