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

Finweek English Edition - - FRONT PAGE - By Mandy de Waal and Jon Pien­aar

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.

Re­tail out­look

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.

‘Life­style des­ti­na­tion’

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

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