Retail under pressure
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%.