What’s bothering SA’s landlords?
RETAIL: VACANCIES RESHAPING MARKET
Property group says because of Covid-19, consumer behaviour is shifting.
Office vacancies in the Sandton market are “likely to rise above 20%” from the 17% level in July, according to one of the largest property groups in the country, Redefine.
It and Growthpoint say there are clear behavioural trends reshaping the market post-Covid-19.
Together, these two listed property Reits (real estate investment trusts) own nearly 10 million square metres of gross lettable space. This – and the fact that both have diverse assets spanning the retail, office and industrial segments (and across regions) – means they are good bellwethers for the broader sector.
Last week, Growthpoint reported financial results for the year to 30 June, while Redefine held its pre-close investor roadshow at the end of August.
Redefine says that in the office segment “consolidation, down-sizing, business failures and remote working” continues to adversely impact demand.
“In addition, corporate restructuring is resulting in large amounts of sub-lettable space coming to market.”
Redefine expects vacancies to rise to as much as 2.544 million square metres across the country, which will see the national vacancy rate rise to 13.5%, from 12.3% in June.
However, it expects a trend towards the “co-working environment” as opposed to a structural and permanent shift to remote work as “load shedding and data instability hinder employees’ ability to work from home”.
Growthpoint says tenants remain “in a state of limbo with a nervousness to commit to new deals” but points out that this has the benefit of tenants wanting to stay in their current premises rather than move in this “uncertain environment”.
It says it is seeing an “increase in liquidations/business rescues with many tenants who were struggling prior to the lockdown unable to turn their businesses around”.
It adds that the full extent of the impact of Covid-19 and structural changes to the office and retail segments is unknown.
Tenant mix
Both groups expect the trend of more business rescues, liquidations and tenant failures to occur in the retail sector as well, “which will increase vacancies”.
Redefine says because of Covid-19 and the “depressed economy, consumer behaviour is shifting at an accelerated pace to convenience”.
It believes “this is a structural change to consumer behaviour and spending patterns”. As far back as May (when it reported its interim results), Redefine made it clear that the “current preference of neighbourhood/convenience centres [was] becoming the norm”.
It also cautions that “consumers may permanently change their preferred buying channel for certain categories toward e-commerce”.
These factors will force changes in tenant mix at malls across the board.
It does say, however, that there was a “better than expected recovery in retail turnover, in particular apparel and fast food” post the hard lockdown.
Redefine says leasing activity is being driven by tenant retention initiatives and right-sizing retailers’ premises, resulting in negative rental reversions – in other words, lower rentals achieved for the same space.
Growthpoint says there is a trend towards short-term renewals at present, “with independents reluctant to commit and nationals taking advantage of the current environment”. It highlights the “value” category as best-performing, and has seen demand from value retailers at two of its malls in upper income areas.
Two further factors placing pressure on vacancies and rentals are “very little demand” for additional space from existing tenants, and “no new entrants”, says Growthpoint.