Filipino consumers’ propensity to shop and visit brick-and-mortar malls is starting to rebound. We now see the resurgence of high density retail segments such as family entertainment centers, and this should result in greater traffic in malls.
Many mall operators are reporting that consumer traffic is starting to bounce back to 2019 levels. In the fourth quarter of 2022, Colliers saw holiday-induced spending propping up the sector and supporting a slight rise in rents. More retailers are now willing to take up physical space, which should bode well for mall operators. We are optimistic that vacancy will improve by 2024 and this should lift mall lease rates.
We recommend that developers take advantage of the retail sector’s rebound and the lifting of travel curbs; curate retail mixes; future proof high density retail; and utilize activity centers to draw more customers and entice them to spend.
Monitor retail segments vulnerable to inflation spikes
Data from the Philippine Statistics Authority (PSA) showed that inflation reached 8.7 percent in January 2023, the highest in 14 years.
In our opinion, this will constrain spending on some consumer subsegments. Hence, Colliers recommends that mall operators and retailers should constantly monitor which segments are likely to be affected by inflation spikes and which are likely to withstand the impacts of rising consumer prices.
Despite rising inflation, we have observed that retailers from the food and beverage (F&B) and fashion segments continue to take up physical space. Colliers’ data show that the F&B segment will likely account for about 50 percent of the upcoming retailers, followed by clothing and footwear at 21 percent. This should also enable mall operators to better curate and future-proof their retail mixes.
Assess ideal sizes for new malls
Colliers encourages developers to reassess the ideal sizes for upcoming retail outlets as they welcome more consumers under a better and newer normal. From 2024 to 2026, we see the delivery 62,000 sqm of new mall space yearly, only a fifth of the annual completion of 327,200 sqm of new retail space that we recorded from 2017 to 2019.
Innovative use of spaces to draw consumers
Colliers believes that mall operators should reactivate their event spaces or activity centers and attract more mallgoers by organizing events such as trade fairs, exhibits and concerts to drum up retail interest. Meanwhile, F&B, and clothing and footwear retailers should consider opening pop-up stores especially those testing the Metro Manila retail market, which is starting to rebound postpandemic.
Future proof high-density retail spaces
High-density retail spaces were greatly affected by the lockdowns. Now that restrictions have eased and consumers are starting to go out and gather, Colliers recommends that retailers continue encouraging social distancing measures and implementing regular sanitation and other health and safety protocols. Now is an opportune time to ramp up marketing of these high density retail spaces.
Marginal rise in vacancy
In the third quarter of 2022, vacancy across malls in the capital region reached 15.4 percent, a slight increase from the 15.2 percent recorded in the first quarter. Major developers have been reporting that consumer traffic has now reverted to 85 to 95 percent of pre-pandemic levels. Retailers have also been active in taking up physical mall space in the second and third quarter of 2022 as they took advantage of rising consumer traffic, coupled by an anticipated increase in purchasing power due to the holiday season.
In our view, among the headwinds that will likely hinder the retail sector’s expansion include supply chain disruptions, global recession fears, and persistently high inflation. The Philippine Retailers Association (PRA), however, is bullish on the sector’s growth trajectory despite rising inflation as more consumers return to physical retail formats.