The first half experienced great numbers for the retail segments of major developers on the back of higher occupancy and rental charges. Two major developers with substantial exposure to retail, SMPH and RLC, are the main benefactors of this occurrence given the 58% and 40% share of their retail segments for the first half, respectively. This however, does come with a challenge, as Colliers\u2019 stated that the current challenge that these major developers will face is sustaining foot traffic and consumer spending.<\/p>\n\n\n\n
The last quarter of the year has historically been the greatest contributor for retail revenues as bonuses alongside remittances spike during this quarter as per Colliers\u2019. We expect this to delay the upcoming slowdown come 2024 as revenge spending dissipates. We note however, that Colliers projects rents to rise by 2.2% for the year vs. 2022\u2019s 1% as retailers absorb more mall space alongside sustained consumer traffic which bodes well for the major developers.<\/p>\n\n\n\n
We note that the 2nd quarter (2Q) 2023 GDP came in at 4.3% which slowed down from 1Q 2023\u2019s 7.5%. This led to Fitch\u2019s major downside revision of their full-year GDP forecast from 5.9% to 5.3%. The Asian Development Bank also revised their projections from 6.0% to 5.7%. We note that as we dove deeper towards the household final consumption expenditure (HFCE), its 5.5% growth for the second quarter is also significantly lower against the same quarter last year which registered 8.5%.<\/p>\n\n\n\n
We also note September inflation quickening at 6.1% vs August\u2019s 5.3% as food
prices, alongside transport costs grew at a faster pace. This leads to lower disposable income which poses a negative risk to consumer spending.<\/p>\n\n\n\n
Given downside revisions of our full-year GDP alongside elevated inflation, we would advise clients to temper capital deployment by accumulating slowly on property stocks that we see would be more volatile to these changes in the retail industry which are SMPH (Target Price: P40.98) and RLC (Target Price: P23.25).<\/p>\n\n\n\n