By Manila Standard
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.
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