RETAIL BEYOND THE CAPITAL Davao City Retail Snapshot

Transcription

RETAIL BEYOND
THE CAPITAL
Davao City
Retail Snapshot
DECEMBER 2015
Table of Contents
INTRODUCTION 2
WHY DAVAO? 3
Increasing Population 3
High Income City 4
Massive Regional Consumer Market (Davao Region) 5
Strong Tourism Market 7
DAVAO RETAIL MARKET
OVERVIEW 10
Cumulative Supply 11
Rental Rate 11
Vacancy 12
Tenant Mix 13
Increased International Brand Presence 14
OUTLOOK 15
A Cushman & Wakefield Research Publication
Retail Beyond the Capital Davao City Retail Snapshot
INTRODUCTION
Executive Summary
This report provides a glimpse of the retail scene in Davao City
and also examines the city’s potential to be one of the country’s
next retail hot spots. Strong macroeconomic fundamentals,
driven mainly by a healthy and bourgeoning consumer
market coupled with supporting social infrastructure, have
supported the recent growth in retail space and influx of
international brands. Correspondingly, this report posits that
such fundamentals will continue to be the backbone of city’s
retail scene, allowing Davao City to be a viable option for retail
expansion outside Metro Manila.
Retail is an important element of the Philippine real
do so, especially within the so-called emerging cities1,
estate industry. It responds to the strong domestic
like Baguio, Davao, Dumaguete, Iloilo, and Bacolod.
consumer market that is fundamental to the economy.
Retail developments have likewise been expanding
Already more than 70% of the country’s GDP is
aggressively outside the capital. Also, with growing
supported by consumption, and this is still expected
incomes spanning provincial areas in the country, retail
to grow given the consumer income driving forces of
has never been in a better position to look beyond the
the thriving BPO sector and OFW remittances. For this
capital.
reason, the retail sector is foreseen to be a force to be
reckoned with in the coming years. This is manifested in
the significant expansion of retail space and the entry of
foreign retailers recently.
only are these markets potentially ripe for substantial
retail and real estate growth, but from a much wider
perspective, they allow for a more inclusive and
Metro Manila has since been in the spotlight, given
decentralized “trickle down” growth of the Philippine
the massive market that it possesses for retail. There
economy.
has been a substantial increase in retail supply, major
redevelopments of existing shopping centers, and
the rise of mixed-use developments catering to retail
among others. There is no denying that Metro Manila
is a bourgeoning and lucrative market, but the issues
of congestion, saturation, limited space and inefficient
infrastructure, and mass transportation linger and pose
challenges.
Correspondingly, real estate developers have been
This report aims to be one of many retail reports that
provides a glimpse of retail outside Metro Manila.
Precisely, the focus will be on Davao City, an emerging
market that has generated a lot of interest when it
comes to safety and good governance. It is a vibrant
market with huge potential for further retail growth. This
report will provide a snapshot of the existing major retail
centers of the city and the opportunities that
are presented.
looking to key markets outside the capital. IT parks and
business districts have emerged and will continue to
1
4
The gains from expanding outwards are immense. Not
The IT and Business Process Association of the Philippines (IBPAP) has identified key markets or “Next Wave
Cities” based on their potential as business process outsourcing hubs (given talent bank, infrastructure, cost,
and business environment and risk).
cushmanwakefield.com | 5
Among the Philippines’
WHY DAVAO?
TOP TOURIST
DESTINATIONS
Davao City exhibits the trends and possesses the qualities that make for a
LARGEST CITY
robust retail market.
in the Philippines in terms of
Land Area
Increasing Population
The rapid influx of people into Davao City has transformed it into the
country’s largest urbanized area in terms of population and land area outside
the capital. Official 2010 Census figures have Davao at 1.44 million people,
and estimates for 2015 are at 1.63 million.
