Flight-To-Quality Redefines Manila Office

COLLIERS QUARTERLY OFFICE | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

Joey Roi Bondoc FLIGHT-TO-QUALITY REDEFINES MANILA OFFICE Manager | Research | Philippines +632 858 9057 Developers recalibrate projects as tenants implement a flight-to-quality [email protected]

2018-21 Summary & Q1 2019 Full Year 2019 Annual Average Dom Fredrick Andaya Recommendations > Colliers sees sustained demand from Director | Office Services | Philippines outsourcing and offshore gaming operations. +63 917 831 6725 In Q1 2019, Colliers recorded a Stable macroeconomic growth and the [email protected] marginal rise in vacancy due to Demand government’s infrastructure push should 72,200 sq m 858,000 sq m 957,700 sq m substantial new supply in a support demand from 2019 to 2021. number of business districts such as Quezon City. But low vacancy rates in the Makati CBD and the > The Bay Area, Ortigas Center, and Fort Bay Area have been constricting Bonifacio should account for a combined the expansion of tenants. A flight 54% of new supply from 2019 to 2021. Developers are building higher-quality to quality, i.e. tenants’ transfer to Supply 151,500 sq m 1.06mn sq m 1.08mn sq m spaces given discerning tenants' demand. newer and larger floorplate buildings was also prevalent during the period. Annual Average To seize the rising demand, we QQQ/ YOY/ Growth 2018–21/ encourage developers in locations End Q1 End 2019 End 2021 with vacancy of between 0.6% > Average rents should continue rising at about 5%, slower than our 2018 forecast of and 3.0% to expedite construction +2.4% +4.0% +5.0% 7%. Despite pockets of vacancy, we expect and consider redeveloping old Rent strong demand in established business buildings. districts to push rents despite new supply. PHP965 PHP980 PHP1,080 Meanwhile, outsourcing tenants looking for PEZA-approved space > The additional supply from 2019 to 2021, +0.7pp +0.6pp +0.5pp should consider newly-completed lack of developable land, as well as tenants buildings in Quezon City while and developers’ wait-and-see stance before other occupiers should explore 5.4% 6.0% the 2022 national elections, should Demand 6.3% available space in Fort Bonifacio. Vacancy marginally raise vacancy during the period.

Source: Colliers International Note: USD1 to PHP53 as of the end of Q1 2019. 1 sq m = 10.76 sq ft. The Philippine Economic Zone Authority is also known as PEZA. COLLIERS QUARTERLY OFFICE | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

Flexible workspace operators should also chip in to the demand as they are RECOMMENDATIONS likely to lease out additional space in new buildings across Metro Manila. We encourage developers to be mindful of this segments’ office space Expedite building completion requirements moving forward. Colliers believes that there is pent up demand for office space in major Push for more PEZA approval business districts such as the Bay Area and Makati CBD, where vacancy is between 0.6% and 1.4%. The lack of new office space has been constricting In our opinion, developers, tenants, and other stakeholders should the expansion of outsourcing companies. In our opinion, developers should aggressively push for the proclamation of more PEZA space in Metro Manila, capture the sustained appetite for new space by expediting office space particularly in sub-locations where demand for additional PEZA space is high completion and redeveloping older buildings to offer new options with such as the Bay Area. larger floor plates. Respond to flight-to-quality, reposition old assets SUPPLY BREACHES 11 MILLION SQ Colliers believes that landlords are likely to remain competitive by improving office amenities. Over the past two years, Colliers has seen a more METRES aggressive development of Leadership in Energy and Environmental Design Metro Manila’s leasable office stock reached 11.1 million sq metres (119 (LEED) certified buildings while some developers are providing free access to million sq feet) as of the end of Q1 2019 following the completion of the office towers’ executive lounge to C-level executives of their tenants. about 151,500 sq metres (1.6 million sq feet) of new office space during the This should become more prevalent over the next three years as we see the period. expansion of discerning Knowledge Process Outsourcing (KPO) tenants. Makati CBD accounted for 48% of new office space with the completion of Maximize proximity to infrastructure projects Ayala North Exchange Tower 2 (40,400 sq metres or 434,700 sq feet) and NEX Tower (32,300 sq metres or 347,500 sq feet). The two new office Colliers encourages developers to maximize the proximity of their buildings towers are located along Ayala Avenue, the country’s main financial district. to key infrastructure projects due to be completed in the next two to three years. Among these projects is the proposed Skytrain monorail that would New office buildings that were completed along the fringes of the Makati connect Megaworld’s Uptown Bonifacio to the Metro Rail Transit (MRT) CBD are Autometics Center and eWest Pod. station in Guadalupe, Makati City. Quezon City’s stock expanded by 40,100 sq metres (431,500 sq feet) with Tap traditional and emerging occupants’ rising demand the delivery of Centris Cyberpod Five, a PEZA-proclaimed building. Other new office towers completed in Q1 2019 include the Parkway Corporate Among the notable deals we recorded in Q1 2019 were traditional occupiers Center in Alabang. such as insurance, financial technology (fintech) as well as engineering and construction firms and we see this being sustained over the next three years on the back of a sustained economic growth and the government’s massive infrastructure push.

