Retail Market Study for Eco-Village Development Final Report (Draft Only)

Transcription

1 for Eco-Village Development Final Report (Draft Only) 06 August 2009 Prepared for CJH Development Corporation By Jones Lang LaSalle Leechiu JONES LANG LASALLE LTD 2009 All rights reserved. The whole or any part of this work is the copyright property of Jones Lang LaSalle Ltd. No part of this work may be reproduced or copied in any form or by any means (graphic, electronic, mechanical or otherwise) without the prior written permission of Jones Lang LaSalle Ltd. The trade marks and other names, designations and logos of, or associated with, Jones Lang LaSalle referred to and/or noted in this work ("Marks") are trade marks of Jones Lang LaSalle Ltd or its related entities. These Marks must not be used in any manner for any purpose without the prior written consent of Jones Lang LaSalle.

2 1.0 INTRODUCTION Jones Lang LaSalle Leechiu ( JLLL ) has been asked by CJH Development Corporation ( CJH ) to provide advice on the development of the retail centre project dubbed as the Eco-Village located in the Camp John Hay Development Complex, Baguio City, Province of Benguet, Philippines. The objective of this undertaking is to generate the required base information to support analyses to assist CJH in assessing the viability of developing a retail center in the vicinity of Camp John Hay. The planned retail development is being aimed to cater to tourist population and locals of Baguio City. The Study also aims to analyze the competitive market conditions of the existing retail developments within Baguio City. Further, the Study is also directed to suggest alternative development scenarios for the subject property that will best serve the interest of CJH. Specific requirements of the Study are as follows: To define and analyze the demand factors and the catchment surrounding the planned retail development and provide a profile of their characteristics; To carry out a competitive market analysis to describe the prevalent tenant mix, development theme and commercial leasing terms of the existing retail developments; To prepare an analysis of the commercial/retail opportunity for the planned retail development; and To develop and recommend specific strategy that will address the target market segmentation, core commercial, entertainment, food and service offerings and theme and image, in order to effectively execute a sound market positioning for the planned retail development. The structure of this Report is as follows: Section 2 examines the findings of the analysis on the subject property in terms of its location, size and existing developments. Section 3 evaluates the suitable uses of the subject property, according to general property market conditions surrounding the area. Section 4 discusses the general retail property market overview. Section 5 defines the target market and characteristics of the subject area. Section 6 discusses the responses of retailers and consumers with regard to their preferences 1

3 Section 7 evaluates the competing retail developments and tenant mix in the catchment area. Section 8 shows the commercial lease rate structure for the proposed retail development. Section 9 identifies commercial opportunities of the proposed retail development Section 10 presents the financial appraisal Section 11 summarizes the major findings of the study and identifies recommendation Section 12 presents the limiting conditions of the Study. 2

4 2.0 SITE ANALYSIS 2.1 Location and Vicinity Camp John Hay is the former American rest and recreation facility exclusively for employees of the military and Department of Defense of the United States, which was named after US President Theodore Roosevelt s Secretary of War. When it was turned over to the Philippine government, the facility was opened to the public as a recreational complex and was called Club John Hay. The American country lifestyle is replicated- modern yet rustic in a peaceful nature combined with a cool climate the average temperature is around 16 degrees Celsius. Camp John Hay is located in Baguio City, located 5,000 feet above sea level and 250 kilometers north of Manila. Despite the number and magnitude of developments being built in Baguio City, the Camp John Hay area was able to maintain a pine forest reservation that is a suitable environment for those who would like to relax. Camp John Hay refers to two land parcels. The one with the larger area, which is approximately 695 hectares, is the Camp John Hay military reservation. The other land parcel, which measures hectares, is the built-up area inside where the rest and recreation resort facility is located. 2.2 Developments in Camp John Hay Currently, there are different types of developments in Camp John Hay such as golf course, residential villas, condominium town center, forest reserve, and infrastructure and utilities. Table 2-1 enumerates the specific developments in Camp John Hay. Table 2-1. Existing Developments in Camp John Hay SPECIFIC TYPE OF DEVELOPMENT Golf Course Development Residential Development Condominium Development Town Center Development Forest Reserve Infrastructure and Utilities PRESENT DEVELOPMENT IN CAMP JOHN HAY Golf Course and Golf Clubhouse Villas and Estates The Manor Mile Hi Commissary Nature Trails, Butterfly Sanctuary, Mermaid Garden CAP John Hay Trade and Cultural Center The first condotel as part of the development plan is The Manor at Camp John Hay. The old administration building was converted into a strip mall called Mile Hi Commissary. Last 2001, a riding circle and bridle path for horses Shalan ni Kabadjo was opened as part of the ecotourism center. CAP John Hay Trade and Cultural Center was opened for convention purposes. As part of the residential development, construction has already started for the 3

