Manila's retail vacancy rate of 7.7% breaches previous record

Manila hit a new 15-year record in Q2 as it overtook the 7% vacancy rate recorded in Q1.

Manila's retail vacancy rate increased 77 bps q-o-q and 278 bps y-o-y to 7.7% in 2Q21, overtaking the 15-year record-high in 1Q21 as store closures persisted.

According to JLL, the pipeline for 2021 is still on schedule for 2H21 completion. It includes Ayala Malls Bay Area Phase 2 in Bay City Reclamation; SM Mall of Asia Expansion in Pasay City; One Ayala (Intercon Redevelopment) in Makati CBD; Big Apple Mall, Isetan Mitsukoshi, and Park Triangle Retail in BGC; and Gateway Mall 2 and Trinoma Expansion (North Triangle Lot Pads) in Quezon City.

Here's more from JLL:

Net absorption in the red for the fifth consecutive quarter

Net absorption registered a negative figure for the fifth consecutive time at -44,200 sqm in 2Q21 as store closures persisted. Closures were mainly from clothing and F&B tenants like Subway (Alabang Town Center and SM Megamall), Eight Soho (SM Aura Premier), Nike (Robinsons Galleria), Primadonna (Robinsons Place Manila), Anne Klein (Shangri-la Plaza Mall), and UCC (Ayala the 30th).

Store openings were still slower, coming mostly from delayed openings of local and foreign F&B, sports and fitness, and clothing brands such as Panda Express (SM City North EDSA), Frankies (Robinsons Place Manila), Sports Central (Estancia Mall), and Urban Athletics (SM Megamall). Major mall operators like Ayala Malls and SM Supermalls converted vacant spaces as additional vaccination facilities.

Rents contract amid elevating vacancy

Rents further declined in 2Q21 by 0.3% q-o-q and 1.8% y-o-y to PHP 1,656 per sqm per month; this was the fifth consecutive quarter of zero to negative movement. Some mall operators pulled down asking rents to remedy growing vacancies.

Capital values were down 0.4% q-o-q and 1.9% y-o-y to PHP 235,000 per sqm. Subdued investment demand continued to limit expansion activity.

Outlook: Rents drop due to inflated supply and weak demand

Upcoming supply for 2021 which will be delivered by 2H21 is seen to inflate overall near-term vacancy. Elevated vacancy may also be affected by migration of some brands to online platforms along with the preference to reduce inline stores in some low-traffic mall developments.

Rents may compress by about 1.0%-2.0% in the near term due to supply influx and subdued retailer activity.