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WILL WORLD’S LARGEST MALL BE BUILT IN PHILIPPINES?

BY CHRIS HANRAHAN

Three times his doubters said he was crazy, and three times he proved them wrong. Now 77-year-old Henry Sy is working on his most ambitious project yet, Mall of Asia, which he says will be the world’s biggest.

“Yes, Henry Sy is crazy,” says Karl Krieger, publisher of Profit, a Philippines-based business magazine. “Crazy like a fox. He’s never been wrong about a shopping mall investment — not once.”

With 14 malls in the Philippines and one in China, Sy’s Philippines-based SM Group is one of Asia’s top retailers, owning supermarkets, department stores, a bank and a chain of drugstores. Sy himself is worth $1.5 billion, according to Forbes.

But this time, the region’s troubled economy may thwart Sy’s ambitions. Originally, the retail section of the project was supposed to open last year. Now that is scheduled to open later this year, but the company isn’t giving dates for the completion of the rest of the project anymore.

The first time Sy’s sanity got called into question was in the 1980s. As a great admirer of Sam Walton, Sy decided it was high time the Philippines had its first American-style mall. He opened that mall, SM City North EDSA, in 1985 on a 40-acre site in an underdeveloped area of Quezon City, metropolitan Manila. His critics said that the center would never work, that it was in the wrong location and that there was no market for it. They were dead wrong. With a gross leasable area of 2.8 million square feet, the mall soon became a big hit with the public.

In 1990 Sy opened the 1.4 million-square-foot SM Centerpoint on 7.4 acres of land in another part of Quezon City. Again Sy’s detractors said he was headed for disaster. Again they were wrong.

The most recent time Sy was thought not to be playing with a full deck was in 1991, when he opened the SM Megamall on a 25-acre site in Mandaluyong City, metro Manila. With a gross floor area of 3.5 million square feet, the mall is one of the world’s larger shopping centers. (By comparison, West Edmonton Mall, Alberta, Canada, measures 5.3 million square feet.) Despite real estate industry analysts’ initial reservations about the project’s size, SM Megamall has become an institution in the Philippines, drawing more than 300,000 shoppers a day.

Now Sy wants to top SM Megamall with the Mall of Asia project. At 5.7 million square feet, this huge development alongside Manila Bay, one of the world’s largest natural harbors, would eventually become — on paper — the world’s biggest shopping center. It would offer not only shopping but also a hotel, leisure and entertainment facilities, a school, a medical center, residential and office condominiums and even a church — a potential attraction in a country with the largest concentration of Roman Catholics in Asia. The site already houses the SM Group’s new corporate headquarters.

The first phase, offering 1.8 million square feet of leasable space, is supposedly due to open before the end of this year. But, in a reflection of the global economic downturn, the master plan for this giant development has been drastically revised. The development mode has changed from high-rise to low-rise, slashing the construction cost from 7.5 billion pesos ($139 million) to 2.5 billion pesos.

“Before, we thought we were going to build a seven-story building, maybe eight stories, a huge building,” said Sy. “Instead, we are putting up a sprawling-type, two-story building.”

“With the economic situation, … we thought that maybe we should change the plan, and that really caused a lot of delays,” said Tessie Sy, executive vice president of SM Group and Henry Sy’s eldest child.

Mall of Asia “was a bit ambitious” as originally envisioned, agrees Romina Magno, senior manager of research and consultancy at Jones Lang LaSalle Philippines. Though the project in itself may be sound, the country’s property market still hasn’t recovered from the 1997 Asian financial crisis.

“The recent change of plans to slow down the mall’s development by pursuing the construction in phases is a wise move,” she said. “Not only will this move save them billions [of pesos] in construction costs, it will also ensure income and rental revenues for SM even during these difficult and uncertain times.”

Currently, retail is the only stable real estate sector in the Philippines, Magno notes.

Tessie Sy is said to be the “chosen one” to succeed her father as head of the SM Group, even though the old man says he still enjoys putting in 12-hour days, six days a week and will never retire. She says Mall of Asia will be a destination for families and tourists looking for a pleasant venue to spend the day.

“It will take us a while to put all of these things up, but slowly it will be something which will be like ‘retailtainment,’” said Tessie Sy. “In the U.S. they have entertainment with retailing, and so we thought of doing something similar.”

The company envisages a cinema complex, an ice-skating rink, a pool hall and video game arcades.

For all of Mall of Asia’s claims to outdo West Edmonton Mall, such offerings pale in comparison to those at the latter, with its seven amusement venues, including a massive indoor lake, and 800 stores.

Similarly, details about the retail lineup seem spare, especially given the company’s talk of opening this portion of the project later this year. Anchors will include an SM Supermarket and SM department store, as well as such “junior” anchor shops as Bench, a fast-growing chain of fashion outlets; McDonald’s; Jollibee, a local fast-food competitor of McDonald’s; and National Bookstore, the Philippines’ leading book and stationery retailer. Like Sy’s other malls, this one is aimed at a lower-to-middle-income shopper.

Nevertheless, Magno says she likes the retail-entertainment concept.

“It reflects the changing trends in property development — from just shops and stores to integrated centers where everything is within reach by the consumer,” she said. “The strategy to include different types of facilities in a single location is a tried and tested concept. The Mall of Asia is Henry Sy’s attempt to put up an integrated, self-sufficient community.”

She says she also believes that the Manila Bay reclamation area is a good location for the mall, noting that the densely populated neighborhood, with its several universities and government offices, is underserved by retail.

When the schools, medical center and hotels are added in later phases, it will assure the mall a steady stream of customers, Magno said.

The question is, when?

Meanwhile, slowing down — or halting — the Mall of Asia project has released funds for building new malls outside metro Manila, the company says. SM, which has built up a land bank of 317 acres, is expanding its chain of properties in the Philippines at a rate of two per year.

“There’s no fixed number,” said Henry Sy when asked how many SM malls the domestic market can accommodate. “But I think the Philippines could be good for 40 malls.”

Adds Tessie Sy: “The market is still wide open. We cannot peg a certain number as the limit. We are still finding out [what the market can take] and expanding into other cities outside of metro Manila. We have in the plan about 30 [malls], and we could go to 40.”

Magno says SM’s strategy of building two new malls a year will be crucial in sustaining a healthy balance sheet.

“They have seen the statistics,” she said. “The Philippine population is growing at an annual rate of 2 percent to 3 percent, urban areas are growing by 5 percent annually, consumer expenditures are growing at an average annual rate of 16 percent over the past 10 years and overseas workers’ remittances are surging by 22 percent from 1997, to $7 billion in 2002.”

These trends are expected to be sustained or to accelerate over the next 10 years, she says, and SM has meanwhile been very careful about putting its malls in areas where they will thrive.

“Given the rapid urbanization in many parts of the country, I believe there are still a lot of underserved areas in the provinces,” she said. By continuing to put its malls in growing areas, she adds, and being the first to do so, the company will have a jump on its rivals when the economy improves.

SM has also begun developing malls in China. The first opened in Xiamen, Henry Sy’s birthplace, in 2002. Additional malls will open in Chengdu and Shanghai in the next two to three years.

Sy was born in China’s Fujian province and emigrated to the Philippines with his parents when he was 12. After leaving school, he sold shoes in Manila. This business proved to be so successful that he went on to open Manila’s first air-conditioned department store in the 1960s.

Consequently, even if Mall of Asia has ground to a halt, there is plenty else keeping the company busy.

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