2 COLLIERS QUARTERLY OFFICE | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

We see subdued completion in 2022 as developers are likely to pare down Metro Manila office vacancy forecast (sq m) supply given the aggressive completions from 2018 to 2021, as well as a lack 1,400,000 10% of developable land in major business districts and wait-and-see stance from 1,200,000 both developers and occupiers in anticipation of the results of the 2022 8% presidential elections. 1,000,000 800,000 6%

VACANCY TO INCREASE 600,000 4% In Q1 2019, Colliers recorded vacancy of 5.4%, higher than the 4.7% posted 400,000 2% in Q4 2018. Across Metro Manila, we recorded lower vacancy in Makati 200,000

fringe as well as in Ortigas CBD. Vacancies in Quezon City and Alabang rose - 0%

2017 2018 2013 2014 2015 2016 2019 2020F 2021F 2022F due to the completion of additional space. Meanwhile, we attribute Fort 2012 Bonifacio’s marginally higher vacancy to spaces in older towers vacated by firms that moved to newer office in the business district. Supply Net Take-up Vacancy Source: Colliers International From 2019 to 2021, Colliers sees an annual average vacancy of 6.3% across Metro Manila, given our annual completion forecast of 1.08 million sq A sector that developers should watch closely is the traditional segment meters (11.6 million sq feet) and yearly net absorption of about which covers the office space take-up of multinational corporations, 958,000 sq metres (10.3 million sq feet). The additional supply should be engineering firms, logistics companies, flexible workspace operators, and tempered by an active leasing market. government agencies. In Q1 2019, the segment accounted for 35% of net take-up or about 116,800 sq metres (1.3 million sq feet), higher than its 26% share or 101,000 sq metre (1.1 million sq feet) in the same period in DEMAND REMAINS FIRM 2018. Colliers recorded 340,000 sq metres (3.6 million sq feet) of transactions in Colliers recorded net absorption of 72,200 sq metres (777,200 sq feet) in Q1 Q1 2019, about 9% higher than the total transactions recorded in the same 2019, significantly lower than the 417,400 sq metres (4.5 million sq period in 2018. Outsourcing and offshore gaming firms accounted for the feet) posted in the same period of 2018 as much of the deals covered office bulk of transactions while the traditional and non-outsourcing segment spaces that are still being pre-leased and constructed. We see net take up continues to grow on the back of a sustained economy and the picking up from Q2 to Q4 2019 in light of the completion of towers with high government’s massive infrastructure push. pre-commitment levels. Outsourcing firms providing voice support as well KPO companies that offer higher value outsourcing services including medical transcription, software RENTS TO GROW 5% engineering and shared finance and accounting services cornered 36% of the total transactions in Q1 2019. Among the major outsourcing deals closed Metro Manila’s average rent should increase by about 5% per annum from during the period involved IBEX Global, 24-7 Intouch, IMS Health, and Real 2019 to 2021. We see faster acceleration of rents in the Bay Area and the Page. fringes of Makati and Ortigas due partly to offshore gaming operations, but this should be offset by slower acceleration in sub-markets with higher vacancy.

