Store openings vastly exceed closures during the peak season

• Retail net absorption increased to 5,400 sqm in 4Q23. The uptick in store openings increased by 55.2% q-o-q during the peak season. Food and Beverage (F&B) remained the leading industry, accounting for 30.6% of total store openings, followed by Food and Groceries at 14.1%. 
• On the other hand, store closures decreased by 47.5% q-o-q in 4Q23. Similar with openings, F&B led with 27.1% of the total closures during the quarter. This was followed by Sports and Fitness at 11.7% of all store closures. 

Vacancy falls at a majority of the malls

• Two new malls opened in Metro Manila in 4Q23: One Ayala Mall in Makati City, which added around 34,000 sqm of retail space, and Parqal Mall in Paranaque City, which added another 30,000 sqm of leasable space. 
• The vacancy rate rose by 88.9 bps q-o-q and reached 8.0% in 4Q23 as new malls were introduced to the market with high vacancy levels. Nonetheless, it is worth noting that the vacancy rate of existing malls decreased to 6.6% due to shops opening in time for the peak season.

Rents increase as the peak season starts

• Rents on retail spaces rose to PHP 1,726 per sqm per month, a 2.6% increase q-o-q, as malls filled up during the peak season, giving mall operators a chance to increase rates. Additionally, mall renovations and makeovers may have increased the value of spaces. Malls that renovated a portion of their development during the quarter include Robinsons Manila and Glorietta in Makati City.
• The investment market has improved, as reflected by the increase in store openings of both local and foreign brands. With that, capital values increased to PHP 229,399 per sqm, a 0.1% increase q-o-q. 

Outlook: Retail market activity may slow as the holiday season ends

• Additional supply is expected to go on stream in 1Q24, which may further raise the average vacancy rate. However, there is an increase in incoming stores that are scheduled to open in the near term, which may improve vacancy levels at existing malls, especially the newer ones.
• As the peak season ends, mall operators are likely to maintain rents as we expect leasing market activity to slow down in the near term. Likewise, capital values should remain steady with the holiday season ending.