Colliers Insights

People walk around a mall in Quezon City, June 22, 2022. — PHILIPPINE STAR/MIGUEL DE GUZMAN

By Joey Roi Bondoc

THE Philippine retail sector has been growing steadily after the government lifted most of mobility restrictions across the country.

Mall operators and retailers are reporting a rebound in consumer traffic and some even note that revenues are even stronger compared to pre-pandemic levels.

Colliers believes that the retail sector is one of the most dynamic segments of the property sector and we see it continuously outperforming other segments as malls serve as Filipinos’ de facto public spaces.

The entry of more foreign retailers should make the mall scene more dynamic, exciting, and competitive. This should result in a further evolution of the Philippine mall culture, benefitting consumers.

Holiday spending stoked the country’s retail segment in the fourth quarter of 2022. An upside for the sector is that Filipinos continue to spend even after the festive season and despite elevated prices, although inflation is starting to cool down at least for the first four months of 2023.

Given a sanguine macroeconomic as well as business and consumer confidence outlook, Colliers believes that the retail sector will continue to grow for the remainder of the year, resulting in greater absorption of mall space and marginal rise in lease rates. However, the delivery of substantial new supply starting the second half of 2023 will be a major concern, as this will likely raise vacancy rates across Metro Manila and as more operators compete for retailers willing to take up brick and mortar mall spaces.

Now is an opportune time for landlords planning to take advantage of retail sector’s recovery to launch retail real estate investment trust (REIT). Lease rates are starting to rise, that’s why retailers should be quick in locking in prime spaces in major business districts.

Meanwhile, given the growing interest from foreign retailers, Colliers recommends that mall operators seize the demand from these firms by taking into account their sizes and fit out requirements. Online and offline shopping will continue to complement each other, which should compel mall operators and retailers to ramp up their omnichannel strategies.

Colliers believes property developers with retail footprint should consider divesting malls into their REIT portfolio especially now that the retail segment is recovering. Malls generate recurring income and are now a viable REIT asset class as vacancies are declining and lease rates are starting to increase.

In our view, developers should carefully assess which retail outlets to add to their REIT portfolio and should consider projected mall space absorption as well as profiles of retailers willing to take up brick-and-mortar spaces. Developers should take advantage of renewed interest from foreign and homegrown retailers as well as continued expansion of Philippine economy that is mainly driven by personal consumption expenditure.

Colliers believes that retailers should be quick in securing mall spaces in key business districts across Metro Manila now that vacancy rates are declining while rents are gradually increasing. In our view, this trend is likely to persist in the market as footfall is rebounding across the capital region.

We still see substantial vacancies in selected malls in Quezon City, Bay Area, and Alabang and retailers should further explore the viability of opening physical space in these locations.

Looking forward, we see heightened competition for prime retail space, especially in key business districts that will house new and expansive office and residential towers.

Colliers sees an improving demand for physical space from foreign retailers. We attribute this to improving consumer demand on the back of sustained macroeconomic expansion and the enactment of measures that further relax the country’s retail regulatory environment.

Mall operators should capture demand from foreign retailers planning to enter the country by taking into account their size and fit-out requirements.

In the first quarter of 2023, vacancy rates across malls in the capital region dropped to 14% from 15.4% in the fourth quarter of 2022. Major developers have reported that consumer traffic has now reverted to 90-100% of pre-COVID levels. Some mall operators even noted that footfall especially in the fourth quarter of 2022 was even greater than pre-pandemic levels.

With rising purchasing power due to improving consumer confidence (according to the latest central bank survey) and personal income tax cuts implemented by the government, retailers have been active in taking up physical mall space.

While online shopping will remain relevant among Filipino consumers (especially among young shoppers), Colliers expects in-store shopping will continue to rebound, as shown by relentless absorption of physical mall space within Metro Manila.

In our view, mall operators should not consider online presence as competition but as a necessary complement to retailers’ omnichannel strategies. Both retailers and mall operators unable to update their omnichannel presence will be left behind.

Colliers is optimistic that sound macroeconomic fundamentals are likely to support the retail sector’s growth over the next 12 months. The reactivation of high-density retail, staging of various events at malls’ activity centers, and renewed interest in experiential retail should entice more Filipinos to visit physical malls and further stoke spending.


Joey Roi Bondoc is the research director at Colliers Philippines.