This trend is associated with the migration of people from other regions,
particularly because the city has gradually been offering the right incentives
2,444
Renowned to be the
SAFEST CITY
in the country
sector in the city - factors that people value when moving. Apart from the
social infrastructure, the city is renowned to be one of the safest in the
country and is also very accessible due to its international airport. Also,
traffic and infrastructure woes, which have dissuaded people from living
in Metro Manila, are not present in Davao due to an early implemented
stringent traffic management system3. Further, complementing the
population trend, we have seen housing subdivisions and residential options
Key player in flourishing trade club
BRUNEI-INDONESIAMALAYSIA-PHILIPPINES
EAST ASIAN GROWTH AREA
for relocation. Davao possesses quality schools1, quality hospitals2 and,
increasingly, quality jobs with the emergence and growth of the IT-BPO
sq km
DAVAO CITY
increase in urban Davao, which encourages people to choose to conveniently
live in the city.
These positive attributes and incentives feed into the already rapid urban
growth trend of the city, as people may look to Davao City as a place to settle
in. Optimistically, we may then see the city breaking 2 million people by 2020,
which makes for a potentially substantial consumer market to tap.
1.5 MILLION
4th most populous city
in the Philippines
MINDANAO’S
center of
COMMERCE
Hailed as one of the country’s
1
Ateneo De Davao, University of Southern Philippines, Davao Doctors College, Davao Medical School Foundation (DMSF) among
others. Mapua just recently announced its expansion into Davao City.
2 Davao Doctors Hospital, San Pedro Hospital and DMSF among others.
3 In line with Php 120-M IBM Smarter City Project, formally unveiled in 2013.
6
NEXT WAVE CITIES
by IT and Business Process
Association of the Philippines (IBPAP)
TRADE
SERVICES
Davao City’s Population
2.0
“What makes the Davao Region an important
catchment market for Davao City?
(millions)
1.5
1.0
It is the fastest growing region.”
0.5
0
2000
2007
2010
2013*
2014*
2015*
Source: Philippine Statistics Authority (PSA). 2013-2015* are estimates made by Davao City
Planning and Development Office.
Massive Regional Consumer Market (Davao Region)
High Income City
Total Capitalization of Business, Davao City
(in billion Php)
Davao City’s rapid urbanization and transforming
Davao City serves as the regional center of the Davao
Responding to this trend, local developers began
Region (Region XI). As such, the city essentially captures
constructing BPO office space as early as 2011 with
country’s high income cities. Based on income, Davao is
220
demand from the entire region. According to 2010
Damosa IT Park, Luisa IT Center, and Filandia IT Center.
consistently part of the top 5 cities and is the only city
210
official census figures, the region houses 4.5 million
National players entered more recently with Ayala’s
people with 2015 projections at 4.7 million people.
Abreeza Corporate Center in 2012 and SM’s dedicated
economic landscape have placed it among the
outside Metro Manila on the list, making it the highest
earning city beyond the capital.
200
190
What makes the Davao Region an important catchment
180
5 Highest Earning Cities in the Philippines
(in million Php)
20,000
170
market for Davao City? It is the fastest growing region.
160
The latest official statistics show that the Davao Region
2010
2011
2012
2013
2014
Source: Davao City Business Bureau
15,000
of growth rate, exhibiting an exceptional gross regional
domestic product (GRDP) growth rate in 2014 at 9.4%, a
10,000
The economic gains of the city can also be gauged
5,000
from the city’s transforming economic landscape with
0
2009
2010
2011
2012
Quezon
Makati
Pasig
Davao
2013
2014
Manila
Source: Bureau of Local Government Finance (BLGF)
buildings rising in every corner. We see the emergence
of infrastructure like high-rise residential buildings
and mixed- use developments. Among the significant
upcoming developments are a mixed-township Davao
Park District and luxury accommodations by Dusit (Dusit
Thani Residences, DusitD2 Hotel) and the Lubi Plantation
The relative high income level of Davao City is indicative of
its economic health. A manifestation of Davao’s economic
progress is the surge in investment, as suggested by
the rise in business capitalization over time. The city
experienced a 16% increase in total capital from 2011 to
2014 alone.
