Today’s Headlines
Shifting spending habits, VAT weigh on mall owners
Lease rates for Metro Manila mall space are expected to
grow at a lethargic pace this year due to a shift in the spending
habits of the public, weaker same-store sales, and the impact of the
two-percentage-point increase in the value-added tax (VAT) rate.
In its January 2006 market report released yesterday, property services firm Colliers International Philippines, Inc. said rental rates for mall-based establishments are expected to weaken as a consumer inclination to shop in bazaars, flea markets and wholesale centers has started to affect same-store sales of malls.
Same-stores sales involve establishments that have been open for more than a year.
A decline in same-store sales would technically affect rental rates of malls because a portion of lease payments come from the mall operators’ share in the gross revenues of tenants, Colliers Director for Research and Consultancy Richard T. Raymundo said.
"We are concerned with the decline in same-store sales as shopping habits appear to be shifting to formats such as bazaars, flea markets and wholesale centers. We expect the bearish sentiment to persist in 2006 in light of the implementation of the expanded VAT," Colliers said.
The property services firm said the impact of the shift in personal consumption patterns was already seen last year.
It noted that rent at the Ayala Center was recorded at P1,150 per square meter per month as of end-2005, up less than 5% from the P1,100 per square meter per month in 2004. In 2004, rental rates for increased by 7% from the previous year, Colliers said.
Meanwhile, lease for retail space in Ortigas increased by 5% for 2005 to P920 per square meter per month from the previous year’s P875. This was, however, slower than the 7% escalation in 2004, Colliers added.
"The lethargic increase confirms the weaker sales during the Christmas season in mall-based establishments ... In fact, establishments that are gaining popularity are wholesale centers in Divisoria (168 Mall, Tutuban Center, Divisoria Mall and Meisic Mall) and bazaar type formats in Greenhills Shopping Center, Market! Market! and Tiendesitas," it said.
Colliers said that for 2006, lease escalation for Ayala Center will likely stay at 5% to average P1,207 per square meter per month. For Ortigas, which counts Greenhills and Tiendesitas as among its retail areas, rents will be at an average effective rate of P965 per square meter per month.
But while same-store sales are expected to weaken, this does not necessarily mean that system-wide sales for mall chains would also post a decline.
Colliers noted that while same-store sales of Ayala malls were down by 4% in 2005, aggregate retail sales went up by 4%.
The increase in center-wide sales could be inflationary in nature. It could also be due to having non-performing tenants replaced by better performing formats, it said.
Mr. Raymundo also noted that some malls continue to build additional space, pushing up system-wide revenues.
NOT A THREAT
The Ayala group noted that the shift in the spending habits of people is not necessarily a threat.
"When people go to Ayala malls, what they look for is a shopping experience. When you go to Greenbelt, it’s for the family. When you go to Greenbelt, it’s a place to see and be seen. This is something that tiangges (flea markets) do not provide to shoppers," Ayala Land Inc. assistant vice-president for external affairs Jan Bengzon said.
He also said shopping does not necessarily only mean purchase of merchandise, and added that malls are likely to be able to offer products that are not available in flea markets or bazaars.
Ayala operates the upscale Glorietta and Greenbelt malls. Glorietta already has space allocated for tiangge-type retailers. The group also owns Market! Market!, and Metro Point, and is set to open a mall beside the Metro Rail Transit depot in Quezon City.
The SM group, for its part, said, "SM malls have experienced growth in sales from its malls as of February 1, 2006," but declined to say if this was due to same store sales or if revenues were pushed by its additional malls.
SM builds three to four additional malls a year.
"We expect the trend to continue this year. SM has always been known for its value for money reputation and we have and will always see to it that this is followed in serving the public," the firm said.
As of 2005, the stock of retail space in Metro Manila increased by 5% to 3.93 million square meters, Colliers said. This was following the completion of three developments which had an aggregate space of 194,250 square meters - SM San Lazaro, which added 130,500 square meters, SM Valenzuela, which added 45,000 square meters, and SM Sucat Annex which added 18,750 square meters.
For 2006, retail space is expected to expand by almost 15% with the completion of three developments with an aggregate area of 566,000 square meters. Of the total additional space, SM Mall of Asia, which is slated to open on March 3 from its earlier schedule of February, will have more than 300,000 square meters of leasable space, Colliers said. SM North EDSA is also adding 30,000 square meters of leasable area by the second quarter.
Meanwhile, Manila-wide retail vacancy went down to 13% in 2005 from nearly 15% in the same period in 2004. Vacancies are expected to increase this year "in light of the completion of more than 500,000 square meters of retail space," Colliers said.
"This is the historical peak level in terms of annual retail space introduction. Prior to this, the highest level of new supply was in 1997 with nearly 390,000 square meters."
OFFICE RENTS TO RISE
Meanwhile, Colliers reiterated that office rental in Makati will continue to increase due to lack of space. The group also said old office buildings in Makati are likely to undergo refurbishment.
"There is no building under construction in the CBD (central business district). The dearth of office space has resulted in refurbishments for some buildings - such as the Asian Bank Center with 7,700 square meters of useable space being renovated for call center tenants," Colliers said.
Vacancy in the Makati CBD as of end 2005, Colliers said, fell to 7.4% from 9.5% in the previous year, while net take up was at 81,829 square meters - 13% higher than the space absorbed in 2004.
"Our estimate for 2006 is nearly 15% lower at 70,000 square meters due to the availability of space in the market," the company said.
Rents, meanwhile, surged 21% for premium grade office space, to an average of P649 square meters per month in 2005.
"Indeed, recovery has now gained momentum if this is compared with the 11% escalation recorded in 2004. After falling by 50% in the 2003 trough, rents have rebounded by 34%," Colliers said.
It added that for 2006, rents in this segment is expected to increase 20% to average P779 per square meter per month.
For its part, residential vacancy in the Makati CBD area was lower at 12.5% in 2005 from 14.3% in 2004.
"In the course of 2006, expectations are for vacancies to remain at around 13% given the completion of 532 units from two developments," Colliers said.
The company said that for 2005, licenses to sell approved by the Housing and Land Use Regulatory Board declined by 18% to 298,002 units.
"This is attributed to the 31% drop in memorial parks. In fact, residential approvals (meager decline of 3% year on year to 167,229 units) are nearly at par with 2004 registrations," the firm said.
It also noted a 67% decline in registration of farm lot developments, at 800 units from 3,405 units in 2004.
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