Property developers are expanding their portfolios to cater to the growing demands of the retail industry in the Philippines, according to the latest Asian Cities Report released by Savills.
The Philippine retail market is reaping the benefits from the high gross domestic product growth, increased remittances from Filipinos overseas and the rising incomes from the growing business process outsourcing (BPO) industry in the country. Real estate giants Ayala Land, SM Prime, and Robinsons Land remain on top of the retail market, and are estimated to account for 87.5% of the total gross leasable area (GLA) in the country.
"These developers are encouraged to launch more projects as the demand for tenancies within malls are still at its peak. Currently in Metro Manila, there is approximately 600,000 sq m of new retail space in the pipeline, of which 75.2% will be delivered by these top three players. The largest single project is SM's 200,000-sq m Mall of Asia expansion, increasing the property's total amount to 550,000 sq m, making it one of the world's biggest malls," the report stated.
Because of their successful ventures in Metro Manila, these developers are eyeing to tap opportunities in the provinces and next wave cities. Cebu will become home to the SM City Seaside, a 472,400 sq m retail development that is slated to open this 2015. Apart from these developments, the retail market is also looking into casinos, serving more luxurious brands in the retail sections of the Entertainment City in Parañaque. These sections are expected to become fully leased in 2016 or 2017.
New shopping formats
More players are also coming in to the scene, as developers from the community mall segment such as DoubleDragon Properties and Cosco Capital have shown aggressive retail expansion strategies, particularly outside Metro Manila, the report also noted.
"DoubleDragon, whose long-term goal is to build 100 malls by 2020, is on track with its short-term goal of having 25 malls by the end of this year after securing its 15th site last December. On the other hand, Cosco Capital is planning to put up eight malls over the next two years and, likewise, was recently active on the investment market as it acquired a portfolio of five (5) commercial properties and nine supermarkets that are under the Puregold brand."
More modern retail development formats like convenience stores and hypermarkets are also shaping industry trends. The report also noted that the convenience store segment is rapidly increasing its market footprint, setting up shop nearby BPO centers where professionals work 24/7. Local companies like Puregold, Ayala and others are also teaming up with local and foreign groups to operate different convenience stores in the coming years. Older players in the market also have similarly scaled expansion plans.
Influx of international brands
Strong domestic demand has also piqued the interest of major retailers, as several international brands have opened their doors in the Metro Manila market. With current prime rental rates in malls at US$49.1 (Php 2,258.9) per sq m/month, the Philippines remains as the most affordable market in the region, attracting more and more multinational retailers. These companies have also partnered with local groups for smoother market entry.
The report noted that the strong economic performance is what keeps the real estate market buoyant across all sectors. Aside from the outsourcing industry, the expected economic growth of 6-7% has resulted in increased business activity, driving demand. The BPO industry will be the main driver for office take-up while also improving the employment situation, thereby increasing disposable income that will eventually translate to higher demand in the retail market. The optimistic consumer sentiment will grow sales and put upward pressure on rents, reaching 5% to 10% growth in 2015.