5 Forest Cabins and Country Log Homes. Another condotel that is being constructed is The Suites, adjacent to the Manor, is scheduled for completion within the year. 2.3 Planned Eco-Village Development The consolidated lot area of the planned retail development, Eco-Village, is approximately 23,300 square meters. Eco-Village is composed of two (2) clusters north and south clusters containing 24 parcels, with lot area ranging from 164 to 675 square meters. The site is located approximately 150 meters from the Loakan Gate of Camp John Hay, within the vicinity of the CAP Convention Center. The planned retail development is strategically placed adjacent to the future 10-building Ayala IT Park with expected 20,000 seats for BPO operations and commercial hub. The subject property is within the vicinity of a residential area with more than 3,000 homeowners and will serve as Camp John Hay's main activity center. 2.4 Circulation and Transportation Pedestrian Circulation Loakan Road may be considered the major road network linking the subject property to downtown Baguio City. Foot traffic inside the Camp John Hay complex is primarily coming from guests and employees of Camp John Hay Pedestrian Access to Public Transportation The subject property is located along a secondary road network, and public transportation is mainly provided by metered cabs. Jeepneys are virtually not allowed inside the complex, unless they are hired for the day by a guest of Camp John Hay. The complex may be viewed as semi-exclusive, in that only those with actual business to be inside the complex are the only ones expected to access it Car Parking / Circulation Light traffic circulation can be expected in the area of the subject property, owing to the fact that it is not along a major road. Travelers who traverse the roads of the complex are those who actually have business being there; that is, those who have accommodations within the complex, those who want to use the facilities, and employees. 2.5 SWOT Analysis A Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis is shown below to highlight the underlying strengths of and opportunities for the subject property. The following table would also show the weaknesses and market threats that may be used as an opportunity, if properly addressed. 4

6 Strengths Weaknesses Opportunities Threats location within a masterplanned development location is not along a major route/highway increasing levels of tourist and local population existing and planned retail developments within Baguio potential primary catchment area are tourists and visitors of Camp John Hay the number of which are projected to further grow in the last few years ownership of the property is only on a leasehold basis lack of themed retail development to capture the different tourist profiles increasing interest level for Baguio City as a possible location for new markets, in need of new retail developments cyclical nature of the property market available labor market may not be sufficient to support more than two call center/bpo locators One of the foremost strength of the subject property is its location. Camp John Hay has successfully evolved into the Baguio City s prime recreation and tourism development area, with fully developed road networks and infrastructure facilities. The growing number of tourists and visitors in Baguio City can be considered as the main target market of the development, and an inherent strength of, as well as an opportunity for the subject property, given its location within Camp John Hay. Another market opportunity is the lack of themed retail developments that will capture the needs and demands of the growing number of tourist arrivals, and eventually, long-term staying tourists. Further, Baguio City also possesses the potential as an outsourcing destination as new interests for call center/business process outsourcing (BPO) locators due to heightened competition for available qualified labor. On the other hand, the amount of available qualified labor in Baguio City may not be sufficient to support a call center/bpo locator and may pose as a threat to the desirability of the location as a possible outsourcing destination, which will affect the potential target market of the planned retail developments. 5

7 One major weakness of the property, though, is its peripheral location, located inside the Camp John Hay complex, and where public transportation is not readily available. As a major tourist destination, there are a number of existing and even planned developments located in Baguio City. The level of retail concentration within the Baguio City may play an important factor in the decision of the prospective locators and the target market of the planned development. The future/planned developments of other developers should also be taken into consideration. 6

8 3.0 PROPERTY MARKET OVERVIEW 3.1 Sectoral Property Market Review Adopting the initial findings of the site analysis undertaken and highlighting the surrounding general property market conditions, this section evaluates the other suitable property uses within the planned Eco Village development. The rapid scan of the property market yields the following conclusions on the suitability of accommodating various property/land uses within Eco Village. Property Sector Suitability Recommendations OFFICE High-end No High-end office developments may not be the ideal property development, considering the neighboring developments in the vicinity of the planned Eco Village development. Custom-Built Yes A custom-built office development for prospective locators may be a suitable development, provided there is a serious indication/interest to locate in the area. Call centers/bpos may be considered as one of these ideal locators. The availability of qualified labor and presence of advanced infrastructure facilities (being within Metro Manila) is a major advantage attributable to the planned Eco Village development. RESIDENTIAL Low-Density Residential Condominium Yes Low-rise, low-density residential developments may be an ideal type of development in Eco-Village, especially for middle-class investors and overseas-based Filipinos, looking for investment vehicles in Baguio City. 7

9 Property Sector Suitability Recommendations RETAIL Themed Commercial Center Yes A themed commercial center that will offer a unique and convenient shopping experience for the tourists and residents may be feasible. INDUSTRIAL HOTEL Middle-End and/or Bed & Breakfast Hotel INSTITUTIONAL Medical and/or Educational Facility No Yes Yes Considering the existing land uses in the Camp John Hay complex and the over-all development design as an ideal tourist location being implemented, this may not be an ideal development for the planned Eco Village development. There may be a market for middle-end hotel and/or bed and breakfast type accommodation in the vicinity of the planned Eco-Village development. An educational and/or medical institution may be ideal in the planned Eco-Village development. Retirement Facility Yes The atmosphere of the Camp John Hay complex and the planned retail offerings make the subject property ideal for retirees. 8