3 Primary Author: For further information, please contact:

Joey Roi Bondoc David A. Young Manager | Research | Philippines Chief Operating Officer | Philippines +632 858 9057 +632 858 9009 [email protected] [email protected]

Dom Fredrick Andaya Richard Raymundo Director | Office Services | Philippines Managing Director | Philippines +63 917 831 6725 +632 858 9028 [email protected] [email protected]

Donica Cuenca Research Analyst | Research | Philippines +632 858 9068 [email protected]

Martin Aguila Research Analyst | Research | Philippines +632 863 4116 [email protected]

About Colliers International Group Inc. Colliers International (NASDAQ, TSX: CIGI) is a leading global real estate services and investment management company. With operations in 68 countries, our 14,000 enterprising people work collaboratively to provide expert advice and services to maximize the value of property for real estate occupiers, owners and investors. For more than 20 years, our experienced leadership team, owning more than 40% of our equity, have delivered industry-leading investment returns for shareholders. In 2018, corporate revenues were $2.8 billion ($3.3 billion including affiliates), with more than $26 billion of assets under management. For the latest news from Colliers, visit our website or follow us on

Copyright © 2019 Colliers International The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. COLLIERS QUARTERLY RESIDENTIAL | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

Joey Roi Bondoc MANILA’S MOST EXPENSIVE AT ~PHP550K Manager | Research | Philippines +632 858 9057 Strong demand raises Metro Manila’s pre-selling condominium prices [email protected]

2018–21 Summary & Q1 2019 Full Year 2019 Annual Average

Recommendations > Colliers sees strong take-up of newly- Strong demand in the pre-selling completed condominium units especially in the established business districts of Makati market has continued to raise 3,500 units 7,100 units 7,000 units Demand CBD, Fort Bonifacio, and the Bay Area. residential prices, with the most expensive condominium project now priced at approximately > Over the next three years, we expect Metro Manila’s condominium stock to grow 19.3% PHP550,000 (USD10,400) per to 141,760 units. Fort Bonifacio and the Bay square metre. Meanwhile, leasing Supply Area should make up 75% of new units. 3,700 units 7,800 units 7,600 units demand remains firm, especially in business hubs that house Annual Average offshore gaming firms from QOQ / YOY / Growth 2018–21 / China. End Q1 End 2019 End 2021 > From 2019 to 2021 we see rents rising by We recommend that developers: 0.8% per annum due to sustained demand 0.8% 1.2% 0.8% > Offer creative leasing models for completed units. We project faster increases in condominiums that complement such as co-living Rent PHP727 PHP730 PHP738 offices with offshore gaming tenants. > Highlight features of projects > We project vacancy slightly increasing in -0.2pp +0.1pp +0.0 pp such as landscaping, retail 2019 and 2020 due to completion of options, and accessibility additional units. In 2021, vacancy should start dropping as delivery of new units > Launch more mid-income Vacancy 10.4% 10.5% 10.7% units tapers.

Meanwhile, investors should cash > From 2019 to 2021 we expect prices to grow 6.0% 9.7% 6.3% in on the potential for capital by an annual average of 6.3% due to strong appreciation of condominiums in Capital demand for completed units in Metro light of planned rail projects that Values Manila’s key business districts. PHP195,000 PHP202,000 PHP222,000 should improve connectivity. Source: Colliers International Note: ¹ USD1 to PHP53 as of the end Q1 2019. 1 sq m = 10.76 sq ft; Demand represents completed condo units that are for lease or resale. COLLIERS QUARTERLY RESIDENTIAL | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

