Mall owners still in pound seats
Plenty of steam left in retail cycle
SHOPPING CENTRE owners and investors in retail-focused property funds continue to reap the rewards of South African consumers’ seemingly insatiable appetite for retail therapy.
Trading figures from owners of some of SA’s biggest shopping malls show that sales turnover remained remarkably robust in 2006, with the four consecutive interest rate increases since June having little effect on retail spending.
Old Mutual Property Group’s ( OMP) Gateway Theatre of Shopping in Umhlanga recorded sales growth of a hefty 25% in 2006 (y-o-y). In December alone, Gateway, one of SA’s largest shopping centres covering 123 000sq m, saw turnover rise 29%.
Colin Young, OMP’s head of institutional investments, says most malls in the group’s retail stable had bumper festive seasons. Menlyn Park Shopping Centre in Pretoria increased sales 19% in December, while Cavendish Square in Cape Town, Riverside Mall in Nelspruit, and Cascades, a lifestyle centre in Pietermaritzburg, recorded growth of 18%, 17% and 15% respectively.
OMP’s retail portfolio generated average turnover growth of 19% for December and 16% for calendar 2006. That compares with latest Statistics SA national retail sales growth of 12,3% in November 2006 (y-o-y).
Strong growth in sales figures continues to fuel retailer demand for floor space. Gateway, for instance, is set for its second expansion within a year. A R202m extension of its south mall and parking facilities will add another 7 900sq m by year-end.
Interestingly, some 70% of the turnover generated in OMP’s shopping centres last year came from cash sales. Young says this suggests the continuing consumer-spending boom is not credit driven.
“Clearly SA’s informal trading sector is a far more important driver of the retail economy than is widely believed. The large proportion of cash purchases may also explain why interest rate hikes have so far had little effect on sales.”
Young also points out that continued growth in retail sales is not necessarily a result of more shoppers coming to malls, but rather of existing shoppers spending more. In December, for instance, OMP recorded an average 22% increase in spend per head across its shopping centre portfolio, while the foot count was up only 4%.
Pieter Prinsloo, MD of retail-focused, listed property fund Hyprop Investments, voices a similar sentiment. He says average basket spend at Hyprop centres such as mega-mall Canal Walk at Century City in Cape Town and Rosebank Mall and Hyde Park in Johannesburg, rose markedly last year.
In December, average retail spend was up 13% across Hyprop’s portfolio with sales growth of 11% recorded for the full year. Prinsloo says it seems that neither the interest rate hikes nor the ongoing addition of new shopping centre space has put pressure on retail property returns, both in terms of income and capital growth.
Prinsloo dismisses talk of SA being overshopped. He says as long as national retail chains record healthy sales growth, retailers will continue to roll out new stores and expand existing ones. International retailers should also create increased demand for shopping centre space as others follow international brands such as Mango and Gap to SA, says Prinsloo.
Newly opened Johannesburg fashion mall WorldWear, owned by listed counter Emira Property Fund, has already lured a number of high-end international clothing and accessories brands. Some of these, which have now opened their first stand-alone stores in SA, include European label Aftershock, US brand Abercrombie and Fitch and Turkish jeans manufacturer Little Big Jeans Co.
Emira CEO James Templeton says although retail is already ahead in the property cycle, quality assets are becoming scarcer, creating further upside for retail property values. It’s also becoming expensive to build new shopping centres, which should underpin rental growth over the next few years.
André Stadler, MD of Catalyst Fund Managers, agrees that the retail property sector should continue to perform well, albeit more modestly and off a higher base. He says retail has been the best performer in terms of net income growth over the short term. Historically, it has also been the most resilient sector of the commercial property market, delivering average total returns of 19,8% (annualised) over the past five years, according to latest figures from the Sapoa/IPD SA property index. That compares with industrial property’s total returns of 17,9% over the same period and offices lagging at 12,4%.
It will be interesting to see how the retail sector’s performance compares with that of industrials and offices when Sapoa/IPD releases its latest property index in April/May.
Retailers continue rolling out new
stores. Pieter Prinsloo
Scarcity of quality assets driving income and capital
growth. James Templeton