Mall own­ers still in pound seats

Plenty of steam left in re­tail cy­cle

Finweek English Edition - - Property - JOAN MULLER

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

(left)

Scarcity of qual­ity as­sets driv­ing in­come and cap­i­tal

growth. James Tem­ple­ton

(right)

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