Manila prime retail net absorption still in the red as store pull-outs persist

Net absorption hit -41,500 sqm in 4Q20 as more store closures were recorded during the period.

According to JLL, closures came mostly from local fashion brands. However, increased number of store openings in anticipation of the holiday season partially cushioned the soft retail demand.

New store openings were from fashion and F&B brands, both from local and foreign names, such as Champion, Monki, Forever 21, Pull n Bear, Frankie’s, Hot Star, to name a few.

Additional store closures pushes vacancy rate above the 6%-level

Vacancy rate climbed by 59 bps q-o-q to 6.3% in 4Q20 as new store closures were recorded during the quarter. We do note, however, the 4Q20 vacancy movement was softer than the previous quarter as more stores opened in preparation for the holiday season.

No developments were scheduled to complete in 4Q20 as projects originally scheduled for 2020 were deferred to 2021. Meanwhile, the entire ground floor space of Greenbelt 3 was withdrawn from the market due to renovation. It is estimated to be completed by 3Q21.

Landlords retain rents amid store closures and retailer exits

Net effective rents were unchanged at PHP 1,664 per sqm per month in 4Q20, a decrease of -1.0% y-o-y.
Landlords maintained rents in an effort to retain existing tenants and attract new retailers. Mall operators expressed a preference to accommodate tenant requests rather than risking store closures.

Outlook: Supply slippages to keep vacancy figures afloat in 2021

Approximately 529,000 sqm of supply was rescheduled to 2021. This could potentially push overall vacancy higher in 2021 as existing tenants hold off expansion plans and look to rationalise their spaces. Demand may still be driven by F&B and fashion brands where we anticipate greater integration of physical and online spaces.

We may see subdued retailer activity persisting this year which could potentially cap potential upside in rental growth in the near term.

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