Retailers find they have surplus space

● Banks, clothing stores and fast-food outlets are all testing smaller retail spaces as technology means shoppers don’t need to visit stores. For property companies that own shopping centres this could mean an increase in vacant space.

Nashil Chotoki, national asset manager for retail at Redefine Properties, this week said: “As an industry, retailers are oversized, resulting in centres that are too large for the markets in which they operate, which has exacerbated the oversupply of retail within the South African market.”

Much of the reduction in retail space is due to the increase in online activity in recent years. As people increasingly shop or bank online, the need for physical retail space is reduced. In response, businesses that occupy commercial property in office parks and retail centres are rethinking their use of space, given the tough economic conditions, coupled with continuous change in consumer shopping habits.

FNB is reducing its branch size by 10% a year. Likewise, retailers such as Mr Price have cut space in Mr Price Sport, Mr Price Home and Miladys stores.

Fast-food chains are also looking at operating smaller outlets as consumers order more through delivery services such as Uber Eats and Mr Delivery.

Maxwell Ramutla, CEO of technology innovation firm Afrovation, believes the property sector is seeing a second wave of digital disruption after the introduction of online hospitality marketplace Airbnb hit the formal hospitality market.

Craig Smith, head of research and property at Anchor Stockbrokers, said: “I think the number of larger-format stores will decline over time as a consequence of e-commerce and the integration of technology in the physical retail environment.”

But Sandton City recently achieved 100% occupancy in an environment in which average vacancy rates for such a superregional centre are at 5.8%, showing that bricks-and-mortar retail space is a long way from being a thing of the past.

According to Chotoki, “Retail space in shopping centres is mainly occupied by the fashion segment, which will continue to be feel-and-touch-based, while online sales are mainly impacting white goods and technology sales, which is where we see the main contraction of the leased area.”

Maxwell believes there is an opportunity for property companies to rent out space or build new spaces to be used as data centres for technology companies that will facilitate the continued upswing in online sales.

Online retail is priming retailers to rethink their use of space, though at 1.4% of total retail sales in SA, the impact is still limited. Industry players and analysts say shoppers are looking for a personal experience, and to keep attracting customers, shopping centres must differentiate their product offerings.

Melt Hamman, CEO of Attacq, which operates Mall of Africa in Midrand, says: “Super-regional and quality regional malls play an important role in creating meeting places and experiences, which will remain relevant in an ever more digitising world.”

Hamman says Mall of Africa averages 1.5million visitors a month, with maximum foot traffic of close to 1.9-million in December.

And online retailers such as Amazon may also help to keep malls alive as they have learnt that they need a physical presence to interact with existing customers and attract new customers.

I think the number of larger-format stores will decline over time

Craig Smith,

Head of research and property at Anchor Stockbrokers