8
outperformed all other regions in the country in terms
Resort.
big leap from 6.7% in 2013.
One of the primary GRDP drivers is the services sector
office space in 2013. As of now, the city currently has
roughly 115,000 sq.m of office space and is expecting
approximately 20,000 sq.m in the coming year. The
last five years have seen major BPO companies such as
Convergys, Teleperformance, Concentrix, Sutherland and
VXI setting up shop in the city.
Comparative Gross Product Growth Rates 2013-2014,
At Constant 2000 Prices
with its 2014 growth rate pegged at 8.3%. This is
associated with the region’s locational advantage as a
financial and business hub in Southern Philippines. This
motivated business expansion into the region, resulting in
the increased demand for property in the form of offices,
residential, and retail spaces. A prominent example would
be the strong Information Communication Technology-
Clearly, Davao City has proven and continues to prove
Business Process Outsourcing (ICT-BPO) trend in the
to be a economically healthy emerging high income city
region, and the consequent emergence of IT business
that offers right incentives for business and investment.
parks in the region. Davao City, for one, has an active
9.4
10
6.1
5.9
Philippines
GDP
National Capital
Region
8
6
4
2
0
Davao
Region
Source: PSA
ICT-BPO industry, and was ranked by the IBPAP as
number one among destinations of ICT investors.
Strong Tourism Market
The Davao Region also exhibits signs of a maturing
Supporting this growing consumer trend is the
consumer market. According to the National Statistical
modest increase in overall annual family income in the
Coordination Board (NSCB), the Davao region recorded
latest official figures. The region experienced a real
the second highest expansion in per capita household
income growth rate of 17% between 2006 and 2012.
spending in 2014. The region posted a growth rate of 8.5%,
Correspondingly, trends have been pointing towards the
only second to Central Luzon (9.4%). In addition, the region
growth of the middle class1, possessing more share in
surpassed the growth of national and Metro Manila per
total annual income over time. This entails more middle
capita household spending, which were recorded at 3.6%
class earners likely to spend on mass consumer goods,
and 4.3%, respectively. Indicators show that purchasing
which comprise a bulk of retail. The middle class grew
power is increasing in the region and this presents ample
by both share and in nominal amounts between 2006
opportunity for growth in retail.
and 2012, eating some share away from the upper class.
Per Capital Household Final Consumption Expenditure
2013-2014 Growth Rate, At Constant 2000 Prices
8.5
10
8
middle class posted a substantial growth of almost 100%,
almost doubling, in total annual family income from
2006 to 2012.
This trend can be attributed to the IT-BPO industry
4.3
3.6
6
Significantly, even considering inflation through time, the
which has been making strides in the region, especially
4
in Davao City. This industry has been producing a
2
Davao City has become a popular tourist destination in
than 90% travelers are domestic, therefore leaving a lot
the Philippines, in part because it is the urban center of
of room to grow for international travelers. We anticipate
the South and is also very easily accessible through the
that this will be addressed with the opening up of direct
Francisco Bangoy International Airport. The city only
international flights at the airport. Nonetheless, domestic
recently broke the 1 million mark in tourist arrivals in 2012,
travelers have proven to be a strong market for retail
and has been gaining momentum since. Latest figures
tourism, as Filipino travelers tend to include shopping in
show the city hitting 1.5 million by 2014. While these are
malls in travel plans.
impressive numbers, it is important to note that more
Tourist Arrivals and Estimated Tourist Receipts in Billion Php (2010-2014), Davao City
Year
2010
2011
2012
2013
2014
Tourist Arrivals
682,821
744,275
1,075,000
1,429,827
1,529,907
Estimated Tourist Receipts (Php Billions)
9.55
10.42
15.05
22.87
17.13
Source: Davao City Tourism Operations Office
significant amount of middle-class earners. In Davao City
0
Philippines
National Capital
Region
alone, there are about 32 IT-BPO firms that employ more
Davao
Region
than 20,000 full-time workers.
