With strong macroeconomic fundamentals driven by a burgeoning consumer market and supporting social infrastructure, Davao City is expected to be the Philippines’ next retail hotspot outside Metro Manila. A recent report by global real estate services group Cushman and Wakefield said such progressive environment has supported the recent expansion of retail space in the city and the influx of international brands.
Cushman and Wakefield said Davao City exhibits the trends and qualities that make for a robust retail market.
Some of these qualities are Davao’s increasing population, the city’s high income, massive regional consumer market, and strong tourism market.
Cushman and Wakefield noted that the rapid influx of people into the city has turned it into the largest urbanized area in terms of population and land area outside Metro Manila. The city is estimated to have a population to date of about 1.63 million.
It also said the uptrend in the city’s population is driven by the migration of people from other regions, mainly because of the incentives that Davao has to offer, such as good social
infrastructure like easy access to quality schools, hospitals, and an international airport.
The advent of the Information Technology-Business Process Outsourcing (IT-BPO) sector in the city has also served as a magnet for people to settle in Davao.
“The outlook now is that we will be seeing retail integrated into workplaces and mixed-use township communities,” the report said.
Citing the implementation of a stringent traffic management system, Cushman and Wakefield observed in Davao the absence of traffic and infrastructure woes that bug people in Metro Manila.
“Further, complementing the population trend, we have seen housing subdivisions and residential options increase in urban Davao, encouraging people to choose to conveniently live in the city,” it added.
Davao is also recognized as one of the top-five high-income cities in the country, according to data from the Bureau of Local Government Finance.
The report said the economic gains of Davao City could also be gauged from the city’s transforming economic landscape, with buildings rising in every corner.
“We see the emergence of infrastructure like high-rise residential buildings and mixed-use developments,” the report noted.
Among the significant upcoming developments, it cited, are the mixed-township Davao Park District, Dusit’s luxury accommodations Dusit Thani Residences and DusitD2 Hotel, and the Lubi Plantation Resort.
“Clearly, Davao City has proven and continues to prove to be an economically healthy emerging high-income city that offers the right incentives for business and investment,” Cushman and Wakefield said.
The report cited that the city experienced a 16-percent increase in total capital from 2011 to 2014 alone.
The report also said Davao City serves as the regional center of the entire Davao Region, which is known to be the fastest growing region in the country, exhibiting exceptional gross regional domestic product (GDRP) growth rate in 2014 at 9.4 percent from the 6.7 percent in 2013.
The report said one of the main drivers of this growth is the region’s locational advantage as a financial and business hub in Southern Philippines, and with the emergence of IT-BPO parks in the region.
“This motivated business expansion into the region, resulting in the increased demand for property in the form of offices and residential and retail spaces,” the report said.
The report also pointed out Davao Region’s emerging signs of a maturing consumer market, even surpassing Metro Manila’s and the whole Philippines’ growth in terms of per capita spending.
“Indicators show that purchasing power is increasing in the region and this presents ample opportunity for growth in retail,” the report said.
It said the optimism toward Davao retail and developers’ consequent response of adding more retail spaces had ushered in an influx of retailers, including foreign brands.
“We can now observe a very international mix of tenants, especially in the newer malls of Ayala and SM,” Cushman and Wakefield said. “This is a drastic departure from six years ago, when tenants were predominantly local brands.”
The group noted that Davao’s biggest malls now have more international tenants, especially the established brands for general retail, 90 percent of which are fast fashion.
Cushman and Wakefield said this is especially true for Ayala Abreeza and SM Lanang Premier, which post international tenant shares of 72 percent and 63 percent, respectively.
Cushman and Wakefield said this is anticipated, as both Ayala Abreeza and SM Lanang Premier have always marketed themselves as the premier and upscale malls in Davao.
The group said while there is no visible major shopping mall project in the city’s pipeline yet, future retail development is looking to take place in many of Davao’s mixed-use developments.
“Major malls tend to evolve over time, more often not expanding retail space in the process,” Cushman and Wakefield stressed. “Many of the major mall developers in Davao, like SM and Ayala, have sizable land banks that allow for any form of expansion.”
The group further noted that 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-percent occupancy by 2016.
A popular Philippine tourist spot, Davao breached the one-million tourist arrival benchmark in 2012, and has since been growing, even if 90 percent of the tourists were locals.
“Domestic travelers have proven to be a strong market for retail tourism, as Filipino travelers tend to include shopping in malls in travel plans,” Cushman and Wakefield said.
The firm said the past five years has been the most vibrant for Davao City in terms of retail, as retail developers see the opportunities for retail growth in the area.
Some of the biggest shopping malls in Davao so far are: the Ayala Abreeza Mall by Ayala Land Inc.; Gaisano Mall of Davao by DSG Sons Group Inc; and SM City Davao and SM Premier Lanang both by SM Prime Holdings.
“While Davao retail is already more dynamic, it will become even more vibrant, as new developers and retailers enter the market,” Cushman and Wakefield concluded. “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.”