Cebu’s retail market continues to expand

CEBU, Philippines — Cebu’s retail market continues to expand as total retail space hit 1.06 million sq m as of end last year, Colliers International Philippines said, as it sees continued growth in the sector moving forward.

"Its retail market remains interesting and competitive as it is actively participated in by both local and national players. Despite the development of super-regional malls in established and emerging hubs and entry of foreign retailers, the downtown area which houses some of the oldest retail outlets remains bustling," the property management and consulting firm said.

But the homegrown retailers, Colliers noted, need to cope with the constantly evolving preferences of consumers and must recalibrate their offerings if they are to stay in the game.

It said the difficulty of filling vacant space persists especially in a number of regional malls.

Metro Cebu remains as the largest retail hub outside of Metro Manila.

Super-regional malls or retail outlets with GLAs (gross leasable areas) of more than 100,000 sq m (1.1 million sq ft) account for about 60 percent of Cebu’s retail stock.

Super-regional malls in Cebu include SM Seaside, SM City Cebu, and Ayala Center Cebu. Regional outlets such as SM Consolacion and Robinsons Galleria Cebu cover 10 percent of the market while the smaller district centers and neighborhood outlets primarily located in the downtown area cover the remaining 30 percent.

These smaller establishments are predominantly owned by local businessmen. Among the neighborhood and district malls in Cebu are CityMalls in Bacalso and Consolacion as well as those owned by the Gaisano family.

Overall vacancy as of fourth quarter in 2017 reached 4.2 percent, lower than the 6.1 percent posted in first quarter that year.

Vacancy across Cebu peaked in 2015 at 14.5 percent following the completion of SM Seaside and Robinsons Galleria Cebu. Super regional and regional malls recorded vacancies of 6.4 percent and 4.5 percent, respectively. Meanwhile, the smaller district and neighborhood malls were fully occupied.

"We do not see a significant rise in vacancy over the next twelve months despite the projected full turn-over of NorthDrive retail complex and partial opening of Il Corso mall at City di Mare. We see overall vacancy hovering between 5 percent and 6 percent this year.  An estimated 80 percent of incoming retailers in SM City Cebu and Robinsons Galleria are into F&B. These should contribute to greater retail space absorption over the next six to 12 months," Colliers further noted.

Cebu’s average retail rents range from P230 to P980 per sq m (USD0.43 to USD1.82 per sq ft) per month, up 3-5 percent compared to year-ago rates.

Colliers sees rental rates growing at a slower 2 percent to 3 percent annually over the next two to three years given the substantial amount of new supply in the pipeline.

Colliers sees the projected 5%-10% annual growth of Cebu’s outsourcing workforce supporting the expansion of the city’s consumer base. Those employed by KPO firms receive higher salaries, thereby expanding the purchasing power of the predominantly-young outsourcing workforce.

Cebu is part of the Central Visayas region which covers about 5 percent of total OFW deployment per year. Meanwhile, the robust public and private construction activities in Cebu generate more employment opportunities which effectively expand Metro Cebu’s consumer base.

"Some malls in Cebu still encounter difficulty in filling up retail space. We recommend that operators carefully choose their tenants to come up with a more interesting tenancy mix. This would also play a crucial part in sustaining visitor traffic," the property consultant said.

"With the completion of the second terminal of Mactan-Cebu International Airport the capacity of the airport will more than triple to 12.5 million from the current 4 million. This means more foreign and domestic tourists which should result in greater tourist-related spending. To cash in on the expected surge in spending, mall operators should be on the lookout for potential retail space near resort-oriented hotels and condominium projects," Colliers said in the report.