Major real estate investment trust (REITs) companies, once primarily focused on office spaces, are now pivoting towards acquiring shopping malls and other retail assets.
The strategic shift comes at a time when the office market is showing signs of softness, prompting REIT firms to diversify their portfolios and capitalize on the resilient nature of retail properties.
It also marks a natural progression for property REITs, as malls continue to draw more traffic and retail sales rebound after the severe impact of the pandemic.
Prior to the pandemic, malls were flourishing as Filipinos enjoyed spending time in shopping malls not only for shopping but also for dining and recreation.
Market dynamics
The introduction of REITs to the Philippine market in 2009 marked a significant milestone, offering investors a structured approach to participate in income-generating real estate properties.
As the office market showed resilience during the pandemic, REIT firms like AREIT Inc., RL Commercial REIT Inc. (RCR), MREIT Inc. and Fil REIT Corp. initially opted to focus building its portfolio around office buildings catering to business process outsourcing firms.
Recent market dynamics, including a softened demand for office spaces amid changing work patterns and economic uncertainties, have prompted REITs to explore alternative avenues for sustainable growth.
Appeal of retail
As the other segments of the property sector emerges from the pandemic, retail assets rose as a beacon of stability and resilience in the real estate sector.
Shopping malls and retail centers, anchored by established tenants and supported by long-term lease agreements, offer consistent rental income streams.
In a country where consumer spending continues to rise, driven by a young and growing population with increasing disposable incomes, analysts said retail properties present an attractive opportunity for REITs seeking stable cash flows amid economic fluctuations.
“Having more retail assets in their portfolio will make the REITs more attractive as rental income will become more stable,” said COL Financial research head April Lee Tan.
China Bank Capital Corp. managing head Juan Paolo Colet also pointed out that retail assets have been outperforming the office properties in the past few quarters.
“REITs that combine the two [office and retail] would create a more resilient real estate portfolio with better dividend prospects,” he said.
“REITs have to boost dividend yields to attract investors given the bonds and preferred shares are offering higher rates,” he said.
Strategic diversification
The move towards acquiring retail assets is not merely a reaction to market conditions but a strategic shift to diversify and strengthen REIT portfolios.
MREIT reported plans to start acquiring retail assets from its parent firm Megaworld Corp. starting this year. The move is part of the company’s strategy to achieve its target 1 million square meters of gross leasable space by 2030.
Robinsons Land Corp., a leading shopping mall developer, is also injecting 11 malls and two office towers in its REIT unit worth P33.9 billion.
Once completed, the transaction will make RCR the largest mall REIT in the country.
AREIT, one of the most diversified REIT firms in the country, is also in the process of acquiring several malls, including Glorietta 1 and 2 in Ayala Center, Makati and MarQuee mall in Angeles City, Pampanga from its parent firm Ayala Land Inc.
Looking ahead
As Philippine REITs continue to diversify into other segments of the property industry, they are poised to redefine urban development and investment dynamics in the country. By strategically balancing resilience with growth opportunities, REIT firms are poised to continue enhancing shareholder value and offer investment opportunities to the public.