10 3.2 Development Mix Based on our analysis, the following table provides a summary on the identified suitable land uses and property developments in Eco Village based on the general market trends and prospects in the area. Identified Suitable Uses Themed Commercial Center Development Custom-Built Office Development Low-Density Residential Condominium Development Middle-End Hotel Development Institutional Development This would provide the basis for further examination on the development mix to be allowed and encouraged within the planned Eco Village development. However, an in-depth study of its individual catchment markets, supply concerns and financial viability is in order. This Study, on the other hand, will only focus on identifying the prospects for a commercial center development. 9

11 4.0 RETAIL MARKET OVERVIEW HIGHLIGHTS 4.1 Philippine Retail Market Overview Prior to analyzing the viability of a commercial development in the planned Eco- Village, a profile of the Philippine retail property sub-sector is in order, to highlight the opportunities and the prevalent market trends relevant to the development of the subject property. The Philippine retail trade industry has been a consistent major contributor in the Gross National Product, along with Manufacturing and Agriculture. Retail trade accounts for 15% of 2008 GNP, with Gross Value Added at 12.8%. Retail establishments in the country totaled 291,012 1 in 2005, with 1,327,115 total workforce. Retail trade alone recorded a 1% growth during the first quarter of 2009 from last year s -1%. 4.2 Huge, Liberalized Market In Philippine Business Magazine, the Philippines was described as a "huge, liberalized market". 2 This continuous growth can be attributed to a number of factors. Foremost of which is the large population base. The Philippines has an estimated population of 85.2 million as of end-2005, thereby resulting in one of the largest consumer markets in Asia. Remittances from overseas-based Filipinos also contributed to retail consumption. Total remittances for 2008 reached USD16,426,854,000; a 2.7% increase from the 2007 level. The tourism industry is another growth driver of the retail sector; as auxiliary sectors, any growth experienced in the tourism industry will translate to growth in the retail industry. Despite a significant slowdown in the last quarter of 2008, tourism arrivals increased by 1.5% to 3,139,422 annually in Another source of demand for the retail industry is the BPO industry. Previously unused portions of retail centers are being converted into revenue-generating office areas, which, in turn, increased the market base of the retail center because of the captured workforce. The enactment of the Retail Trade Liberalization Law in 2002 also improves the landscape of Philippine retailing as it allows foreigners and foreign corporations up to 100% ownership of retail establishments in the country. Prior to this enactment, Philippine retailing in nearly 50 years was characterized by the 1 National Statistics Office. Survey of Philippine Business and Industry Manuzon, Maricar T. "Retail Blast". Philippine Business Magazine. Volume 9. No

12 neighborhood sari-sari stores, wet markets, groceries, small boutiques selling fashionable items in 30 square meter shops, department stores with an average floor area of about 1,500 square meters, and superstores or large buildings offering both food and non-food items. According to A. T. Kearney s 2008 Global Retail Development Index 3, the Philippines is still one of the top 30 emerging countries for retail development. It is ranked 26 th for 2008, climbing down three notches from its 2007 ranking. The index weighed four key variables: country risk (economic and political), market attractiveness (law and regulation, population, urban population and retail sales per capita), market saturation (share of modern retailing, modern retail sales per inhabitant, number of international retailers and market share of leading retailers) and time pressure (short-term opportunity). Despite the lackluster economic scenario due to the global financial crisis, local market conditions still exhibit favorable performance. The Philippine Retail Association said in the previous year that supermarkets and hypermarkets are still experiencing growth since consumers are more driven to spend on food and other soft items. Recent developments have diminished the opportunities brought about by these macroeconomic factors. The seeming saturation of the retail market in the traditional commercial business districts (CBDs) in Metro Manila, have pushed up occupancy costs, which are eventually passed on by retail operators to consumers, by way of higher prices. The following section presents the general market trends, which may significantly affect existing and, especially, new entrants in the industry. 4.3 Current Trends and Prospects Demand Scenario As the Philippine economy enters into a low-inflation period, GDP for the full year 2009 is expected at almost zero growth. With the exports sector still relatively weak due to continued sluggish demand from the country s biggest trading partner, the United States, the growth of the economy is expected to come from the increased investment in public construction and government consumption. Further, consolidated remittances of overseas Filipino workers (OFWs) are expected to register lower-than-expected figures in 2009, due to the lingering effects of the recent global economic meltdown. 3 A. T. Kearney. Emerging Opportunities for Global Retailers

