Retail space development in the Philippines faces good prospects for the next few years with developers outlining successive projects.

In the 2014 Global Retail Development Index (GRDI) report of the business consultant, AT Kearney has included the Philippines among its top 30 retail business destinations among emerging markets.

The report was tabulated from a list of 200 emerging economies where retail businesses are booming, ranking them based on “window of opportunity” of investing in brick-and-mortar retail business.

The Philippines ranked 23rd and is a returnee on the list after being dropped from the roster a year ago. The  last time it made the cut was in 2012 when it landed 29th.

The country ranked higher than Vietnam but is lower compared to Malaysia and Indonesia, which had consistently occupied the list in the past GRDI reports.

A.T. Kearney expects retail sales in the country to grow 10 percent for the immediate term.

“The stable political environment, an increasingly affluent population, strong liquidity, and sustainable long-term infrastructure development are boosting consumer confidence,” it said.

“Retail sales growth is expected to surpass 10 percent per year over the next three years, in large part due to increasing disposable incomes, which are driving sales in nonessential items such as apparel and luxury goods,” it added.

A.T. Kearney noted the retail business’ growth is spreading “beyond the capital of Manila to other regions such as Southern Tagalog, Central Visayas, Western Visayas, Southern Mindanao, and Central Luzon.”

Mom-and-pop shop (traditional sari-sari stores) convenience stores still dominate the retail business landscape at roughly 70 percent of the total market but modern concepts are making “headway,” A.T.Kearney noted.

It also noted the international brands are establishing their presence in the local market. Last year saw the opening of stores of clothing reseller American Eagle Outfitters, international jeweler Claire’s, Korean bakery Tous Les Jours, Japanese convenience store chain FamilyMart, and Hong Kong supermarket Wellcome.

“Retailers expected to enter in 2014 include H&M,  PVH, and BH Fashion Retailers,” it added.

This bodes well for retail space development.

According to property consultancy CB Richard Ellis, an additional 100,000 sq.m. of retail space will be completed till the end of the year, on top of the 170,000 sq.m. already finished in the first quarter.

The growth of the retail segment is getting its momentum from the consumption-led economy, especially on the back of its growing middle class and the country’s young demographics that provide huge demographic windfall to the economy if harnessed well.

“The Philippines is a very consumption-led economy. The robust domestic consumption demand continues to push expansions of global brands and retail space in the country,” said Rick Santos, CBRE Philippines head.

Santos also noted that the Philippines has the youngest average age of 21, among countries in the region like Singapore, 35 and Japan, 42. 

Cheap rental rates of space are also fuelling the growth of the retail market at $36 per sq. ft. which is much lower compared to  Bangkok at $111, Hanoi at $139, Shenzen at $310, Singapore at $465, and Shanghai at $499.

The growth of retail space in the Philippines has given birth to the concept of retail therapy, according to  Jones Lang LaSalle, another property consultancy firm.

Sharon Saclolo, Jones Lang Philippines research manager, noted that for many Filipinos, shopping malls are “indoor parks” that allow them to enjoy personal time with friends and share on things they enjoy while staying away from the hot sun or the rain.

“Property developers in the Philippines are capitalizing on this demand for shopping mall therapy as is evident from the growing retail property supply nationwide,” said Saclolo.

“Strong retail demand is being fueled partly by the sustained growth of overseas Filipino remittances, which grew by 7.37 percent in 2013, infusing $23 billion into the local economy. The continued strong performance of the offshoring and outsourcing industry is another major contributor which is increasing disposable income and fostering consumption of retail goods. These factors, together with a positive outlook for the economy, are contributing to the demand for more retail space, prompting developers to invest in retail projects,” she added.

Jones Lang noted that as of end-2013, there was 13 million sq.m. of retail space in the country, with Metro Manila contributing almost half at approximately 7 million sq.m., the largest among them situated in Metro Manila, also some of the largest in the world, that include SM City North EdSA, SM Mall of Asia and SM Megamall together contributing about 1.2 million square metres of floor area.

“Shopping centres in the provinces contribute some 6 million square metres with the bulk of it in Cebu, Davao, Cavite, and Pampanga. A new wave of developments is underway which will inject around 1.4 million square meters of new supply and bring the retail area in the provinces on a par with that of Metro Manila by 2015,” Jones Lang also said.

SM Prime Holdings, Inc., the country’s largest mall developer, recently made it its goal to double its leasable mall space to 10.96 million sq.m. by 2018 out of 74 malls in the Philippines and 11 China-based malls, coming from last year’s 6.95 million sq.m, and 48 Philippine malls and 5 China malls last year.

It has allocated an ambitious P400 billion five-year capital expenditure plan for the endeavor which also involve the firm’s plan to increase its other property portfolio in the office, residential, and tourism segment of the property market.

The expenditures will “double” the company’s profit and revenues for the period from the 2013-reported P16.27 billion profit and P32.2 billion revenue.

In the company’s recently announced P25 billion bond offer, a portion of the proceeds will be used to finance the company’s capex to expand malls, in particular — SM City Seaside Cebu, SM City Angono, SM Butuan, SM Cagayan de Oro, SM City San Mate, SM City Bacolod, SM City Lipa, SM City Sta. Rosa, The Block in SM City North EDSA.

It will also be used to finance the construction of new malls of the company in particular those located in Dagupan, Cabanatuan, Tacloban, Cavite, and Puerto Princesa City.

A.T. Kearney said the Philippines retail window is still in its early stage, which mean that the market still has between 5-10 years to evolve before it becomes a mature market.

“Ideally, markets pass through four stages of retail development (opening, peaking, declining, and closing) as they evolve from emerging to mature markets, a process that typically span 5-10 years,” A.T. Kearney said.

“The window begins to close when shoppers get so sophisticated that more than basic retail investments is required (in terms of formats and assortments); when logistics are strong enough across the board to no longer serve as a competitive differentiator; when regulations are stable enough that ‘daring’ is no longer necessary in expansion strategies (although a little daring is always needed); and when risks to persons, property, and principles are low,” it added.

This could only mean better days for the retail space development segment of the market.