Philippines’ retail sector on a roll

Rising consumer confidence combined with the new administration’s plans to open up the economy look set to underpin strong demand and growth in the Philippines’ retail sector.

The retail sector could be one of the main beneficiaries of President-elect Rodrigo Duterte’s plans to liberalise rules restricting foreign investment.

New policy direction

Among the sectors currently deemed out of bounds for overseas investors are broadcasting, domestic shipping and pharmaceuticals, along with most retail activity.

This could soon change, with Duterte officials announcing in mid-May that constitutional amendments could be considered to boost the attractiveness of the Philippines to foreign direct investment (FDI). In 2015 the Philippines attracted $5.72bn in FDI, more than five times the $1.07bn achieved in 2010.

The 2015 total, however, represented just over 2% of GDP, which has left the Philippines well behind most of its ASEAN neighbours. By opening up retail and other sectors to FDI, the Duterte administration could lift the country’s inbound FDI levels closer to the ASEAN average of over 5% of GDP.

This proposed regulatory shift is supported by Carlos Dominguez, the incoming finance secretary, who also said the new administration would facilitate the ease of doing business in the country, according to press reports.

While outlining future policy direction, Dominguez said he favoured lowering income tax rates to somewhere in the mid-20% range, down from as high as 32%, which could have a direct impact on the retail sector.

According to Dominguez, tax cuts should not be viewed as a matter of lowering state revenue. “If you put more money in people’s pockets they can buy more stuff and when they buy more stuff they pay VAT of 12% and companies make a profit,” he told international media in June.

Dominguez also noted that an increase in sales tax was unlikely.

Increased consumer confidence

The retail sector is also set to be buoyed by rising consumer confidence. The country’s consumer confidence index for the first three months of 2016 rose to -5.7%, up from -8.1% in the fourth quarter of 2015, according to the central bank’s Consumer Expectations Survey (CES) released in early June.

Though the index was still in negative territory consumers were more positive, citing an improvement in availability of jobs, price stability and increased investment in the economy. The first quarter rating marked the highest number reached by the CES index since the second quarter of 2013.

In terms of expectations for the coming year, the consumer index rose from 18% in the fourth quarter of 2015 to 25.4% in the first quarter of this year, its highest level since 2010.

The survey found that consumers expected growth in real incomes and a higher household purchasing power over the coming year.

Retail space on the rise

Demand for retail space is gaining momentum with the Philippines one of three countries in the region to post rental rate growth in the first quarter of 2016, according to a recent report on retail rentals in Asia from real estate services firm Jones Lang LaSalle (JLL).

Rental costs for retail space rose 1.9% quarter-on-quarter, according to the JLL report, driven by strong demand in Metro Manila, particularly, in the food and beverage sector.

Property consultancy Colliers International reported a continuous flow of new retail space in the development pipeline, with some 107,000 sq metres coming onto the Metro Manila market in the last quarter of 2015 and the first quarter of this year.

The latest additions took the capital’s gross leasable area (GLA) to 6.12m sq metres, a figure Colliers forecasts will increase, with low inflation, strong overseas remittances, political stability and rising job opportunities combining to fuel growth and create a positive medium-term outlook.

The spread of the country’s business process outsourcing (BPO) sector beyond the capital to other population centres has also fed into retail space development outside Manila.

Cebu in the Central Visayas region, for example, has seen retail GLA increase by 45% since 2014 as a result of its growth as a BPO centre, with an estimated 7% of those employed in the sector now living and working in Cebu and contributing to demand.

This rise of employed professionals in the Cebu region has resulted in retail GLA increasing to just under 1m sq metres as of year-end 2015, with a further 70,000 sq metres expected to be added to existing stocks during 2016.

Oxford Business Group is now on Instagram. Follow us here for news and stunning imagery from the more than 30 markets we cover.

Read Next:

In Philippines

Loh Boon Chye, CEO, Singapore Exchange (SGX)

As regional exchanges become more mature, which factors make SGX a standout proposition for Asian companies seeking to list? 

In Retail

Increased occupancy rates and rental returns to boost Kenya’s retail...

Kenya’s retail sector is looking to recover from a slow 2017 following solid gains in occupancy rates and rental returns; however, oversupply in some regions, along with an acceleration in...

Latest

Myanmar: Year in Review 2019

Despite seeing solid growth, 2019 posed some challenges for Myanmar, as the country continued with plans to liberalise its economy.