Source: National Statistical Coordination Board (NSCB)
Share of Middle Class in Total Annual Family Income, Davao Region,
Based on Constant 2000 Prices
60
45
40
20
0
150,000
5.5
47.3
49.4
44.9
7.7
Lower Class
(Lower 20%)
Middle
Class
Upper Class
(Upper 20%)
Total Annual Family Income by Class, in million Php, Davao Region,
At Constant 2000 Prices
100,000
50,000
0
Lower Class
(Lower 20%)
Middle
Class
Upper Class
(Upper 20%)
2006
2012
“…domestic travelers have proven to be a
strong market for retail tourism, as Filipino
travelers tend to include shopping in malls in
travel plans.”
Source: PSA
1
10
Middle class in this research refers to the third to eighth deciles of the population, or the middle 80%, as presented by PSA data.
DAVAO RETAIL MARKET OVERVIEW
Cumulative Supply
Consequently, retail developers have acknowledged the opportunity in Davao based on the aforementioned factors
and have responded by developing projects in the city. The past 5 years have been the most vibrant so far in terms
Since the opening of its first mall in the early 1990s,
followed in ten years. To illustrate the lackluster historical
Davao City has had quite a lethargic retail supply history.
retail supply growth, it took the city almost 10 years to
The city saw its first major mall chain development, SM
come close to doubling retail supply since 1997.
City Davao, only in 2001, yet no significant development
of retail.
This report will focus on the 4 major shopping malls based on higher observed foot traffic and relative substantial
presence of international brands. These malls are also the 4 largest malls in the city, and should give a good
Davao City Cumulative Shopping Mall Supply in SQ.M, 2000-2015
700,000
600,000
perspective on the direction Davao’s overall retail development.
500,000
400,000
300,000
200,000
100,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Source: Cushman & Wakefield Research
SM CITY DAVAO
SM Prime Holdings
GFA: 125,143 SQ.M
Opened 2001
AYALA ABREEZA
Ayala Land Inc.
GFA: 134,000 SQ.M
Opened 2011
Fortunately, the Davao retail market has evolved
the construction of two major malls, namely Ayala Abreeza
substantially within just the last 5 years. Exhibiting the
and SM Lanang Premier, in 2011 and 2012, respectively.
fastest retail growth in the city’s history, the supply of
Ayala Abreeza contributed to an additional 134,000 sq.m
shopping malls has nearly doubled since 2005 from
to retail mall stock, while SM Premier Lanang, currently the
approximately 350,000 sq.m in 2005 to 660,000 sq.m in
largest shopping mall in Mindanao, added 144,000 sq.m.
2012. This can be attributed to mall expansions in 2012 and
GAISANO MALL OF DAVAO
DSG Sons Group, Inc.
GFA: 120,061 SQ.M
Opened 1997
SM PREMIER LANANG
SM Prime Holdings
GFA: 144,236 SQ.M
Opened 2012
“Exhibiting the fastest retail growth in the city’s history,
the supply of shopping malls has nearly doubled since
2005 from approximately 350,000 sq.m in 2005 to
660,000 sq.m in 2012.”
12
Rental Rate
Vacancy
As of the third quarter of 2015, the average rental rates
reason, the surge of retailers into the Davao retail scene
On average, retail vacancy in Davao City remains low at
9% to 10% range, which is associated with the opening
among the major shopping malls in Davao lie within
is unsurprising. On the demand side, as seen earlier, the
4% to 5% through the third quarter of 2015. Estimates
of Ayala Abreeza in 2011 and the fresh opening of SM
the Php 900 to 1,000 per sq.m range. The newer, and
city and region has a ripe and growing consumer base,
have shown the vacancy rates among the major
Lanang Premier in the latter half 2012. In spite of the
arguably more premiere malls, SM Lanang Premier and
and on the supply side, there is a healthy supply of retail
shopping malls dropping from the same period last year,
additional retail supply, the following years exhibited a
Ayala Abreeza, expectedly ask for much higher rents,
offering nationally and internationally competitive rental
indicating vigorous and consistent demand for retail
drastic fall in vacancies, with occupancy rates breaching
ranging between Php 1,100 and Php 1,200 per sq.m, while
rates. This retail demand and supply dynamic creates a
space.
