ATTACQ’S WILKEN ON BUILDING THE MALL OF AFRICA
Attacq’s Mall of Africa drew over 122 000 shoppers on its opening weekend and is the biggest shopping centre to have been built in a single phase. But some say the retail sector is due for a dip. We talk to Attacq CEO Morné Wilken about what motivated the
when property f und, Attacq, opened Midrand’s Mall of Africa for the first time, over 122 000 shoppers flooded in through its doors to get their hands on opening specials and experience new store brands like Versace Collection, Armani Exchange, Tiger of Sweden, Hugo Boss, Zara Home, The Kooples, River Island and Mango Man.
Alongside the newcomers were the regular South African retailers that populate big metropolitan malls, including Woolworths, Edgars, Mr Price, Truworths, Foschini and that relatively new arrival in the SA discount clothing space – H&M.
Former banking dealmaker-cum-property developer, Morné Wilken, CEO of Attacq, was delighted. “Trading numbers exceeded expectations. I believe all the retailers are very happy and some achieved new opening turnover records,” he told finweek.
Billed as the largest shopping mall ever to have been built in a single phase, Mall of Africa has 130 000m2 of retail space, which is enough to house some 300 shops. But this massive new retail development, situated in the north of Johannesburg, has property analysts saying that it contributes to an oversupply of malls that could jeopardise real estate property funds. Attacq owns 80% of the entire development. The remaining 20% of Mall of Africa is owned by Atterbury Property Holdings, the company that spun out Attacq in 2013.
Why size matters
But why go for such scale? The mall equals 18 rugby fields in size. Wilken says the idea was based on Westfield Malls in White City and Stratford, London, both super-large shopping centres that offer a wide variety of stores and amenities.
“Given the great location, we wanted to create the mall in Africa and therefore the
name, Mall of Africa,” says Wilken.
The property developer says research into tenant demand showed that a mall of this size could, indeed, be feasible. “The stature secures the future of the mall and ensures that it will dominate in the region,” says Wilken, adding: “The sheer stature acts as a significant drawcard for both leading retail brands and shoppers.”
The scale means that it would be difficult, if not impossible, to develop another mall of a similar size in the surrounding area, particularly given that Attacq plans more development. “We also have already made provision in the planning for the future expansion of 25 000m2.”
The size caters for significant footfall – more choice for shoppers, and more potential customers for tenants. Wilken believes that the mall will also act as a catalyst for economic activity and growth in the area, providing over 4 500 direct and indirect permanent employment opportunities.
This country’s national data service shows that retail has been buoyant. Statistics South Africa reports that retail trade sales increased by 4.1% year-on-year in February 2016 and says the highest annual growth r ates r ecorded were for r etailers of pharmaceuticals, medical goods, cosmetics and toiletries ( 7.8%), general dealers (5.5%), and retailers of textiles, clothing, footwear and leather goods (4.2%).
But Zandile Makhoba, head of research for the South African office of global property services and investment management company, Jones Lang LaSalle, cautions that a retail real estate slowdown could be looming.
“There i s a high rate of residential development in the city, and the migration of people from other provinces and neighbouring countries into Johannesburg is creating a need for more retail,” she says, and adds: “It is important to note that some malls have lost their appeal and do not cater for consumers’ preferences anymore. These continue to be counted in overall retail stock,” says Makhoba.
This, she says, could l ead to an oversupply of malls, which together with inflation and rising interest rates could hurt real estate funds. “South Africans have seen higher income growth than inflation, which has assisted in driving consumer demand,” Makhoba explains, adding that lower interest rates boosted the demand for consumer credit.
She warns that consumer spending will slow with “inflation numbers breaching the 6% mark and interest rates on the rise. Without some recovery in GDP, retail sales growth could stagnate in the short to medium term,” the property researcher says.
Location, location, location
Wilken agrees that there’s an oversupply, but says location is everything. “There was a huge gap in the market relating to the Waterfall area right in the centre of Gauteng,” he points out, adding confidently: “A super-regional like Mall of Africa will dominate.
