In this episode, Colleen Bustarga, KMC MAG Group's Sales and Leasing Associate for Retail discusses frequently asked questions by investors and budding businessmen who wish to establish a business in the Philippines. Join her as she offers insights on trends in retail space takeup, future of retail space demand, and basic tips when searching for a retail space in the Philippines.
Hi there! Welcome to another episode of KMC Expert Talks. I'm Colleen, KMC's Sales and Leasing Associate for Retail and today I'll be sharing with you some of the key info and trends you'll need to know when looking for a retail space in the Philippines.
1. How do you classify retail spaces?
Retail spaces are basically classified into two types: a.) food or b.) non-food. Food retail spaces usually come with an exhaust and are usually used for restaurants, bakeshops, kiosks, etc. These are spaces that require space for cooking and preparing food. Food stalls are also considered as food retail spaces, and are usually located in the ground floor of a building. Non-food retail spaces on the other hand are occupied by retail shops, convenience stores, groceries, basically, businesses that sell goods (including food items) but do not really require space to actually cook and prepare the food. These are usually found in the ground floor to the 2nd floor of an establishment. Landlords usually prefer offering non-food spaces as it requires less maintenance compared to food spaces, so finding a food space can really be challenging especially in high traffic areas or corporate buildings.
2. What are the considerations when searching for a retail space?
Location is always the top priority as it determines performance of the business. It comes hand in hand with submarket and foot traffic as a retail space locator would want to move in an area within reach of the target market and with high foot traffic. Price is also an important consideration as every business works with a budget. Locating in a space that is priced too high simply makes no sense as it won't allow him enough ROI to sustain the business. And lastly, cost of renovation, hand over date, etc. are other factors that come into play during the decision-making process to determine if the space is something the business could maintain and wait for.
3. How much do retail space rental rates usually go for?
Retail space also has a luxury concept. Bonifacio Global City space is the most expensive out of the 3 CBDs, with an average of PHP 1500-1600 per sqm. and may go as high as PHP 2000 sqm depending on the location and type of retail space. Because stock is newer and demand is high (due to BGC being an emerging financial district), land value and space in the city is also priced higher. Ortigas, Makati, and QC have relatively same rates, which is at PHP 1000 per sqm.
4. What are the lease terms of retail spaces? Are they also available for sale? Retail space lease terms are usually dictated by the landlord, though with a broker, you can usually negotiate for 2 months advance and 2 months deposit or 3 months advance and 3 months deposit. If a business will be doing renovation (which is usually good for 1 to 2 months), lease term is usually at 2 to 3 years minimum, since owners would need 2-3 years to see if a business takes off. As for retail spaces for sale, there is really a limited inventory of units for sale especially in the ground floor, mainly because of its high yield and demand, so owners are unwilling to let go.
5. What are the current trends in retail spaces in PH?
Demand for retail space is in high volume right now. In the past few months alone, we are seeing an influx of international retail brands in the country such as H&M, Old Navy, as well as expansion of existing brands like Forever 21.
For restaurants, some of the biggest retail space deals include Michelin-starred Tim Ho Wan of Singapore and Hong Kong who has just opened a new store in SM Megamall. There are also other new entrants in the convenience store market Family Mart and Circle K.
This high demand for space and retail growth could be expected in a growing economy particularly one like ours, since it's driven by strong household consumption.
For KMC MAG Group, we see a lot of inquiries in retail space for restaurants, convenience stores, and salon and beauty shops, signaling a booming retail industry and growth in demand for retail space. BPO and the office sector is a high driver of retail space demand, particularly for 24/7 stores such as convenience stores or food outlets that offer food 24/7.
The usual behavior is for owners to establish shops in Manila then move on to the south such as Alabang and Muntinlupa and then to next-wave cities like Cebu and Panay Island. Businesses established in QC usually move northward towards Bulacan and other next-wave areas. Concept restaurants mainly go for Bonifacio Global City, then Makati and Ortigas. The establishment of condo buildings also drive demand especially for convenience stores, salons, and grocery stores.
6. Last minute tips
Before seeking a retail space, you have to finalize your business plan and specify what you really need. It would be advisable to seek the advice of a broker because they know the market and they know which areas can support your business goals.