Why ‘retail apocalypse’ won’t hit PHL malls
THE increasing number of shopping mall and store closures in the United States, which some have called “retail apocalypse,” should not be a cause of concern for the Philippine market, as Leechiu Property Consultants (LPC) noted the country is far from reaching an oversupply in retail space.
In a press briefing in Makati City on Monday, the property consultancy firm noted the ongoing developments in the US retail market will not necessarily happen in the Philippines, given the stark differences between these markets.
“Unlike the malls in the US, all the malls of Ayala, Robinsons, and SM are located within very high density populations. So the density metric is what is going to drive traffic to the malls,” LPC President and Chief Executive Officer David Leechiu said, referring to the largest shopping mall operators in the country.
In Metro Manila, there is a total of 3.67 million square meters (sq.m.) in gross leasable area coming from shopping malls. Malls located in central business districts enjoy an occupancy rate ranging from 85% to 99%, with rental rates going for P800 per sq.m. to P2,500 per sq.m.
“There’s still a pretty good sustainability as far as occupancy rates and rental rates are concerned,” Mr. Leechiu said.
SM Prime Holdings, Inc. and Ayala Land, Inc. have continued to expand their malls. SM opened four malls so far this year, and is set to open SM Center Tuguegarao Downtown in Cagayan Valley before the year ends. Ayala Land began operating Vertis North in Quezon City, and The 30th in Pasig City this year.
Mr. Leechiu noted another difference between Philippine and US malls is the way they are used by consumers.
“These malls in Asia have one thing in common, they are utilitarian malls. They are not lifestyle malls. They are very close to the consumer, they are not like big box warehouse retail malls in the US where you have to drive 50 kilometers away just to go to the mall. These malls are right below your office building, residential tower, very accessible,” Mr. Leechiu explained.
On the other hand, he noted there has been a genuine oversupply in retail space in the US, with 20% to 25% of retail stores expected to close within the next five years.
“There’s been a sweeping change in the retail sector. So much money has been lost in retail in the US [and] 20% to 25% of retail stores will close in the next five years, and that’s just in the US. I think the situation in Europe is even worse. And their struggling to figure out what to do with these facilities to the point of neglect,” Mr. Leechiu said.
The predicted 25% of retail store closures could translate to around 275 shopping centers, according to a study released by Credit Suisse last May.
In contrast to mall closures in the US, LPC projects a doubledigit growth in the Philippine retail market, boosted by overseas remittances and sustained consumer spending.
LPC noted the growth of the information technology-business process management sector has also allowed Filipinos to achieve higher disposable income, in turn supporting the retail sector.
“Those population centers are growing from $500 per capita income to $ 3,000 per capita income. You’ve got this massive change in lifestyle because of massive wealth creation in each of these families, and for the first time they’re going to move up the brand chain,” Mr. Leechiu said.
On the other hand, while the e- commerce industry is projected to grow by 22% to $ 1.2 billion in 2017, this has yet to affect the brick-and-mortar stores of retailers.