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Manila Market Intelligence: March 22, 2021

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PHL retail sales unlikely to return to pre-pandemic levels this year

NEWS

Philippines Retailers Association (PRA) Vice-Chairman Roberto Claudio said that retail sales will likely remain subdued in 2021 as consumers continue to stay at home and limit spending due to the pandemic. Claudio added that the group projects retail sales in 2021 to be 20-30% lower than 2019 levels but about 10% higher than 2020. In a bid to support the recovery of the industry, the retail sector will file a formal request to include its frontline workers under the vaccination priority of the government. National Task Force Against COVID-19 Chief implementer Carlito Galvez said that the vaccine program of the government will prioritize selected individuals including health workers, uniformed personnel, school and government workers, OFWs, poor communities, and senior citizens. Meanwhile, Nielsen Retail Intelligence believes that consumer behavior will likely change as buyers continue to shop online for smaller-sized goods.

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RESEARCH VIEW

The slowdown of the country’s economy and the erosion of consumers’ purchasing power amid the pandemic have adversely impacted retail demand. In 2021, Colliers sees retail vacancy reaching only 13% from our forecast of about 14% in 2020 as we see increased absorption of retail space starting H2 2021. From 2020 to 2022, we see retailers engaged in food and beverage (F&B), medical and other essential services driving retail space take-up. In the next 12 months, we see mall operators with rising vacancies to explore the viability of converting their vacant spaces into flexible workspaces. This is important especially that malls are near residential communities and should significantly reduce employees’ commuting time and improve work-life balance. We also see some developers converting their vacant mall spaces for micro warehouses or fulfillment centers to enable retailers to reach last mile deliveries. In our opinion, the retail sector’s recovery will likely hinge on the relaxed restrictions on public transportation, rebound in OFW remittances, and the amendments to the Retail Trade Liberalization Act which aims to attract more foreign retailers into the country.

Cold chain sector put to test

NEWS

The Board of Investments (BoI) said that they expect the country’s cold chain industry to become a PHP20 billion (USD416.7 million) industry by 2023. In December, the BoI launched the Cold Chain Industry Road Map which provides a blueprint for the industry’s new normal amid the pandemic. The arrival of COVID-19 vaccines is likely to drive demand for cold chain assets. Cold Chain Association of the Philippines Inc. president Anthony Dizon said that while most cold chain facilities are in urban areas, distribution of the vaccines will be facilitated by temperature-controlled cold chain logistics operators. He added that the industry’s plan is to implement a hub-and-spoke approach for the distribution and storage of the vaccines. Apart from ensuring the efficient distribution of the vaccines, the roadmap also addresses the need to ensure a stable food supply through prolonged shelf life and building raw materials inventory.

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RESEARCH VIEW

The demand for cold chain storage facilities in Metro Manila and provincial areas such as Pampanga and the Cavite-Laguna-Batangas (CALABA) corridor remains underserved. We project demand for the sector to increase driven by the growth of grocery and perishable food item deliveries. The upcoming rollout of the COVID-19 vaccine and the development of agro-industrial hubs by the Department of Agriculture (DA) and the Bases Conversion and Development Authority (BCDA) will also likely drive the demand for the cold storage sector. We recommend that developers take advantage of the potential growth in the industry by eyeing viable peripheral areas where they can construct facilities such as Taguig and New Clark City. Developers should also consider offering value-added services to gain a competitive advantage. These include inventory management services and partnering with temperature-controlled logistics providers.

QC-to-Rizal MRT line to start in 2023

NEWS

The Department of Transportation (DOTr) said that the construction of the Metro Rail Transit Line 4 (MRT-4) will start in 2023. The PHP59.3 billion (USD1.2 billion) 15.6 kilometre (10 mi) railway project will feature 11 stations from N. Domingo, Quezon City to Taytay, Rizal. The project will also likely have two provisional stations and is designed to accommodate 220,000 passengers daily. MRT-4 is part of the government’s railway network expansion. Data from the DOTr show that spending for railway projects until 2025 will likely reach more than PHP740 billion (USD15.4 billion). Some of the upcoming projects include the LRT Line 1 Cavite Extension, North South Commuter railways, the PHP356 billion (USD7.4 billion) Metro Manila subway, the PHP50.3 billion (USD1.05 billion) Subic Clark Railway, and the PHP81.7 billion (USD1.7 billion) Mindanao Railway.

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RESEARCH VIEW

The need for quality infrastructure is reflected in the country’s global competitiveness ranking. Data from the World Economic Forum (WEF) show that the Philippines ranked 96th in infrastructure out of 141 countries in 2019, down from 92nd in 2018. In our opinion, the implementation of infrastructure projects such as railways will likely contribute in decongesting Metro Manila and should unlock land values. Colliers believes that these projects should provide opportunities for office and residential investors looking for properties outside of Metro Manila such as Rizal. In our view, office and residential developers should continue maximizing their projects’ proximity to infrastructure due to be completed in the next 12 to 36 months. Other railway projects scheduled for completion from 2021 to 2024 include the LRT-2 East Extension, MRT-3 Rehabilitation, and the MRT-7.

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