But this is being offset by increasing sales of mid-income (PHP3.2 million to RECOMMENDATIONS PHP6 million or USD60,400 to USD113,200) projects. We encourage developers to continue launching projects within the mid-income segment More creative leasing models while shrewdly gauging the market’s capacity for more upscale and luxury From 2019 to 2021, Colliers projects an average of 7,600 new (PHP6 million or USD113,200 and above) projects over the next three years. condominium units per year. Developers with a substantial supply of Affordable units in the fringes Ready for Occupancy (RFO) units should explore more creative leasing schemes to help buyers lease out their units and attain their anticipated Households looking to upgrade to condominium living should consider yields. In our opinion, developers should explore strategies aligned with affordable condominium units in the fringe areas. Based on launches over each property’s market positioning, for example leasing out the past 12 months, we see more options in the downtown Manila, Quezon condominiums as shared units where this would not lead to a City, and Ortigas Fringe areas. deterioration of their perceived value. Highlight features of projects in the fringes CONDOMINIUM STOCK TO REACH The lack of developable land and soaring prices in central business districts (CBD) are driving more investors and end-users to consider 142,000 BY 2021 condominium units on the CBD fringe. To capture demand, we encourage In Q1 2019, Colliers recorded the completion of 3,700 units, raising Metro developers to highlight the overall living experience in their projects to be Manila’s condominium stock to 122,500 units from 118,900 units at the end considered viable options. Developers should highlight their projects’ of 2018. quality of life, landscape features, retail options, and accessibility. Completion in the Bay Area continues, with the business district covering Investors to consider potential for capital appreciation nearly half of all new condominium units delivered in Q1 2019. About 1,800 units were turned over following the completion of Shore Residences Both end-users and investors should look at the capital appreciation Building 4, accounting for half of the total residential units completed from potential of condominium projects that will likely be built near key January to March 2019. infrastructure projects. Increased connectivity to be brought about by the Manila Light Rail Transit and Metro Rail Transit (LRT-MRT) Common Other new completions across Metro Manila include Lincoln Tower of The Station, MRT 7, and Manila Subway, for instance, should propel property Proscenium at Rockwell, which added 490 units to Manila’s residential prices in key locations in Quezon City. In Ortigas Center, among the stock. projects likely to raise property prices once completed are the Manila Ortigas Center’s stock increased by 370 units following the completion of Subway and Bonifacio Global City (BGC)-Ortigas Link bridge. The Sandstone at Portico Tower 1 while the delivery of Verve Residences Mid-income sweet spot added some 560 units to Fort Bonifacio’s stock. Meanwhile, Escala Salcedo and Two Roxas Triangle raised Makati CBD’s stock by 430 units. Starting in 2016, Colliers recorded declining take-up for affordable units (PHP1.7 million to PHP3.2 million or USD32,100 to USD60,400 per unit) In 2021 Colliers sees Metro Manila’s stock reaching nearly 142,000 units, which we partly attribute to slower launches. about 19.3% higher compared to the end of 2018.

