Un­der pres­sure

Re­tail­ers start cut­ting back on ex­pan­sion plans

Finweek English Edition - - Property - JOAN MULLER

SHOP­PING CEN­TRE own­ers and de­vel­op­ers are fac­ing tough times as South Africans’ wan­ing ap­petite for re­tail ther­apy forces re­tail­ers to re­think their ex­pan­sion strate­gies. Listed prop­erty funds, par­tic­u­larly those with ex­po­sure to smaller, sec­ond-tier re­tail cen­tres, have al­ready warned in­vestors that earn­ings growth will be more muted over the next six to 12 months as rental ar­rears among smaller line shops start to creep up.

Corovest Prop­erty Fund Man­agers MD Ma­ri­ette Warner says there’s no doubt some re­tail port­fo­lios are vul­ner­a­ble, par­tic­u­larly those with a large pro­por­tion of smaller, non­na­tional ten­ants. Warner says it’s also likely the large na­tional re­tail­ers could start clos­ing un­der­per­form­ing stores in less-than-prime lo­ca­tions over the com­ing months and fo­cus their ef­forts on malls that of­fer the best trad­ing den­si­ties.

Frank Berke­ley, head of Ned­bank Cor­po­rate Prop­erty Fi­nance, has a sim­i­lar view. “We’re not wor­ried about re­gional malls. Re­tail­ers are tak­ing a longer-term view and want to re­tain and grow their pres­ence in prime shop­ping cen­tres. But smaller neigh­bour­hood cen­tres are the ones that could suf­fer.”

Though a num­ber of new shop­ping cen­tres are ap­par­ently also bat­tling to find ten­ants, there are a few ex­cep­tions – Mel­rose Arch, north of Jo­han­nes­burg, be­ing one. The first phase of a new 28 300sq m shop­ping cen­tre cur­rently un­der con­struc­tion at the trendy mixed-use precinct is al­ready 90% pre-let. A three-level flag­ship Wool­worths store will an­chor the shop­ping cen­tre and other re­tail groups, in­clud­ing Edgars, Fos­chini and Tru­worths, have also taken up space to house their var­i­ous brands.

Eti­enne Ey­gen­berger, ex­ec­u­tive di­rec­tor of leas­ing agents Re­tail Africa, says re­tail­ers are be­com­ing more se­lec­tive and that de­mand for space in prime lo­ca­tions re­mains firm. Ey­gen­berger notes new re­tail de­vel­op­ments strug­gling to find ten­ants are those fo­cus­ing on a spe­cialised of­fer­ing, with too many niche out­lets and not enough na­tional an­chors.

He says re­tail­ers are par­tic­u­larly drawn to Mel­rose Arch, as the node has al­ready es­tab­lished it­self as a pre­mier work, live and play des­ti­na­tion. The new shop­ping precinct will also dif­fer­en­ti­ate it­self from other re­tail de­vel­op­ments by of­fer­ing a unique high street “pedes­trian” shop­ping en­vi­ron­ment.

Brett Exner, prop­erty ex­ec­u­tive at re­tail group Mass­dis­coun­ters, con­firms re­tail­ers are still look­ing to take premises in new de­vel­op­ments pro­vided they of­fer the right dif­fer­en­ti­a­tion, crit­i­cal mass and ten­ant mix.

Nev­er­the­less, Exner says re­tail­ers have no choice but to adopt a more mea­sured approach to store ex­pan­sion. He writes in Madi­son Prop­erty Fund Man­agers’ latest is­sue of Prop­erty In­no­va­tion that “right siz­ing” based on per­for­mance is be­com­ing a key con­cern for re­tail­ers.

Says Exner: “We have to ask our­selves if we’re get­ting the re­quired re­turn on space. An over­sup­ply of space also has a knock-on ef­fect on im­por­tant ra­tios, such as re­turn on labour

Re­tail­ers are be­com­ing

more se­lec­tive.

and re­turn on in­ven­tory/stock.”

Exner says, as such, the clo­sure or con­sol­i­da­tion of stores with sig­nif­i­cantly over­lap­ping catch­ments is a re­al­ity that re­tail­ers can’t get away from in the cur­rent sup­pressed trad­ing en­vi­ron­ment.

Wendy New­ton-Volkel, real es­tate ex­ec­u­tive at Wool­worths, says al­though there are still op­por­tu­ni­ties for growth in some new res­i­den­tial ar­eas, town­ships and rural towns, re­tail­ers will no longer be able to roll out new stores at the rapid pace seen in re­cent years.

“The cur­rent eco­nomic cli­mate means con­sumers have less dis­pos­able in­come. To com­pound that, pop­u­la­tion growth is slow­ing and de­vel­op­ments have been ham­pered by elec­tric­ity sup­ply is­sues.” New­ton-Volkel says re­tail­ers are look­ing at other ways to grow mar­ket share and foot­print. For Wool­worths the em­pha­sis has now shifted to mod­ernising and ex­tend­ing suc­cess­ful ex­ist­ing stores.

It ap­pears shop­ping cen­tre own­ers – in­clud­ing listed prop­erty funds and in­sti­tu­tions – are also adopt­ing that approach, with mil­lions be­ing pumped into ren­o­va­tions and ex­pan­sions. For ex­am­ple, Lib­erty Prop­erty Group (its R18bn prop­erty port­fo­lio in­cludes a num­ber of malls) an­nounced last week it would spend a whop­ping R1,7bn over the next three years to give its 35-yearold Sand­ton City a facelift.

The re­vamp will in­clude an ad­di­tional 30 000sq m of re­tail space at the south-east side of the mall, plac­ing Sand­ton City ahead of Cape Town’s Canal Walk as the big­gest mall in Africa, with to­tal floor space of 155 000sq m. Some 900 new park­ing bays will be added and the en­tire cen­tre, in­clud­ing its façade, will be re­fur­bished.

The Lib­erty Prop­erty Group will also spend R610m to ex­tend its East­gate shop­ping cen­tre and R184m to ex­tend Al­ber­ton City and the Mid­lands Mall in Pi­eter­mar­itzburg.

Ex­cep­tion to the rule. Mel­rose Arch

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