Ring­ing in bet­ter prof­its

Malls set to out­per­form m of­fices and in­dus­tri­als this year

Finweek English Edition - - INSIGHT - JOAN MULLER joanm@fin­week.co.za

IT AP­PEARS SHOP­PERS are slowly re­turn­ing to malls on the back of lower in­ter­est rates, which should trans­late into higher prof­its for re­tail prop­erty in­vestors over the next 12 months. Hyprop In­vest­ments – South Africa’s biggest JSE-listed shop­ping cen­tre owner, with malls such as Cape Town’s Canal Walk and Hyde Park, the Mall of Rose­bank and The Glen in Jo­han­nes­burg in its sta­ble – has re­ported a no­tice­able up-tick in foot­fall and sales turnover since mid-Novem­ber last year.

Hyprop CE Mike Rodel says early in­di­ca­tions also point to an im­proved trad­ing in De­cem­ber. “Con­sumers ap­pear to be far more re­laxed, which should trans­late into greater foot­fall and higher spend per head for the fes­tive trad­ing pe­riod.”

Rodel says it ap­pears the im­proved out­look for con­sumer spend­ing is prompt­ing re­tail­ers to take a fresh look at ex­pan­sion plans that may have been shelved dur­ing the re­ces­sion. Hyprop has over re­cent months seen a steady in­crease in en­quiries from re­tail­ers to ex­pand ex­ist­ing stores and roll out new ones. For ex­am­ple, at Canal Walk a num­ber of new stores were opened dur­ing fourth quar­ter 2010, in­clud­ing spe­cialised re­tailer Toy King­dom, Aus­tralian fashion chain For­ever New, In­glot and Lu by Lolita, while Dis-Chem and In­cred­i­ble Con­nec­tion opened ex­tended floor space early in De­cem­ber.

New leases have also re­cently been signed at Hyprop’s strug­gling Stoneridge cen­tre near Mod­der­fontein, east of Jo­han­nes­burg. A new McDon­ald’s drive-thru will oc­cupy cur­rently va­cant land next to Fruit ’n Veg in May, while The Gar­den Shop is set to take oc­cu­pancy next to Ad­ven­ture Golf in July.

Other in­dus­try play­ers re­port sim­i­lar re­cov­er­ies in con­sumer spend­ing and re­tail

space up­take that will boost the in­come streams of shop­ping cen­tre own­ers.

Johan En­gel­brecht, di­rec­tor of re­tail man­age­ment at prop­erty ser­vices group JHI, says it’s see­ing all cat­e­gories of re­tail­ers grad­u­ally be­gin­ning to re­cover from a highly chal­leng­ing trad­ing pe­riod.

While that’s prompt­ing re­tail­ers to re­con­sider their ex­pan­sion strate­gies, En­gel­brecht notes re­tail­ers re­main cau­tious about open­ing stores in new shop­ping cen­tre de­vel­op­ments, opt­ing in­stead to ex­pand well-es­tab­lished and suc­cess­ful out­lets in ex­ist­ing malls. Ex­pan­sion projects worth more than R500m cur­rently un­der way at shop­ping cen­tres un­der JHI’s man­age­ment in­clud­ing ex­ten­sions at the Kolon­nade Re­tail Park and Kolon­nade Shop­ping Cen­tre (Pre­to­ria north) and at Green­stone Shop­ping Cen­tre (Eden­vale).

Prop­erty man­age­ment com­pany Broll’s re­search and mar­ket­ing man­ager Sanett Uys says all in­di­ca­tions point to de­clin­ing re­tail va­cancy rates in prime ar­eas, in­creased con­sumer con­fi­dence lev­els and mod­est growth in gross re­tail rentals for this year. Uys ex­pects fi­nal fes­tive sea­son trad­ing fig­ures at Broll-man­aged shop­ping cen­tres of more than 20 000sq m to show year-on-year growth of 10% to 12% on av­er­age. She says the best per­form­ing mer­chan­dise cat­e­gories last year in­cluded so­called cat­a­logue stores, such as Ver­i­mark and Glo­mail, fol­lowed by cine­mas, hard­ware stores, car ser­vices/re­pairs and ju­nior depart­ment stores sized be­tween 2 500sq m and 4 999sq m.

Uys says rental growth will be sup­ported by limited new re­tail prop­erty stock com­ing on to the mar­ket over the next two years. Broll re­search shows a to­tal of only 287 000sq m of new re­tail sup­ply is ex­pected to come on line this year, while

All in­di­ca­tions point to de­clin­ing re­tail va­cancy rates in prime ar­eas and in­creased con­sumer con­fi­dence lev­els

around 120 000sq m is planned for com­ple­tion in 2012. Uys ex­pects prime re­gional shop­ping cen­tres to start show­ing rental growth as early as first half 2011, re­vers­ing the trend of rental de­clines ex­pe­ri­enced by large malls since early 2009.

Prop­erty econ­o­mist Fran­cois Vir­uly shares that view. He main­tains the re­tail sec­tor will lead the com­mer­cial real es­tate re­cov­ery in 2011, cit­ing the im­proved eco­nomic growth out­look and lower in­ter­est rates as key driv­ers. Says Vir­uly: “Con­sen­sus fore­casts sug­gest GDP growth will grad­u­ally rise from 3,6% in that first quar­ter to 4,3% in fourth quar­ter 2011. Re­search into SA’s com­mer­cial prop­erty re­turns in­di­cates a 1% rise in GDP growth re­sults on av­er­age in a 3% in­crease in to­tal re­turns.”

Vir­uly ex­pects the of­fice and in­dus­trial prop­erty sec­tors to lag the re­tail prop­erty mar­ket, with the of­fice sec­tor still hav­ing some way to go to mop up the over­sup­ply. Vir­uly says of­fice va­can­cies will most likely only drop back to 2008 lev­els (be­low 10%) by year-end 2011. “And it’s un­likely rentals in the of­fice sec­tor will rise in real terms un­til va­can­cies rates have moved be­low the sec­tor’s nat­u­ral va­cancy rate, es­ti­mated at around 8%.”

Al­though the man­u­fac­tur­ing sec­tor is re-stock­ing, Vir­uly says ex­porters will con­tinue to feel the brunt of the strength­en­ing rand. There­fore, prospects for the in­dus­trial prop­erty sec­tor re­main sub­dued.

Lat­est fig­ures from the SA Prop­erty Own­ers’ As­so­ci­a­tion/IPD SA bian­nual prop­erty in­di­ca­tor show of­fices were still lead­ing the per­for­mance stakes in first half 2010, with a to­tal re­turn of 6,1%, which was fol­lowed by re­tail prop­erty (4,1%) and in­dus­trial prop­erty (3,7%), bring­ing the to­tal re­turn for SA’s three com­mer­cial prop­erty sec­tors in first half 2010 to 4,6%.

The re­port notes re­turns for shop­ping cen­tres in first half 2010 were damp­ened by sharp in­creases in op­er­at­ing costs, such as elec­tric­ity, rates and taxes. It will be in­ter­est­ing to see to what ex­tent, if at all, shop­ping cen­tres man­age to close the gap with of­fices when IPD re­leases its per­for­mance fig­ures for sec­ond half 2010 next month. IPD tracks the per­for­mance of large listed and un­listed com­mer­cial prop­erty port­fo­lios worth around R100bn.


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