the 95% mark by 2015. Demand for retail space was
Gaisano Mall, which is the oldest among the 4 and the
strong case for retailers to locate in the city.
most local in terms of tenancy mix, asks for the lowest
rents, between Php 800 to Php 950 per sq.m. Finally, SM
City Davao, which straddles between both high income
and middle income markets and commands the highest
foot traffic among the 4, prices competitively at Php
1,000 per sq.m.
Relative to Metro Manila retail rents, Davao City’s rents
are very competitive. The national capital currently
sees retail rents in prime shopping malls at nearly more
than double Davao City’s shopping mall rents. For this
buoyed by the dynamic and aggressive expansion
of retailers outside Metro Manila. Correspondingly,
Vacancy Rates Q3 2014 vs. Q3 2015
Average Rental Rates, as of Q3 2015, per SQ.M in Php
1,400
1,200
1,000
800
600
400
200
0
rapid take-up of retail space can also be attributed to
8.0%
the influx of international brands responding to the
6.0%
increasing spending power of Davao City locals.
4.0%
Recent ocular inspections of the malls point to vacancy
2.0%
rates moving closer to 1%, pushing occupancy to almost
0.0%
SM City
Davao
SM City
Davao
SM Lanang
Premier
Gaisano
Mall
Ayala
Abreeza
SM Lanang
Premier
Q3 2014
Gaisano
Mall
100%. Healthy and rapid take-up of retail space is a
Ayala
Abreeza
good signal to retail developers to respond accordingly.
Q3 2015
The trend is associated with and is indicative of the
Source: Cushman & Wakefield Research Estimates
optimism toward Davao City’s dynamic retail and
Noting historical estimated overall Davao City retail
consumer market.
vacancy rates we can observe very fast take-up of retail
space. 2013 overall vacancy is estimated to be within the
Estimated Overall Average Vacancy Rate, Q3 2013 to Q3 2015
9.50%
5.30%
4.30%
Q3 2013
Q3 2014
Q3 2015
Source: Cushman & Wakefield Research Estimates
14
Increased International Brand Presence
Tenant Mix
The optimism toward Davao retail and the consequent
malls of Ayala and SM. This is a drastic departure from
Davao City has seen more than 60 international retailers locating into the city since 2011. This coincided with the
response of retail developers with additional retail supply
6 years ago when tenants were predominantly local
opening of Ayala Abreeza and SM Lanang, which welcomed a diversity of international brands. In general retail,
ushered in an influx of retailers. We can now observe a
brands.
or fast fashion, notable mentions would be American Eagle Outfitters, Cotton On, Gap, Aeropostale, Forever 21,
Sperry, Marks and Spencer, Herschel and Aldo among many others. Despite still being overshadowed by local
very international mix of tenants, especially in the newer
retailers, food and beverage also saw an arrival of foreign retailers, such as Coffee Bean and Tea Leaf, Krispy Kreme,
Tenant Mix Profile
Shopping Mall
Ayala Abreeza
SM Lanang Premier
SM City Davao
Gaisano Mall
Local
28%
37%
48%
65%
General Retail*
International
72%
63%
52%
35%
Food and Beverage
Local
International
80%
20%
83%
17%
82%
18%
89%
11%
Bonchon, Happy Lemon, Cha Time, and Starbucks Coffee. A few upscale brands have also made their way into the
market, which is suggestive of the maturity of the city’s consumer market. Brands like Armani Exchange, Charriol,
Technomarine, and Phillip Stein have entered Davao.