13 4.3.2 Supply-Side Situation JLLL Research & Consulting estimates gross leasable space in Metro Manila, as of the first quarter of 2009, amount to approximately 3.8 million square meters. The highest concentration of retail space is in the central part of Metro Manila, which includes the Makati and Ortigas CBDs. While the concentration ratio in this area is a high retail space per person, the presence of the country s largest business districts provides a large and relatively well-off market for retailers. In contrast, in the southern part of Metro Manila, which has the second highest concentration of retail space per person, there are concerns that this area is overmalled. Districts surrounding the major malls in this part are basically bedroom communities with a small daytime population, and hence limit the opportunity for additional retail space in the area. Metro Manila is perceived to be already saturated with malls; hence retail developments swell off to the fringes of the Philippine urban center down to nearby growth centers. JLLL Research & Consulting notes that mall developers have started to recognize the need to diversify in terms of location to the peripheries of Metro Manila where there is a critical level of housing population with high propensity to spend and whose retail needs are still under-served. Mall developers tend to attribute this trend as the provincial retail play or the small mall strategy. Developers continue to test the threshold for retail space absorption in other areas of Metro Manila. The most aggressive developer is evidently SM Prime Holdings with more than 30 malls including about 20 provincial malls. SM City Fairview Annex 2 in Quezon City added about 23,000 square meters while the Glorietta 5 expansion added 17,000 square meters to Makati retail space. On the other hand, the over saturation scenario of malls within some parts of Metro Manila is further strengthened by the fact that a number of malls are now being converted for office/commercial uses, mainly for call center/bpo firms. Mall developers are converting the retail spaces of under-performing tenants to maximize the mall potential. Another emerging trend that adds pressure to the small retail centers in Metro Manila is the proliferation of convenience stores especially within the established CBDs. The strong performance of 24/7 convenience stores such as 7/11 and Mini- Stop, not to mention the gasoline stations that offer similar retail services, is mainly driven by the need of the growing number of patrons for these types of establishments Vacancy and Rents As a result of these emerging trends, it is estimated that the vacancy for the major malls in Metro Manila has gone up to about 5.6% in 2008 from about 5.2% in 12

14 2007. Notwithstanding, there seems to be an increasing sustainability in the retail market since vacancy rates from 2000 to 2006 ranged from 5.6% to 10.4%. Net effective rents favor tenants as they declined 15.7% quarter on quarter, and 22% year on year, to Php14,063 per square meter per annum. Further corrections to net effective rent may be expected due to the tighter competition brought about by the amount of vacant space in existing and newly completed mall developments. The decline in rental levels is attributed to the weak absorption of retail space due to the slimming margins of retailers, which in turn attributed to intensified competition and weakening demand in light of weak economic outlook. Retailers may find their profit margins still manageable during this period. On the other hand, historical market conditions show that rental rates will start to recover and vacancy will start to correct by end Growth Prospects Despite a less encouraging prognosis on the retail property sub-market in Metro Manila at present, there still exists several opportunities, especially in the highgrowth urban areas. These urban areas outside Metro Manila still exhibit opportunities for retail developments, owing to the consistent growth prospects of its demand indicators. One such area is Baguio City, where the consistent growth of tourism and its effect on the local economy worked together to maintain the growth of retail trade. 4.4 Baguio City Market Overview Evolution of Retail Market in Baguio City In the past, Daniel H. Burnham interviewed numerous government officials, studied available maps, hiked, and rode horses to most parts of the Baguio reservation for a period of nine (9) days. Due to the nice location and views, he decided to propose an urban development for Baguio. The mines near Baguio were developed and productive. Business in the city flourished and commercial centers were put up. Recreational facilities were installed as well. Local retail markets grew in different areas in Baguio before the war. After the World War II, the City of Baguio steadily grew into commercial, educational and recreational center of the Cordilleras and Northern Luzon. Until today, Baguio City is the most frequent destination in Northern Luzon by both local and foreign tourists. Baguio s economy thrives on tertiary economic activities particularly dependent on commerce and services that equally support the growing tourism industry. The latest recorded number of legitimate economic and business establishments is 13,365 in The most dominant economic activity is in the retail trade. 13

15 4.4.2 Key Retail Areas Session Road During the early years of Baguio, the buildings were only at one side, which is opposite of the hill. It is also where the church was built. A wooden bridge crossed the lowest portion of the road. Beyond this bridge, the various local retail markets were located thereby starting what is now called the market. Many of the open air stalls spreads out towards Lucban following the location of banks and thus determined the direction of the market expansion. Some of the famous retail establishments in the area are the Star Café, Luisa Café, Session Delights, Pizza Volante, Narda s, Mandarin Restaurant, Bruno s, Oh my Gulay and many others. YMCA and Teachers Camp are also located at Session Road. Table 4-1. Lists of Buildings within Session Road Name of Building/ Key Tenant No. of Floors Lot Area (Tax Map) Gross Floor Area Patria de Baguio ,881 Porta Vaga ,844 Puso ng Baguio 4 1,700 6,800 Antipolo Building ,402 Zenco Footstep building F. Lopez 3 1,527 4,582 PNB ,242 MPB Building MS Building ,782 La Brea ,154 Anita Theresa Mido Inn ,344 Pines Cinema Building ,850 Peliz Loy ,072 McDonalds Bldg ,380 Session Delights Hotel ,392 2,784 BLM Building Prime Hotel ,185 Laperal Building/Session building 5 2,224 11,120 Juan Manahan Building ,329 Philamlife La Azotea ,270 National Life Insurance Bldg ,206 Gamboa ,404 Tanhe Building ,419 RCBC Building ,424 Jose de Leon Building ,044 Piltel Building BPI Building ,479 Source of Basic Data: Assessor s Office, Baguio City Hall TOTAL 19,413 65,119 14

