Colliers is closely looking at the return of malls as Filipinos’ de facto public spaces, especially now that consumer traffic is reverting to pre-COVID-19 levels and restaurants and activity centers are starting to welcome more guests.
Aside from revenge shopping and dining which we project to kick in starting in the second quarter of 2022, we see more opportunities in the market given mall operators’ and retailers’ propensity to innovate amid a liberalized playing field. Consumer confidence abounds and this should have a positive impact on mall space absorption and rents in 2022.
Some of the trends that we should keep an eye on –
• More physical retail space is likely to be completed in 2022 as operators and retailers maximize the pick up in discretionary spending and entry of foreign retailers
• Differentiation and diversification will be crucial. Filipinos’ rising propensity to shop online and order food using delivery apps will likely challenge brick-and-mortar space absorption.
Opportunities from recently-passed economic stimulus measures
Colliers believes that the approval of the amendments to the Retail Trade Liberalization (RTL) and Foreign Investments Act (FIA) should pave the way for the entry of more foreign retailers and expansion of existing ones. In our view, the entry of more retailers should spur competition in the local market and benefit Filipino consumers.
Preparation of high-density retail for the return of more customers
In our view, retailers and mall operators should continue implementing strict health and safety protocols despite the easing of quarantine restrictions in Metro Manila. This is particularly important for high-density retail spaces where people usually gather such as fitness centers, cinemas, food courts and arcades.
These retail segments suffered significantly since the implementation of strict lockdowns across Metro Manila in March 2020. Public health experts continue to warn of new case surges and this could threaten the much-awaited recovery of high-density retail. Colliers believes that looser physical distancing protocols and increased consumer traffic bode well for the much-anticipated rebound of this retail segment.
Seize return-to-office opportunities
From 2022 to 2025, Colliers sees about 58 percent of the new retail supply likely coming from major business districts such as Makati CBD, Fort Bonifacio, Bay Area and Araneta Center. Colliers encourages retailers to lock in spaces in these locations and capitalize on firms’ implementation of return-to-office (RTO). Meanwhile, retailers with long-term occupancy plans should negotiate for lower lease rates in these business hubs before we see a recovery in rents starting in the first half of 2022.
New supply in key business hubs
Colliers Philippines projects new supply to reach 409,000 square meters in 2022 down from our previous estimate of about 523,700 sqm in the third quarter of 2021. From 2022 to 2025, we see the annual delivery of about 250,500 sqm of new supply. This is down 17 percent from our previous forecast of about 300,900 sqm annually.
Slight improvement in vacancy
In the first quarter of 2022, retail vacancy continued to rise albeit at a slower pace in Metro Manila at 15.2 percent in the first quarter of 2022 from 14.8 percent in the third quarter of 2021. Despite the threat of the Omicron variant and low consumer traffic in January 2022, some retailers have announced store openings in selected super-regional malls.
Following the de-escalation of Metro Manila’s COVID-19 classification to Alert Level 1 in March 2022, various business groups reported that consumer traffic in malls reached 63 percent of its pre-COVID-19 level.
By the end of 2022, we see retail vacancy reaching 16 percent, slightly down from our previous forecast of a 17 percent vacancy. While this is still higher than pre-pandemic vacancy of between nine percent and 10 percent in Metro Manila, the slight improvement indicates the start of slow rebound for Metro Manila’s brick-and-mortar retail segment despite persisting challenges brought about by the popularity of online shopping and potential threats of a new COVID-19 variant.
Slow rental recovery in 2022
In 2022, Colliers sees retail rents slowly recovering by about one percent from a cumulative 15 percent drop in 2020 and 2021. In our view, the gradual pick up in retail space absorption by the latter half of 2022 should partly support our projected rebound in lease rates. Colliers Philippines believes that more retailers will be encouraged to occupy physical mall space as consumer traffic starts to improve.