Aiming for a strong finish: Philippine property recovery spills over into 2023

(Conclusion)

This is the continuation of my previous article. I already discussed Colliers Philippines’ outlook on office and residential segments. This piece will cover our forecast for the three remaining property sectors—retail, hotel and industrial.

The prognosis for the first two sectors looks good as these segments benefit from a personal consumption-led economic growth, redefining revenge shopping and travel across the Philippines.

Retail: Revenge spending to extend to 2023

Major mall developers have been reporting that consumer traffic has now reached between 85 percent and 95 percent of pre-pandemic levels as of end of the third quarter, from only 40 percent a year ago. In 2023, we see more retailers (foreign and local) taking up physical mall space to take advantage of rising consumer traffic and anticipated increase in purchasing power.

Colliers sees the approval of the amendments to the Retail Trade Liberalization Act (RTLA) paving the way for the entry of more foreign retailers in the country. Based on our mall scans, the food and beverage (F&B) segment will account for 50 percent of the upcoming retailers followed by fashion accessories, and beauty and health at 27 percent.

Colliers recommends that mall operators reactivate their event spaces or activity centers by organizing events such as trade fairs, exhibits and concerts to attract more mallgoers. F&B and clothing and footwear retailers should also consider opening pop-up stores especially those testing the feasibility of the Philippine retail market. We likewise encourage mall operators and retailers to continue implementing regular sanitation and other health and safety protocols especially in high-density retail spaces.

In 2023, we see vacancy marginally rising to 17 percent from a projected 16 percent vacancy in 2022 due to the substantial delivery of 448,900 sqm of new supply. Despite record-high new supply, we expect greater retail space absorption from brick-and-mortar shops following improved consumer traffic and consumer confidence.

From 2024 to 2026, Colliers sees the completion of 62,000 sqm of new retail space annually, only a fifth of the annual delivery of 327,200 sqm of new supply that we recorded from 2017 to 2019.

Colliers believes that online shopping will remain popular as Filipinos continue to put a premium on convenience. It will likely complement brick-and-mortar shopping which we see receiving a boost from the dropping of mask mandates. Colliers encourages mall operators and retailers to further strengthen their omni channel strategies to support brick-and-click shopping.

Leisure: Domestic tourists to jumpstart recovery

Data from the Department of Tourism (DOT) showed that foreign arrivals as of Nov. 14 reached two million, already exceeding the full year target of 1.7 million. Visitor arrivals from February to September 2022 also generated P100.7 billion in visitor spending, higher than the P4.94 billion a year ago.

According to the Philippine Statistics Authority (PSA), the tourism sector’s share to the country’s economy reached 5.2 percent in 2021 from 5.1 percent in 2020. Domestic tourism expenditures also reached P783 billion up 39 percent year on year.

In our view, this is likely to stoke demand for hotels across the country and help raise occupancies. In the first half, hotel occupancies in the capital region reached 47 percent as we saw the return of business travel and resumption of MICE activities.

However, the Philippine Hotel Owners Association (PHOA) is “cautiously optimistic” in 2023 as rising inflation, airfares as well as global geopolitical tensions are likely to affect customers’ travel decisions.

In 2023, Colliers projects a record high completion of 3,900 rooms as developers anticipate the projected recovery in global travel. From 2023 to 2025, Colliers expects the annual delivery of 2,120 rooms, higher than the 720 rooms completed yearly from 2020 to 2022.

We expect more foreign-branded hotels opening in the next 12 to 36 months. From 2023 to 2025, about 42 percent of the new supply are foreign brands and are likely to open in the Bay Area, Makati CBD and Ortigas CBD.

Industrial: New parks, facilities to support manufacturing revival

The industrial sector is likely to benefit from the administration’s push for industrialization.

Colliers believes that improving manufacturing competitiveness should result in greater inflow of investments and these should benefit industrial parks, especially those located in North and Central Luzon.

In June, the Department of Trade and Industry (DTI) said it was expecting more than P500 billion worth of investments in the next 18 months, with the manufacturing sector seen to be a major recipient of these pledges. Colliers believes this will play a vital role in industrial space absorption once these investments materialize.

We also see the cold chain sector sustaining demand for industrial and warehouse assets, especially with the growing preference for online groceries and same-day deliveries. Recently, the German-Philippine Chamber of Commerce and Industry disclosed that there are seven German companies seeking local partners in the cold chain industry. The Board of Investments (BOI) aims to increase cold storage capacity in the country to 650,000 pallets by 2023 from 500,000 pallets in 2020.

In our view, data centers are potential industrial locators beyond 2022 as industrial parks have the capacity to support their electricity requirements. Developers should be proactive in cornering the demand from data centers by highlighting features of industrial parks such as the potential for customization and subsidized utility costs.

Industrial parks in Central Luzon will likely remain as popular alternative options to the Cavite-Laguna-Batangas corridor. From 2023 to 2024, we see the delivery of 210 ha of new industrial space particularly in Tarlac and Subic.