Manila to see 240,000sqm of new retail supply by Q2

One Ayala and Gateway Mall 2 are expected to have been completed over the quarter.

Vacancy rates in Manila’s retail market in the first half of the year may continue to rise with the scheduled addition of a notable chunk of supply in 2Q23. Nonetheless, JLL said in a report that the volume of soon-to-open stores recorded an uptick of 8.8% q-o-q, potentially tapering vacancy expansion. 

“Rentals are expected to remain stable in 2Q23 as operators generate demand amid a slower market. We may see a more robust rental growth towards the year-end, in time for the holiday season. However, growth may not be as strong as 2022 when rents came from an all-time low in 2021,” the report added.

Here’s more from JLL:

Net absorption dropped to about -17,800 sqm in 1Q23, owing to several store closings and a slowdown in store openings. Store move-outs increased by almost threefold from the prior quarter, with F&B and Clothing & Apparel accounting for the highest shares at 25.1% and 20.4%, respectively. Bigoli in Quezon City, and Uniqlo in Taguig City were among the notable pull-outs in the quarter.

Store openings have slowed down due to seasonality and heightening economic headwinds. F&B and Clothing & Apparel accounted for the majority of new stores at 31.9% and 8.5%, respectively. Botejyu in Taguig and Quezon City, and Cibo in Pasay City were the notable F&B brands that recently opened, while Penshoppe and Rhett Eala in Makati City were the significant clothing store openings in 1Q23. 

New supply and slower leasing activities push vacancy upward

Over 2,500 sqm of additional retail space entered the market in 1Q23 with the opening of the new floor at The Shops at Ayala. Meanwhile, the completions of One Ayala and Gateway Mall 2, both expected in 2Q23, will contribute around 240,000 sqm of new retail space to the market, putting additional weight on vacancy.

The vacancy rate increased to 6.2% in 1Q23, up by 33.5 bps from 4Q22. The increase in store closings and the slowdown in new store openings led to the higher vacancy rate. The Shops at Ayala’s newly expanded floor, which launched with a vacancy rate of 73.5%, drove the increase in vacant spaces.

Rents and capital values grow at a slower pace

Average retail rents grew by 1.5% q-o-q to PHP 1,683 per sqm per month, a relatively slower rate than in previous quarters, as the majority of operators held rates to boost demand. Select operators which saw healthy levels of occupancy raised their rates.

Capital values gained by another 0.9% to PHP 230,389 per sqm, due to the retail market’s continued stability in comparison to other sectors. However, foreign brand entry into retail declined by 54.6% in 1Q23 on the back of the lean season. 

Note: Manila Retail refers to metro Manila's overall prime retail market.