Retailers start cutting back on expansion plans
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
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