Fashion
The Philippines is experiencing a new wave of retail property construction, thanks to strong consumer confidence and enhanced purchasing power among Filipinos.
Among SNL-covered companies, the Philippines has the largest volume of shopping centers and regional malls under construction, outpacing both China and the U.S. As of Feb. 24, the Philippines had 44 shopping center and regional mall properties under construction by SNL-covered companies, compared to 32 in China and 19 in the U.S.
Although shopping centers have sprung up across the Philippines since the 1990s, when local developer SM Prime Holdings Inc. kicked off what it called the “malling” phenomenon as trips to the mall became a way of life for Filipinos, the retail market there appears to be nowhere near the saturation point, with new supply set to come online this year. According to the Colliers International Philippines Retail 3Q 2016 report, close to 500,000 square meters of leasable retail space is expected to be added across the country in 2017.
Megamall-ed
According to SM Prime’s website, the malling phenomenon became evident in the Philippines in the early 1990s as the developer started building one new mall after another, including SM City Sta. Mesa in 1990 and SM Megamall in 1991, both of which are situated in the nation’s capital region of metro Manila. Since then, the company has grown to become one of the largest mall developers in the country and one of the top mall operators in Southeast Asia. Continuing its expansion, SM Prime said it plans to invest as much as 65 billion Philippine pesos to build at least five new malls in the country in 2017. The company also launched SM City East Ortigas in the eastern part of metro Manila in December 2016.
An SNL analysis found that SM Prime has the greatest exposure to the Philippines retail market among covered companies, with a total of 91 shopping centers and regional malls in operation or under development as of Feb. 24. Trailing SM Prime is Robinsons Land Corp., with 46 properties, followed by Ayala Land Inc., with 43.
Meanwhile, DoubleDragon Properties Corp. has the highest number of retail properties under development in the country. As of Feb. 24, the company had 18 regional malls and one shopping center under construction. DoubleDragon is also pursuing aggressive expansion on the provincial retail front. In an investor presentation at the Macquarie Capital ASEAN Conference, the company said it envisions adding 700,000 square meters of retail leasable space, including 100 CityMalls, by 2020.
The Philippines retail market is also likely to attract foreign developers; media reports have indicated that the current administration is considering new regulations that would ease foreign investment in the country. One foreign developer that has made its foray into the market is Hong Kong-based Kerry Properties Ltd., which owns the Shangri-La Plaza Mall in Mandaluyong City in Metro Manila.
Confident consumers
The retail boom in the Philippines is spurred in large part by increased confidence among Filipino consumers. According to the Department of Economic Statistics’ most recent survey, the consumer outlook index in the country soared to 9.2% in the fourth quarter of 2016, marking its highest reading since the poll was launched in 2007. Improved consumer sentiment was generally seen across all income groups, and consumers were most confident in the country’s economic condition, followed by family income and family financial situation. Nielsen also reported that consumers in the country were the second most confident worldwide during the third quarter of 2016 and ranked third a year earlier.
From the outside in
With a higher level of consumer confidence comes increased domestic spending backed by both external and internal funding sources. Colliers said the rising purchasing power among Filipino consumers is driven primarily by overseas remittances and business process outsourcing revenues, particularly in Metro Manila.
Colliers noted that remittances from overseas Filipino workers jumped 4.4% year over year to US$19.5 billion for the first eight months of 2016, and such growth is expected to continue as demand rises for skilled Filipino workers and remittance service providers work to expand market coverage. Meanwhile, BPO revenues are poised for continued yet slower growth, as the local outsourcing sector is forecast to employ 1.8 million full-time employees and generate US$38.9 billion in revenues by 2022, Colliers reported, citing the IT and Business Process Association of the Philippines.
Staying relevant
The Philippines RE index, comprising seven diversified real estate companies, all of which have exposure to the country’s retail sector, outperformed its peer Asia Pacific indexes, including the SNL Hong Kong RE index, SNL Singapore RE index, SNL Australia RE index, and the SNL Japan RE index. As of Feb. 24, the index recorded a 1-year total return of 28.71%, 9.21 percentage points higher than the SNL Asia-Pacific RE index.
Despite the anticipated surge in new supply, Colliers is bullish that the Philippines retail market will continue to flourish in 2017 as vacancy rates remain low and demand for retail space supports higher lease rates. But with the evolving retail scene, characterized by increased competition and the emergence of online shopping, Colliers said malls should be “more lifestyle-oriented rather than retail-centric” in order to stay relevant. In Metro Manila, the primary driver of retail spending is food and beverage, making up 30% to 40% of leasable space in shopping centers and accounting for roughly 40% of Philippine household spending. With this trend likely to continue over the long term, developers should carve out a portion of their retail properties to feature unique food and beverage concepts, Colliers said.
