This week, Colliers Research provides insights on the Bangko Sentral ng Pilipinas hiking key interest rates by 25 basis points – increasing policy rate to 2.25% – in an effort to balance economic expansion and rising prices; and the Philippine Franchising Association announcing that it expects the local franchising sector to grow this year, which is expected to buoy the retail segment.
Market braces for more BSP rate hikes
Analysts are expecting the Bangko Sentral ng Pilipinas (BSP) to implement more rate hikes this year to balance economic expansion and rising prices. The Monetary Board has raised key interest rates by 25 basis points – increasing the policy rate to 2.25%. This is the first increase since November 2018. Economists are projecting more rate hikes for the remainder of the year. Some are expecting hikes to extend beyond 2022.
Colliers believes that the BSP is likely to raise interest rates to temper inflation. The 8.3% economic growth in Q1 2022 indicates recovery and pick-up in demand is likely to raise prices of basic commodities. The central bank is projecting overseas Filipino workers’ (OFW) remittances to grow by 4% this year and this should prop up spending in a consumption-led Philippine economy. However, the consumers’ purchasing power is likely to be clipped by high inflation. In our view, improvement in business and consumer confidence despite rising inflation should stoke the retail market. Improving consumer traffic should encourage more retailers to lease physical mall space and we see this playing an important role in raising mall lease rates across Metro Manila. Colliers believes that lease rates’ gradual pick up will start in H2 2022.
Franchising sector sees robust growth
The Philippine Franchising Association (PFA) is expecting the local franchising sector to grow this year. The PFA attributed this to the influx of new franchisees and issuance of an Executive Order (EO) that protects micro, small, and medium enterprises (MSMEs) by strengthening the local franchising sector. The industry group said the EO will further promote entrepreneurship in the country. It mandates the Department of Trade and Industry (DTI) to create an MSME Registry of Franchise Agreements. According to PFA, 70% of its members are MSMEs.
Colliers is optimistic that the retail sector will recover this year. Major mall operators have reported an increase in footfall while a number of food and beverage and clothing retailers are likely to occupy physical mall space for the remainder of 2022. In our view, franchising is one retail segment that is likely to buoy take-up of brick-and-mortar space across Metro Manila. The confidence to lease space in malls will eventually depend on consumer and business confidence. These should be supported by sustained household consumption, which is driven by remittances from Filipinos working abroad. A strong franchising sector should positively influence retail space take up and lease rate growth. In 2022, Colliers sees retail rents rising by about 1% from a cumulative 15% drop in 2020 and 2021.