“There are only a certain number of shoppers, and if retail space keeps growing there have to be some casualties, but again it will all depend on [the] market understanding and malls meeting the demand of their specific target audience,” he adds.
Wilken points out that this market is cyclical and that, as populations continue to grow, the development that provides for the demands of a specific target audience in the correct location, will realise value in the long term.
Property research company Urban Studies, which has undertaken market research for Attacq, weighs in on the oversupply debate.
“The Attacq strategy, with its offshore diversification, which is in excess of 24% in gross assets, is bearing fruit and has managed to maintain its growth forecasts.”
“Mall of Africa is regarded as an infill development. This means that at least 100 000 households are already built around the centre.”
“One of the most important drivers of shopping centre development in South Africa is the increase in the middle market,” says Dirk Prinsloo Snr, founder of Urban Studies. “During the period from 2002 to 2016, the middle market increased by more than 4m households,” he says, adding that the more well-heeled have also increased significantly.
Prinsloo states that consumer demand for conveniently located supermarkets has driven an oversupply in metropolitan areas. He says that, at some traffic intersections, four different malls populate each of the four different corners. “This was driven by the need for grocery retailers to expand within a particular area,” he says, adding that these are the centres where saturation is experienced.
Mall of Africa is situated a stone’s throw away from the Allandale off ramp of the N1 that cuts through Midrand, which Prinsloo says will be key to its success. “Mall of Africa is regarded as an infill development. This means that at least 100 000 households are already built around the centre,” says Prinsloo.
He adds that this is very different to a mall situated where residential development has yet to take place. The property researcher says some 12 000 cars per hour pass the mall daily, creating the kind of awareness that drove some 122 000 visitors to the retail centre on its opening day.
Prinsloo says the neighbourhood that surrounds the mall is home to middle-toupper income households and that no major “super-regional centre” exists within 10km of Mall of Africa. “The Midrand residential area is one of the fastest growing in the country, with more than 20 000 housing units planned for Waterfall Residential Estate, while a further 20 000 units will be built in the rest of Midrand over the next five to 10 years,” he explains.
Mall of Africa is the main development in a larger business estate called Waterfall City, which includes office buildings and amenities adjoining Mall of Africa. Wilken says that Mall of Africa managed to attract a number of brands that are making an appearance for the first time in South Africa, such as Zara Home.
Established brands are rolling out new concept stores at the retail centre, like Mr Price Weekend. This is part of Attacq’s strategy of creating a “lifestyle destination”, where added facilities, such as the Waterfall Park in the middle of Waterfall City, “brings added attraction for the entire family”.
Wilken says this is the reason high- end tenants l i ne up for space. “They recognise that Waterfall is a premium destination, the demographics stack up, and it is an exciting area to invest in,” Attacq’s CEO says. Proof of this is the fact that on opening, only 1 000m2, less than 1% of the floorspace, was vacant. At the time of writing, this had been filled by tenants.
Wilken describes Waterfall City and Mall of Africa as “the jewel in the crown of the diversified Attacq portfolio of developments and assets in developed and emerging markets”. The next phase of the Waterfall City Development will be the construction of further residential developments. This will create “an exciting and attractive destination where people will be able to live, work and play”, according to him.
“This will all have positive financial returns which will influence the Attacq share price positively and give Attacq a development pipeline for the next 10 to 15 years,” Wilken adds.
According to Attacq’s December 2015 interim results, the Mall of Africa was valued at R4.9bn. The shopping centre is expected to generate revenue of around R4bn a year after four years of operation.
“Malls normally take a year to two years to settle down, and then the future upside comes from turnover rental, as feet and spend-per-head increase,” he says.
Wilken believes that Attacq has met investors’ expectations. “The Attacq strategy, with its offshore diversification, which is in excess of 24% in gross assets, is bearing fruit and has managed to maintain its growth forecasts.” Investments into Central and Eastern Europe have also performed well, he adds, as has the company’s 45.4% stake in MAS, a real estate company with assets in Western Europe.
Zandile Makhoba Head of research at Jones Lang LaSalle
Dirk Prinsloo Snr Founder of Urban Studies