Source: Cushman and Wakefield Research
*
General Retail for purposes of this research will refer largely to fast fashion and other non-F&B retailers
Observing dedicated tenants for non-food and beverage
The opposite trend is true however for food and
(F&B) general retail (which for the case of Davao is 90%
beverage retailers. The food and beverage market
fast fashion), we see that the major shopping mall tenant
is still dominated by local players, accounting for
mixes are largely biased towards international retailers
approximately more than 80% of the tenant share in
now. This proves especially true for Ayala Abreeza and
major shopping malls. This may be because food and
SM Lanang Premier, posting an international tenant share
beverage is localized and is typically attuned to local
of 72% and 63%, respectively. This is anticipated as both
tastes. Moreover, the rich local food scene in Davao City
Ayala Abreeza and SM Lanang Premier have always
is embedded in the lifestyle of the locals that what is
marketed themselves as the premier and upscale malls
local just naturally appeals to them. Also, local food and
of the city. Although not as significant as the premier
beverage retailers tend to price more competitively. For
malls, a majority of SM City Davao’s general retail tenant
these reasons, local food and beverage retailers are able
share is attributed to international retailers as well. This
to compete and dominate international retailers. This is
is a huge development from when it opened in 2001 with
in stark contrast with general retail, especially for fast
a primarily local tenant mix. Lastly, while homegrown
fashion, wherein there is a general inclination towards
Gaisano Mall is still mostly local, it has also exhibited
and preference for international brands, thus allowing
a drastic evolution from when it opened in 1997 with a
international brands to overshadow local ones.
Among the International Brands That Entered Davao
General Retail
Food & Beverage
completely local tenant mix.
Source: Cushman and Wakefield Research
16
OUTLOOK
Davao has shown to be an appropriate market for retail expansion beyond
the capital. Its demographics have dictated the surge in retail supply in
recent years, and in turn the rise in retail demand ushering in the influx of
retailers. The rapid take-up of retail space in major malls is sure to keep
occupancy rates at a high, with optimistic projections looking at close to
100% occupancy by 2016.
So, with retail supply in the existing major malls nearing saturation, the
question arises: where does future retail growth of the city take place?
While there are no visible major shopping mall projects in the city’s pipeline
yet, future retail development is looking to take place in many of Davao’s
mixed-used developments. Township developments, such as the upcoming
Davao Park District, will incorporate retail strips and a lifestyle mall to cater
to retail expansion. IT Parks and IT-BPO buildings have also integrated retail
components into their developments. Case-in-point would be recently
opened mixed-use development Felcris Centrale, which is an IT-BPO office
with a two-floor retail podium. This corresponds with overall real estate
trends that respond to the need of the majority demographic- the working
age population. Therefore, the outlook now is that we will be seeing retail
integrated into workplaces and mixed-use township communities.
Of course, this does not take major shopping malls out of the picture. Major
malls tend to evolve over time, more often than not expanding retail space
in the process. Many of the major mall developers in the Davao, like SM and
Ayala, have sizable land banks that allow for any form of expansion.
The bourgeoning consumer market in Davao City will continue to encourage
real estate developers, and provide opportunities for local and foreign
retailers. While Davao retail is already more dynamic than it has ever been,
it will become even more vibrant as new developers and retailers enter the
market. With the right demographic fundamentals, the social infrastructure
to support the demographic, and an energetic and fresh retail sector, Davao
City is poised for further retail development and is surely a retail destination
to look out for outside the capital.
18
For more information about C&W Research, contact:
Jude David Roque
Janlo de los Reyes
Senior Analyst
Research and Consultancy
jude.roque@ap.cushwake.com
Manager
Research and Consultancy
janlo.delosreyes@ap.cushwake.com
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RETAIL BEYOND THE CAPITAL Davao City Retail Snapshot

Transcription

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