2 COLLIERS QUARTERLY RESIDENTIAL | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

Through 2021, we expect the Bay Area and Fort Bonifacio to account for 75% of new supply, complementing the pace of office development in PRICES CONTINUE TO INCREASE these two business districts. Capital values continue to increase with average prices of prime three- Metro Manila residential supply forecast, end 2019 and 2021 bedroom units in the secondary market in Makati CBD, Rockwell Center, (units) and Fort Bonifacio ranging between PHP139,000 and PHP350,000 (USD2,600 and USD6,600) per sq metre as of Q1 2019, increasing by an Location end of 2019 end of 2021 % change average of 6.7% qoq. We expect prices to increase by an annual average of Alabang 4,430 4,430 - 6.3% from 2019 to 2021 as we factor in the new supply. Araneta Center 4,550 4,550 - Eastwood City 8,540 9,170 7.4% MANILA’S MOST EXPENSIVE NOW Fort Bonifacio 35,140 40,330 14.8% Makati CBD 27,700 28,700 3.6% AT APPROXIMATELY PHP550K Bay Area 22,260 28,810 29.4% Demand in Metro Manila’s primary and secondary residential markets has Ortigas Center 18,730 19,960 6.6% been strong. Aside from Chinese offshore gaming companies, take-up of Rockwell Center 5,270 5,810 10.2% pre-selling units has been growing on the back of sustained demand for Total 126,620 141,760 12.0% affordable and mid-income projects (PHP1.7 to PHP6 million or USD32,100 Source: Colliers International to USD113,200 per unit). Manila’s luxury market, albeit smaller in terms of market share, has been growing consistently over the past three years in LEASING REMAINS FIRM terms of take-up and launches. The growing appetite is shown by the continued launches in Fort Bonifacio, the Bay Area and Makati CBD. In Q1 2019, Colliers has observed that take-up amongst completed units that are either for lease or re-sale remains strong with overall vacancy in With the dearth of developable land, the most expensive pre-selling project the secondary residential market in Metro Manila down for the sixth along Ayala Avenue in Makati CBD is very attractive among investors; it straight quarter. Vacancy is down to 10.4% from 10.6% in Q4 2018. being the last opportunity to own a pre-selling property in the Philippines’ Through 2019 we see Metro Manila posting a vacancy of 10.5% before primary business district. rising to about 11% in 2020 due to the significant number of completions. Industry observers estimate that the most expensive luxury residential We project vacancy then declining in 2021 as the delivery of condominium project in Metro Manila is currently at a pre-selling rate of about units tapers. PHP550,000 (USD10,400) per sq metre. Earlier, Colliers warned that breaching the record-high 54,000 units sold in FLATTISH RENTAL GROWTH the pre-selling market in 2018 could be a challenge, given the lack of Average rents in prime three-bedroom units in Makati CBD, Fort Bonifacio developable land and rising land and construction prices. and Rockwell Center rose by 0.8% qoq, aligned with Colliers’ projection in Colliers is retaining its earlier sales projection of about 45,000 units in the Q4 2018. In 2019-2020 we see rents in the three business districts rising pre-selling market for 2019. We still see brisk sales especially in the outskirts by an average of 0.6% due to the delivery of more units before rising to an of major business districts. These include Makati Fringe, Ortigas Fringe and average increase of 1.0% in 2021 as the completion of new units slows. Northern Quezon City area.

3 Primary Authors: For further information, please contact:

Joey Roi Bondoc David A. Young Manager | Research | Philippines Chief Operating Officer | Philippines +632 858 9057 +632 858 9009 [email protected] [email protected]

Richard Raymundo Managing Director | Philippines +632 858 9028 [email protected]

Donica Cuenca Research Analyst | Research | Philippines +632 858 9068 [email protected]

Martin Aguila Research Analyst | Research | Philippines +632 863 4116 [email protected]

Copyright © 2019 Colliers International The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report. COLLIERS SEMI-ANNUAL RETAIL | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

Joey Roi Bondoc MALLS’ RECONFIGURATION TO QUELL EXTINCTION Manager | Research | Philippines +632 858 9057 Refurbishment amid rising vacancy and the threat of e-commerce [email protected]

2018–21 Summary & Q1 2019 Full Year 2019 Annual Average Recommendations > Colliers sees sustained demand from food and beverage (F&B) and clothing and In Q1 2019 retail vacancy in footwear brands. Retailers should be enticed Metro Manila rose after six Demand to take-up space due to consumers’ rising 15,200 sq m 140,300 sq m 154,800 sq m consecutive quarters of decline. purchasing power and improving outlook. Despite this, we see opportunities > We expect about 350,000 sq metres (3.8 as developers have been million sq feet) of new retail supply per aggressive in renovating spaces annum over the next three years. Malls and housing experiential Supply within townships in Arca South, the Bay Area, 93,000 sq m 350,000 sq m 350,000 sq m and lifestyle-centric tenants and Fort Bonifacio, as well as expansion of to improve consumers’ existing malls, should drive supply from 2019 retail experience and sustain to 2021. footfall. Annual Average To further capture opportunities, QOQ / YOY / Growth 2018–21 / we encourage developers to: End Q1 End 2019 End 2021 > From 2019 to 2021, we project rents to > Use pockets of vacant space in record slower growth as we factor in the 0.9% 1.6% 1.4% malls to improve tenancy mix significant new supply to Manila’s retail stock. > Incorporate foreign retail After 2021, Colliers sees rental growth Rent experiences slightly picking up as the delivery of new PHP1,620 PHP 1,630 PHP 1,670 retail space tapers. > Utilize technology > From 2019 to 2021, the vacancy rate is likely Meanwhile, tenants testing the -1.0pp +1.0pp +0.3pp to increase due to the substantial addition to market should scout for available retail stock. Vacancy should decline after space in malls within integrated 2021 as the completion of new retail space Vacancy 10.0% 11.0% 12.0% communities. tapers.

