South Africans’ penchant for retail therapy has meant that shopping centres traditionally make more money for property investors than any other sector of the SA real estate market, be it offices, industrial buildings, hotels or housing.
Over the past 10 years, to the end of 2015, retail property delivered an annualised total return (income and capital growth) of a substantial 16%, as measured by MSCI’s Independent Property Databank (IPD) index. However, ongoing pressure on consumer spending amid SA’s ever-growing pool of new shopping centres is starting to eat into profit margins.
Latest industry data and results from listed property funds already reflect noticeable shifts in some of the key metrics that drive the performance of shopping centres. Growth in trading densities (turnover/m²) in the larger malls, which have traditionally outperformed their smaller counterparts, has slowed while the opposite is true for smaller malls, according to the latest IPD SA Retail Trading Density Index.
Stanlib head of listed property funds Keillen Ndlovu says recent results from listed mall owners confirm that sales turnover growth and footfall are holding up better in smaller shopping centres than in some of the bigger ones. He ascribes this to the opening of so many new regional and super-regional malls. While demand for retail space in large malls has been strongly supported by the entry of international retailers to SA over the past two to three years, Ndlovu says there is no doubt that the environment is becoming more competitive due to increased supply of retail space.
He notes that the Eastern Cape and Gauteng are the most oversupplied with new megamalls Baywest Mall (Port Elizabeth) and Mall of the South (Jo’burg), having placed pressure on sales turnover and visitor numbers at nearby centres.
Ndlovu believes the new 131,000m² Mall of Africa in Midrand, coupled with the huge extensions under way at Fourways Mall (Johannesburg) and Menlyn Park Mall (Pretoria) will also affect surrounding centres.
"We expect a further slowdown in trading density growth and footfall given the slowing economy and cannibalisation of retail spend, especially among bigger shopping centres."
Results released this month by JSE-listed mall owners, including sector heavyweight Growthpoint Properties, Hyprop Investments and Mall of Africa owner Attacq, tell a similar tale — ongoing pressure on consumer spending, growing competition from new centres and retailers becoming more circumspect in their expansion plans.
For the 12 months ending June, trading densities across Growthpoint’s portfolio of 58 shopping centres slowed to 2.72% (including centres under redevelopment).
That’s down from growth of around 7% 12-18 months ago.
Growthpoint CEO Norbert Sasse blames it on too many new shopping centres. Speaking at the company’s annual results presentation in Johannesburg this month, he said there hasn’t been enough growth in consumer spending to justify the addition of so much new retail space.
However, the company’s Western Cape malls showed healthy growth, with the Victoria Wharf at the V&A Waterfront, recording 13% growth in trading densities for the year ending June.
Hyprop Investments’ R27bn portfolio of 11 malls recorded an average trading density growth of 5.2% year-on-year for the 12 months ending June, down from around 7% two to three years ago.
Hyprop CEO Pieter Prinsloo says the performance of shopping centres is becoming increasingly divergent, with location, size and dominance of a catchment area being key differentiators. Rosebank Mall was the top performer in Hyprop’s portfolio with growth of 18% (off a low base following last year’s completion of a R920m redevelopment). Trading density growth slid 9% at Hyprop’s The Glen, in the south of Jo’burg.
Of Attacq’s portfolio of 12 malls, trading density growth for the year to June ranged from a high of 15% at Waterfall Corner near Midrand to a low of 1% at MooiRivier Mall in Potchefstroom.
It’s early days for the R5.1bn Mall of Africa but Attacq CEO Morné Wilken said the centre has traded in line with expectations, luring more than 1.1m shoppers a month on average since opening in April.
While some of Attacq’s centres have shown strong trading growth off a low base such as Newtown Junction in downtown Johannesburg, footfall has generally slowed.
Wilken says: "We’ve noticed that people visit malls less often. Before, they may have come five times a month. Now they’ll only visit twice a month."
However, it’s not all gloom for SA mall owners. Ian Anderson, chief investment officer for Grindrod Asset Management, says though the slowdown in economic activity is going to have an impact on trading densities, SA mall owners are likely to weather the storm by altering their tenant mix to ensure shoppers keep coming back.
"Ongoing demand for store space from international retailers should also support occupancies and rental growth, especially in larger, established malls."