16 Abanao Square Abanao Square is situated along Abanao street, which is connected to Magsaysay Avenue. This mall was built in the early 1980s and gained its popularity due to various retail product offerings such as clothing, restaurants, beauty salons, optical shop, banks, drug stores and other amusement and entertainment shops. In 2008, the mall was renovated to make it appear more enticing to the mall-goers and to compete to new malls nearby. One of its features that separate it from other malls is the free use of the internet through Wi-fi connection. Therefore, this attracts more people to go to Abanao Square to avail free internet access. Magsaysay Avenue Magsaysay Avenue can be accessed through Session Road and Abanao Street. This street is considered to be one of the crowded and busiest streets in Baguio City because it is where people, both locals and tourists, go to buy great and very cheap finds. Traditional malls such as Arevalo, Tiong San and Plaza Fair, recently known as the Central Mall, are located. In addition, the biggest wet market called Magsaysay Wet Market is also situated in this area. Truly, this is a good destination for people who wish to buy more but with tight budget. Products for sale here include fresh vegetables and fruits, Baguio delicacies, antiques, handicrafts, silverworks and many more. Aside from retail establishments, small hotels and offices are also located in Magsaysay area. Harrison Road In Harrison Road, Rose Bowl Restaurant, soccer field, biking and boating area and some local retail markets are located. During fiestas, there is an entertainment in the stage located near the soccer field. SM Baguio SM Baguio is located at the upper part of Session Road. This mall is considered to be the first modern mall in Baguio. This is different among traditional malls in Baguio City because it is where you can find almost everything, from branded clothes to very cheap grocery items. Moreover, many of the famous stores and restaurants are located here such as Lacoste, Bench, Jollibee, Starbucks, Penshoppe, Celine, Crocs, McDonalds and many more. Other Areas Tourist Areas Mines View Mines View Park is appropriately named for its view of mountain ranges and Baguio s mineral bowl where gold and silver can be mined. Many tourists visit Mines View because of horseback riding, sightseeing and shopping. There are small retail shops that offer several Baguio products such as strawberry jam, ube 15

17 jam, peanut brittle, choco flakes, flowers, wooden items, handicrafts and other souvenir items. Commonly, this is the final destination of tourists because it is where they usually buy pasalubongs before going back to their origin places. Flea / Ukay-ukay Areas (near Burnham Park) Burnham Park is the oldest of all Baguio Parks. It is located at the Baguio City s center. It was actually designed to be the center of Baguio City to provide for health and recreation of residents. However in the recent years, the encroachment of massive informal retailers, which resulted to the ukay-ukay phenomenon. Aside from clothing and souvenir items, street foods like taho, fish balls and quail eggs are being also sold in the park. Moreover, visitors can also unwind and enjoy some activities like biking, skating and boating. There also facilities such as tennis and basketball courts, athletic oval and an Orchidarium. Tam-Awan Village Tam-Awan village features an Igorot village showing native huts typical of Cordillera architecture. It captures the cultural legacy and ethnic spirit of Ifugao and Kalinga dwellers. It allows visitors to see how the homes of the mountain people look like. Some huts are also used as accommodation for some guests who would want to stay overnight and to immerse in a native atmosphere and village life. Aside from huts, it also features artworks of some Ifugao artists and these artworks are also available for sale. There is also a small coffee shop inside the village where guests can enjoy after an exhausting tour of the village. Moreover, small souvenir shop is also open for guests who wish to buy extraordinary pieces such as wooden pendant, replicas of Ifugao gods and goddesses, wooden lamps, knitted scarves, and many more. Camp John Hay Camp John Hay is one of Baguio City s popular destinations because it is a destination in itself. Camp John Hay is situated on Loakan Road, only five-minute drive from the Upper Session Road-Loakan Road-South Drive Rotonda. Another alternative route to Camp John Hay is via Baguio Country Club, which is accessible to the major tourist attractions in Baguio City. In terms of facilities, Camp John Hay is different from other attractions because it has a complete package of retail, recreation and hotel facilities. The Manor, the Suites and Mile Hi Commissary are the existing accommodations in the area. Among the three, the four-storey Manor hotel is the famous one because of its cozy and unique interiors. It has also an amazing view of mountain ranges and pine forests. There are also retail developments such as Mile Hi, Filling Station, Scout Hill Snack Bar & Ice Cream Parlor, Angle s Bar & Billiards, Little John s Convenience Outpost, Starbucks, Cantinetta, House of Waffles and Chocolate de Batirol within the vicinity of Camp John Hay. Recreational facilities include paintball, horseback 16

18 riding, butterfly sanctuary, Igorot garden, table tennis, skating, biking and golf course. In fact, it features a world class competition Jack Niclaus-designed golf course, 18-hole championship golf course, full golf cart path, Tifton 419 fairways and Bentgrass greens, driving range and membership in Audobon International. For meetings and conventions, there is also a convention center called CAP-John Hay, which accommodates 1,500 guests. It can also be used for exhibits, stage plays and concerts. Unique Retail Offerings in Baguio City Apart from traditional retail offerings, Baguio City has also a number of unique retail establishments for more adventurous people and who would want to experience new taste and environment. Café by the Ruins, Forrest House, Bliss Café, Arko ni Apo, Overtones, Cage Sabel and Safari Restaurant are just some of the unique retail establishments in Baguio City. 17

