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Market Intelligence | Philippines January 21, 2022

Retail real estate, Foreign direct investment, Domestic tourism

This week, Colliers Research provides insights on the spread of the Omicron variant of Covid-19 and its impact on the recovery of the retail sector; net inflows of foreign direct investments growing for the fifth consecutive month in October 2021; and a survey showing that majority of Filipino travelers are planning to push through with their travel plans in 2022 despite the emergence of new Covid-19 variants.

Omicron threatens Philippine mall revival

SUMMARY

The spread of the Omicron variant of Covid-19 has compelled the government to raise the lockdown level to Alert Level 3 starting January 3, 2022. Prior to the Omicron variants’ spread, Ayala Malls and the Villar Group have reported consumer traffic of 60% to 70% of pre-pandemic levels after the quarantine restriction in most areas was lowered to Alert Level 2. However, recovery of the retail sector is again threatened as Metro Manila and neighboring provinces are once again put under the more strict Alert Level 3. The OCTA Research group said that infections will exceed past surge levels due to the spread of the highly transmissible Omicron variant. Meanwhile, the Philippine Food and Drug Administration has allowed the inoculation of children aged 5 to 11 years.

RESEARCH VIEW

Colliers sees retail vacancy rising to about 17% in 2022 from 14.8% in Q3 2021 partly due to the substantial new supply of about 523,700 square meters (5.6 million square feet) and mobility restrictions due to the volatile lockdown situation in Metro Manila. In our opinion, the rollout of vaccine booster shots should aid in reducing Covid-19 cases and increasing consumers’ confidence to visit physical malls. Colliers also believes that Filipinos’ growing propensity to shop online will likely impact physical mall space absorption beyond 2022. The Department of Trade and Industry projects the number of domestic online businesses to reach 1 million in 2022 from 750,000 in 2021. Colliers recommends that retailers strengthen their e-commerce presence to complement their physical stores.

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FDI inflows rise for 5th straight month
   

SUMMARY

Data from Bangko Sentral ng Pilipinas (BSP) or central bank show that foreign direct investment (FDI) net inflows into the Philippines grew for the fifth consecutive month to USD855 million (PHP43.6 billion) in October 2021 from USD430 million (PHP21.9 billion) in October 2020, a 98.9% increase YOY. This was also 29.5% higher than the USD660 million (PHP33.7 billion) in September, the lowest in four months due to the surge in Covid-19 cases dampening investor sentiment. Meanwhile, cumulative FDI net inflows in 10M 2021 rose to USD8.1 billion (PHP413.1 billion), a 48.1% YOY growth. 

RESEARCH VIEW

Despite the pandemic, the property sector continues to capture a good portion of annual FDIs received by the Philippines. Data from Philippine Statistics Authority show that in Q3 2021, the manufacturing, transport and storage, and real estate activities accounted for 83% of total FDI or PHP13.9 billion (USD272 million). In our view, the continued inflow of foreign investments is likely to support the growth in the industrial segment post-Covid-19, especially in the Cavite–Laguna–Batangas (CALABA) corridor. Colliers believes that fostering a conducive business environment, which includes the passage of tax reform measures, should ensure that the Philippines remains on the investment radar of foreign business entities. Recently enacted laws, such as Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law and the amendments on the Public Service Act of 1935 and Retail Trade Liberalization of 2000, should help boost FDI inflows into the Philippines.

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Pinoys raring to travel

SUMMARY

According to a survey by AirAsia Philippines, seven out of 10 Filipinos are still pushing through with their travel plans in the next nine months despite the emergence of new Covid-19 variants and heightened restrictions. Among the top preferred destinations are Palawan, Boracay, Cebu, Siargao, and Bohol. The survey also showed that five out of 10 Filipinos are ready to travel abroad in countries such as South Korea, Singapore, and Japan once international border restriction eases in 2022. The survey validated AirAsia Philippines’ forecast on the growing optimism and confidence of Filipinos to travel.

RESEARCH VIEW

Data from the Department of Tourism (DOT) show that tourist arrivals as of H1 2021 reached 58,177, down 96% YOY due to travel restrictions imposed by the government. Meanwhile, hotel occupancies in Metro Manila reached 24% in H1 2021 from 20% in H2 2020 as foreign arrivals remain tepid. In our view, domestic travel will stoke the leisure sector first, with the DOT expecting domestic trips to reach 84.8 million in 2022 or 90% of total trips in 2019. Colliers is optimistic that revenge travel among local travelers should help increase hotel occupancies of selected destinations across the country. Colliers recommends that hotel operators highlight their health and safety protocols and provide flexibility on their guests’ bookings such as free room upgrades and booking modifications 24 hours before arrival.

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