Source: Colliers International Note: USD1 to PHP53 as of the end of Q1 2019. 1 sq m = 10.76 sq ft COLLIERS SEMI-ANNUAL RETAIL | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

RECOMMENDATIONS Leverage showrooming With rising vacancy across Metro Manila, developers should be more open to Tap opportunities provided by vacant space online retailers that use brick-and-mortar space for showrooming, or Developers should use their renovation or expansion projects as an apportioning an area dedicated for product testing, but purchases are made opportunity to expand F&B tenants and upgrade other retail features such online due to their affordability. Clothing and footwear brands, for instance, as cinemas and activity centres. Colliers recommends that developers use should consider incorporating augmented reality window shopping and pockets of vacancies in their malls to house more lifestyle-oriented retailers interactive mirrors. to attract more consumers and balance the rising popularity of online shopping in the country. TOWNSHIP MALLS EXPAND RETAIL Implement foreign retail experiences SUPPLY The ongoing renovation of malls is another opportunity for developers to bring in interesting foreign retailers. Malls with foreign-themed retail The renovation of Robinsons Galleria in Ortigas Center was completed in Q4 concepts should provide a complete foreign shopping experience. The first 2018. Other new malls completed from Q4 2018 to Q1 2019, include the Met Mitsukoshi mall in the Philippines, due to be built in Fort Bonifacio in 2021, Live Mall Phase 1, Ayala North Exchange Phase 1 and One Bonifacio High will probably go beyond offering a wide array of Japanese items to include Street. The new malls are within townships in Makati CBD, Fort Bonifacio, and training staff in omotenashi or the Japanese way of hospitality. Local the Bay Area and support the retail demand of offices and residential towers developers need to highlight their partnership with foreign brands that are within the integrated communities. popular amongst high-spending consumers and millennials that love to About 93,000 sq metres (1 million sq feet) of new retail space was completed travel. during the period, expanding Metro Manila’s retail stock to 6.9 million sq Smart malls metres (74.3 million sq feet) as of Q1 2019. SM Supermalls recently launched Sam, its first in-mall artificial intelligence From 2019 to 2021, Colliers projects the completion of about 1 million sq robot. In our opinion, mall operators and retailers should maximize the use metres (10.8 million sq feet) of new retail space or about 350,000 sq metres of technology and consumer analytics. We encourage developers to explore (3.8 million sq feet) per year. the viability of deploying consumer-assisting robots and tie up with app developers to better capture consumer preferences and regularly send RISING VACANCY AN OPPORTUNITY personalized content. Colliers believes that both mall operators and retailers should explore the roll-out of e-wallets and self-checkouts to reduce foregone sales attributable to frustrated consumers abandoning purchases TO IMPROVE TENANCY due to long queues. Metro Manila’s vacancy rose to 10% in Q1 2019 from 9.0% in Q3 2018. Test the waters by opening pop ups Colliers attributes this to developers’ continued challenge in filling up retail spaces completed in the past six to 18 months. Colliers believes that opening pop up shops is an ideal option for F&B, sporting goods, e-commerce, and clothing brands that are testing the Manila The rise was primarily driven by vacancies in a number of regional malls, retail market. This is also an option that exhibitors in weekend markets in offering a gross leasable area (GLA) of between 50,000 sq metres (538,000 sq posh villages should explore if they want to cater to a larger consumer base. feet) to 100,000 sq metres (1.1 million sq feet), across Metro Manila. They recorded a vacancy of 14% in Q1 2019, up from 11% in Q3 2018. COLLIERS SEMI-ANNUAL RETAIL | MANILA | RESEARCH | Q1 2019 | 09 MAY 2019