19 5.0 DEFINING THE TARGET MARKET 4 In the analysis of the catchment market of the planned retail development in Eco- Village, it would be useful to look into tourism and demographic data that will be supportive of the prospective development. This is relevant because it will define the target market of Eco-Village and this will also serve as a basis if there is demand for new retail establishments in Baguio City. Thus, in the case of Eco-Village, an analysis of the catchment market can be segregated into two: (1) primary catchment, or all tourists or non-residents of Baguio City (2) secondary catchment, or the middle- to high-income residents of Baguio City 5.1 Catchment Area In order to determine the market conditions for the development of Eco-Village, population is a significant variable that must be taken into consideration. In this case, demand for new retail establishments can be determined by the tourist population because the economy of Baguio City is boosted by the tourism industry. Thus, the number of foreign and domestic visitors will be used as the tourist population. On the other hand, population level in Baguio City will be included since locals are also considered to be potential market of the Eco-Village. According to the Department of Tourism, tourist is defined as any person whose permanent place of residence is in another area/country, and who stays in a specific destination area (in this case, Baguio City) for at least 24 hours for any reason other than following an occupation remunerated from within the specific destination area. In this study, all tourists or non-residents of Baguio City will be considered as the primary catchment market. Thus, tourists from ASEAN, East Asia, South Asia, Middle East, Europe and North America, and domestically, tourists from Metro Manila and Luzon provinces are the market or the primary catchment. The secondary catchment, on the other hand, includes all the residents of Baguio City especially middle- to high-income residents of Baguio City. Primary Catchment All tourists or non-residents of Baguio City (Domestic and International tourists) Type of Catchment Market Secondary Catchment Residents of Baguio City (Middle-income and High-income residents) 4 The discussion and analysis of the catchment markets are still subject to change and will be finalized in the next report. 18

20 5.2 Tourists or Non-Residents of Baguio City Primary Catchment Market Tourism is one of the major drivers of economic growth in the Philippines. It has been achieving an upbeat performance despite external threats and economic crises in the country. In 2008, tourist arrivals slightly increased from 3.09 million to 3.14 million. Meanwhile, tourism receipts garnered a total $8.25 billion in Indeed, tourism has become a significant contributor to the economy. Table 5-1. Tourism Receipts in the Philippines Tourism Receipts Year (In Billion US$) * * 8.25 Note: Projected tourism receipts from 2007 to 2008 Source of Basic Data: Department of Tourism Baguio City or popularly known as the summer capital of the Philippines, is a prime destination for both local and foreign tourists because of its cold climate and relaxing ambiance. It ranked the fourth most visited destination next to Camarines Sur, Cebu and Boracay Island in the first quarter of 2009, according to a recent study conducted by the Department of Tourism. Baguio City is the best place for people who would like to stay away from busy environment and heat of the lowlands. Despite the decreasing quality of environment, the number of tourists has been increasing for the past five years in Baguio City. The average number of tourists from 2004 to 2006 has reached 720,488. The number of tourist arrivals in 2004 has increased more than 20 per cent compared to the figure in As shown in Table 5-2, the total number of tourist arrivals totaled to 814,975 tourists in Foreign tourists increased by 31 per cent from 34,810 to 45,460 tourists in In terms of nationality, the bulk of the foreign tourists in 2008 were from the United States, Korea and Japan (See Table 5-3). On the other hand, domestic tourists slightly expanded from 750,273 to 765,853 at a rate of two per cent. Table 5-2. Tourist Arrivals in Baguio City Foreign Tourists 17,634 26,635 30,919 34,810 45,460 Overseas Filipino Workers 1,780 1,796 8,679 9,501 3,662 Domestic Tourists 626, , , , ,853 Total 645, , , ,584 Source: Department of Tourism-Cordillera Autonomous Region 814,975 19

21 Table 5-3. Foreign Tourist Arrivals by Nationality Country of Residence Growth (%) ASEAN Brunei % Cambodia % Indonesia % Malaysia % Singapore % Thailand % Vietnam % Sub-Total 1,765 2,660 51% East Asia China ,757-19% Hong Kong % Japan ,527-8% Korea ,727-14% Taiwan % Sub-Total 14,549 12,587-13% South Asia India 451 1, % Sub-Total 451 1, % North Asia Canada 982 4, % U.S.A , % Sub-Total 6,366 15, % Oceania Australia 983 1,268 29% New Zealand % Sub-Total 1,176 2,070 76% Europe Austria % Belgium % Denmark % Finland % France % Germany % Italy % Netherlands % Norway % Spain % Sweden % Switzerland % United Kingdom % Sub-Total 3,339 3,251-3% Middle East Saudi Arabia % Sub-Total % Total Foreign Travellers 34,810 45,460 31% Total Domestic Tourists 750, ,853 2% Overseas Filipino Workers 9,501 3,662-61% Total Tourists 794, ,975 3% Source: Department of Tourism - CAR The bulk of the tourists are mostly domestic travelers from Metro Manila and Luzon provinces. More than 90 per cent of them were from Manila and other provinces, and the remaining percentage was from different foreign countries (Refer to Figure 5-2). 20

