Re­tail un­der pres­sure

Finweek English Edition - - Portfolio Punts -

RE­TAIL pROp­ERTY – par­tic­u­larly smaller con­ve­nience and neigh­bour­hood cen­tres in less-than-prime ar­eas – is no longer the place for in­vestors to be. The con­sumer sales slump is mak­ing it in­creas­ingly dif­fi­cult for smaller re­tail­ers to sur­vive, with shop­ping cen­tre own­ers re­port­ing a steady rise in rental ar­rears and va­can­cies.

And while the big­ger, dom­i­nant malls are still re­port­ing healthy growth in sales turnovers, those cen­tres won’t be left en­tirely un­scathed if con­sumer spending con­tin­ues to slow. Old Mu­tual In­vest­ment Group Prop­erty In­vest­ments (OMIGPI) – with an R11bn shop­ping cen­tre port­fo­lio, in­clud­ing large malls such as Gate­way The­atre of Shop­ping (Umh­langa), Men­lyn Park (Pre­to­ria) and Cavendish Square (Cape Town) – re­ports an av­er­age 14% growth in sales turnover at its top 10 shop­ping cen­tres be­tween Jan­uary and Septem­ber 2008 year-on-year.

Other ma­jor re­tail prop­erty play­ers, such as listed funds Growth­point and Hyprop, are also still see­ing dou­ble-digit growth in sales turnovers in re­gional malls. How­ever An­dries Breytenbach, joint fund man­ager of OMIGPI’s Tri­an­gle De­vel­op­ment Fund, says there’s no doubt the num­ber of shop­pers go­ing to malls is de­creas­ing, with foot count at the group’s top 10 cen­tres down be­tween 5% and 7%/year to date. Breytenbach says re­tail sales are likely to slow fur­ther over the com­ing months as the lag ef­fect of higher in­ter­est rates con­tin­ues to kick in.

A new re­port re­leased by prop­erty ser­vices group BROLL (in as­so­ci­a­tion with CB Richard El­lis) con­firms slow­ing con­sumer sales have placed re­tail­ers and rentals in smaller shop­ping cen­tres un­der pres­sure. “How­ever, the right space in the right lo­ca­tion is still prov­ing to be de­sir­able.” The re­port notes large na­tional re­tail­ers are tak­ing a longer-term view, caus­ing larger re­gional malls to be less sus­cep­ti­ble to de­creas­ing con­sumer de­mand than their smaller coun­ter­parts.

Nev­er­the­less, in­dus­try an­a­lysts ex­pect the re­tail prop­erty sec­tor to lag both in­dus­tri­als and offices in the per­for­mance stakes when the Sapoa/IPD prop­erty in­dex re­leases 2008 fig­ures early next year.

Shop­ping cen­tres have tra­di­tion­ally been the SA prop­erty mar­ket’s big­gest mon­eyspin­ners. How­ever, re­tail prop­erty has slowly but surely lost ground since 2005, with the Sapoa/IPD prop­erty per­for­mance in­dex show­ing to­tal re­turns drop­ping from a high of 33% in 2005 to 26% last year. In­dus­trial prop­erty came out tops last year, with to­tal re­turns of 33,6%, fol­lowed by offices at 30,8% (see ta­ble).

Mean­while, the lat­est Rode Re­port on SA’s prop­erty mar­ket shows of­fice and in­dus­trial rentals con­tinue to grow at dou­ble-digit rates. John Lot­ter­ing, ed­i­tor of Rode’s Re­port, says prime nom­i­nal rentals in the de­cen­tralised of­fice nodes of Pre­to­ria, Cape Town and Jo­han­nes­burg man­aged to achieve growth of 21%, 16% and 13% re­spec­tively in third quar­ter 2008 (year-on-year). Dur­ban’s de­cen­tralised busi­ness nodes were the only ex­cep­tion, with of­fice rentals up only 4% over the same pe­riod.

Lot­ter­ing says prime in­dus­trial rentals have ral­lied by as much as 26% in Dur­ban and by 18% in the Cape Penin­sula and Cen­tral Wit­wa­ter­srand. Port El­iz­a­beth recorded the weak­est growth in of­fice rentals in third quar­ter 2008 at 11%.

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