The vacancy of super-regional malls offering leasable space of more than Over the past two years, we have seen malls using pockets of vacancies and 100,000 sq metres (1.1 million sq feet) was stable at 4.0% as a significant redevelopments to feature expansive family entertainment centres; develop portion of retail space is taken up by developers’ anchor tenants. a farm-to-market inspired food court; house Europe's largest retailer of affordable sports equipment and apparel that offers sports training; curated Metro Manila retail vacancy, 1991-2021 retail and dining concepts from Japan and South Korea; and open an 450K 20% experience store with a media company. 350K 400K Over the next three years, Colliers expects developers to further renovate 350K 15% and implement differentiation strategies to stay in the game. Among the 300K new malls due to be redeveloped or expanded from 2019 to 2021 are Ayala 250K 11% 10% Malls Cloverleaf, Greenbelt 3, Glorietta 3, Estancia Mall, SM Mall of Asia, SM 200K City Fairview, Robinsons Place Manila, Robinsons Magnolia, Gateway Mall 150K and Greenhills Shopping Centre. During the period, major malls’ 100K 5% differentiators will likely include a 500-seater air-conditioned chapel; organic 50K 0 0% vegetable garden and a gourmet foodhall; and an expansive retail space for

tiangge or bazaar tenants.

2011 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2013 2015 2017 2021F 2019F Retailers are still enticed by consumers’ rising purchasing power especially after the implementation of lower personal income tax rates in 2018. In our New Supply Vacancy at Year-End (RHS) opinion, retail spending in Metro Manila should continue to receive a major boost from overseas Filipino Workers’ (OFW) remittances, which reached Source: Colliers International USD5.3 billion (PHP274.8 billion) for the first two months of 2019, up 2.3% In 2019 Colliers sees Metro Manila recording an 11% vacancy rate due to the YOY according to the Philippine central bank. substantial new supply. This should increase to 12% by the end of 2021 Over the next three years, we see a sustained retail space absorption from following the completion of new retail space across key business districts in F&B retailers which account for nearly 40% of incoming tenants in malls Metro Manila. across Metro Manila. Clothing and Footwear covers about 17% of tenants Over the past 12 to 24 months, Colliers has observed an increased effort due to occupy space from 2019 to 2021. amongst Metro Manila malls to differentiate. In fact, mall operators have been using pockets of vacancies to incorporate a lifestyle-centric retail mix to SLOWER RENTAL GROWTH retain old consumers and appeal to a younger profile of mallgoers. While e- From 2019 to 2021 we see rental growth facing pressure due to the commerce has been disrupting traditional retail, Filipino consumers generally completion of substantial supply during the period. From our Q3 still enjoy seeing items and receiving face-to-face service. We believe that 2018 projection of 2.0%, we now see rents growing by a slower 1.4% per this is something that mall operators and retailers should take advantage of. year from 2019 to 2021. We project at least a 2.0% increase after 2021 as Colliers believes that more shoppers will probably be drawn to physical malls the delivery of new supply tapers. if retailers offer a wide array of F&B options; spacious public seating; interactive kiosks and pop-up stores; Instagrammable retail spaces; limited edition items; and more creative ways of testing products. Primary Author: For further information, please contact:

Joey Roi Bondoc David A. Young Manager | Research | Philippines Chief Operating Officer | Philippines +632 858 9057 +632 858 9009 [email protected] [email protected]

Richard Raymundo Managing Director | Philippines +632 858 9028 [email protected]

Donica Cuenca Research Analyst | Research | Philippines +632 858 9068 [email protected]

Martin Aguila Research Analyst | Research | Philippines +632 863 4116 [email protected]