22 Figure 5-1. Tourist Arrivals in Baguio City 2.73% 0.28% Foreign Tourists Overseas Filipino Workers Domestic Tourists 96.99% Basic Source: Department of Tourism-Cordillera Autonomous Region Moreover, number of tourist arrivals is expected to increase until 2012 (Refer to Figure 5-2). In 2012, it is projected that there will be 925,053 tourists in Baguio City. Figure 5-2. Projected Tourist Arrivals in Baguio City Source: Department of Tourism, JLL Research and Consulting In terms of tourist preferences, it is believed that tourists have specific type of preferences in choosing a destination. Most tourists usually go to destinations that have natural and scenic attractions. For instance, Japanese choose destinations that have natural attributes and scenic appeal 5. 5 M. Apuyan. An Analysis of Japanese Travelers Preferences and Satisfaction Towards the Philippines as a Travel Destination

23 In general, foreign tourists also differ from domestic tourists because domestic tourists are usually price elastic. In other words, domestic tourists are price sensitive and they would prefer cheaper products and services unlike foreign tourists who go for quality and do not depend on price. Facilities are also important indicators of preferences especially for foreigners. They prefer health and wellness facilities, and security facilities over sports and recreational facilities. Tourists satisfaction depends on factors such as accessibility of tourist attractions from their accommodation, shopping facilities and good food. Retirement Market Retirement market is considered to be a part of the primary catchment market since Baguio City is envisioned to be a retirement destination for former Filipino residents and foreign nationals. In fact, Baguio City is one of the preferred destinations of retirees because of its perfect weather and relaxed lifestyle. In comparison with other destinations, the country has a vibrant culture, hospitality and English-speaking population. In addition, living in a place like Baguio City is very affordable, thus, retirees can expect a good life. The Philippine Retirement authority is the government agency that promotes the country to be a retirement destination. There is a special visa called Special Resident Retiree s Visa (SRR Visa) which gives variety of benefits to retirees. Among the benefits are the following: a. Option to Retire Permanently b. Multiple Entry Privileges c. Exemptions from Income tax over your pension and annuities Exit and re-entry permits of the Bureau of Immigration; Annual registration requirement of the Bureau of Immigration; Customs Duties and Taxes with regard to the importation of household goods and personal effects up to US$7,000.00; Travel tax, if you stay in the Philippines is less than one year from the last entry date; and I-Card Source: Philippine Retirement Authority Today, Angeles City, Cebu, Davao, Baguio City and Puerto Galera are among the popular retirement destinations of retirees in the country. 22

24 5.3 Residents of Baguio City - Secondary Catchment Market Population The latest official count of the National Statistics Office (NSO) through the Census of Population and Housing (CPH) is as of May 1, In 2008, Baguio City had a total population of 301,514, only 19 per cent of the total population in Cordillera Autonomous Region. As also shown in Figure 3, total projected population in 2009 is 308,293, or percent higher than the actual 2000 population count reported by the National Statistics Office which is 252,386. In 2012, it is projected that the secondary catchment area will have a total population of 329, , , , , , ,000 50,000 - Figure 5-3. Baguio City Population E Source: National Statistical Coordination Board, JLL Research and Consulting Population Density 2010E 2011E 2012E In 2009, population density stands at 5,362 persons per square kilometer in the secondary catchment area from 4,389 persons per square kilometer in Table 5-4. Baguio City Population Density Year Population Density Land Area: ,386 4, E 258,060 4, E 263,861 4, E 269,793 4, E 275,859 4, E 282,060 4, E 288,401 5, E 294,885 5, E 301,514 5, E 308,293 5,362 Note: Projected population from 2001 to 2009 Source of Basic Data: National Statistics Office 23

25 5.3.3 Income, Expenditure and Savings There is no official and/or standard classification of family or household income in the Philippines as lower class, middle class or upper class. The Family Income and Expenditure Survey (FIES) conducted by the National Statistics Office every three years only classify income by brackets. For example, a family may be classified under those that earn an annual income of Php500,000 and over or those that has an annual income of Php10,000 or below. 6 Social Weather Stations (SWS) and Pulse Asia classify family or households as Class A, Class B, Class C, Class D, and Class E using seven (7) socio-economic indicators. These indicators are durability of the house, maintenance of the house, neighborhood, education of the household head, occupation of the household head, facilities found in the house and income of the household. The family classification used by the SWS and Pulse Asia is described in Table 5-5. Table 5-5. Broad Definition of Class of Families Classification Definition Class A Household income of over Php100,000 monthly. Live in permanent homes built with high quality materials that are located in exclusive neighborhoods. Household heads are graduates of expensive colleges and occupy top positions in moderate to big businesses. They have more than 10 facilities (or appliances) and have new cars (not more than 5 years old). Class B Similar to Class A in almost all features but their household income range from Php50, ,000 monthly. Class C Household income between Php15,000 50,000 monthly. Unlike Class A and B, they live in semi-permanent homes (with good quality materials) in mixed neighborhoods of large and small houses. Household heads are graduates of state colleges or have attained some college education. They are often junior executives, young professionals or middle level supervisors. Their homes have 5-10 facilities and they own, at most, one vehicle. Source: Social Weather Stations and Pulse Asia There are no ready and available proxy indicators for the other variables that classify the different classes of families or households. For analytical purposes and convenience, a family or household will be classified only in terms of monthly or annual income (and only assume that the other characteristics described in the above table are upheld.) Further, each family income class will also be categorized as upper class, middle 6 Market research firms and other related agencies use terms such as lower class, middle class, and upper class or other classifications purposively for analytical reasons but the definitions for each term differ between firms. 24

26 class, lower class and poor. The class components and family income brackets per category is summarized in the following table. Table 5-6. Family Income Class by Monthly Income Brackets Category Income Class Income Bracket (Monthly) Upper Class Class A + Class B 50,000 and over Middle Class Class C High Middle Class C1 40,000 to 50,000 Middle Middle Class C2 20,000 to 40,000 Lower Middle Class C3 15,000 to 20,000 Lower Class Class D 8,000 to 15,000 Poor Class E 8,000 and below The Family Income and Expenditure Survey (FIES) presents data on income and expenditure pattern of Filipino families at the provincial and key city level. The income brackets used in FIES are annualized. To create a match with the monthly income brackets used in the SWS and Pulse Asia Survey, the income brackets will be slightly modified and the modification results in the following table. Table 5-7. Categories of Families by Annual Income Brackets FIES Annual Income Bracket Income Class Category 500,000 and over A+B+C1 High Middle to Upper Class 250,000 to 499,999 C2 Middle Middle 150,000 to 249,999 C3 Lower Middle 100,000 to 149,999 D Lower Class 80,000 to 99,999 E Poor 60,000 to 79,999 E Poor 50,000 to 59,999 E Poor 40,000 to 49,999 E Poor 30,000 to 39,999 E Poor 20,000 to 29,999 E Poor 10,000 to 19,999 E Poor Under 10,000 E Poor In the preceding table, families earning an annual income of Php500,000 and over based on the Family Income and Expenditure Survey data will be considered "High Middle to Upper Class". A family with an annual income of Php250,000 to Php499,999 will be categorized as "Middle Middle" while those that earn an annual income between Php150,000 to Php249,999 is under the category of "Lower Middle". Further, families with an annual income of Php100,000 to 149,999 is considered "Lower Class" and those with an annual income of Php100,000 and below will be categorized as "Poor". The table below shows the family income and expenditures in the secondary catchment area. In 2000, it was estimated that average income and expenditure in Baguio City amounts to Php223,101 and Php181,

27 Table 5-8. Family Income, Expenditure and Savings (2000) Income Expenditure Savings Income Class Total Number of Families Total (P'000) Average (pesos) Total (P'000) Average (pesos) Total (P'000) Average (pesos) Total 60,364 14,107, ,701 10,954, ,480 3,152,252 52,221 Under Php10, ,000-19, ,604 18,469 2,869 20,348 (265) (1,879) 20,000-29, ,000-39, ,843 38,575 12,424 40,468 (581) (1,893) 40,000-49, ,123 44,979 15,181 48,347 (1,058) (3,368) 50,000-59, ,155 55,285 23,145 50,869 2,010 4,416 60,000-79,999 2, ,048 69, ,807 74,809 (13,759) (5,075) 80,000-99,999 3, ,248 88, ,404 86,752 5,844 1, , ,999 13,853 1,703, ,396 1,734, ,707 (31,402) (2,311) 150, ,999 19,565 3,714, ,846 3,303, , ,938 21, , ,999 17,034 5,642, ,247 4,202, ,699 1,440,178 84, ,000 and over 2,479 2,471, ,796 1,130, ,114 1,340, ,682 Source: National Statistics Office 26

28 6.0 SURVEYS: RETAIL AND CONSUMER RESPONSE The focus of this section is to present primary information regarding consumers and retailers preferences, as a product of the separate surveys conducted to measure the interest level with the planed retail development in Eco-Village. Apart from the analysis done in the previous sections, the analysis in this section showcases the behavior and perspective of consumers regarding shopping habits, specifically in Baguio City, as well as the commercial terms and preferences that would heighten the interest of retailers to locate in the planned retail development in Eco-Village. 6.1 Consumer Preference Survey Profile of Respondents There are two (2) target or catchment markets defined in the Study: (1) tourists or non-residents of Baguio City; and (2) local residents of Baguio City. The Consumer Preference Survey covers 691 respondents, of which 364 are identified as the primary catchment market or tourists and another 327 are classified as the secondary catchment market or local residents of Baguio City. The random sampling of the respondents results in a profile of the sampling respondents similar to what has been shown in the catchment analysis using secondary information. 7 Of the 364 respondents who are included in the primary catchment market, 41 percent are between the age of 20 and 29, followed by those in the age of 30 to 44 with a sample share of 24 percent. Similarly, majority of the respondents in the secondary catchment market is included in the age bracket of 20 to 29, 32 percent of the total sample share. Although there are some respondents who refused to indicate their gender, it is observable that there is nearly equal distribution between male and female respondents. However, sex distribution is slightly in favor of the females, which comprises 51 percent, for both catchment markets. Employment status among respondents is biased towards the first category in which occupations vary from being a manager, a proprietor, or a technical. This category comprises 37 percent for the primary catchment market and 50 percent for the secondary catchment market. Respondents under the primary catchment market who belong to families regarded as Upper Income Class, or those with an annual income between Php50,000 and more are about 21 percent. For the secondary catchment 7 For detailed description of the profile of the respondents, please refer to Annex C: Results of the Consumer and Retailer's Survey. 27