A boost for languishing retail property sector
Easing of lockdown expected to see increase in tenants opening and more foot traffic
THE RETAIL property sector could look forward to an increase in the number of tenants opening, and foot traffic increasing along with spending, when South Africa heads into level 3 of the lockdown, FNB Commercial Property Finance property sector strategist John Loos said yesterday.
In his latest Industry Insights publication, he said the question was how much consumer spending was “coming back” to shopping centres.
Beside the recessionary income “knock” that many consumers had suffered through the lockdown, and possible virus-related fears of public places such as shopping centres, consumers might want to spend less and save more, he said.
On Sunday evening, President Cyril Ramaphosa announced a relaxation in Covid-19 lockdown measures, from level 4 to level 3, from June 1, which means the opening of most retail activity, excluding restaurants and pubs.
Share prices of many listed-property companies have fallen sharply recently as landlords struggled to get rents from store tenants, who were not allowed to trade through the lockdown.
Loos said: “The severity of the Covid-19 related economic shock could mean it takes a few years for consumer spend to once again reach pre-lockdown 2019 levels in real terms.”
Investec chief economist Annabel Bishop said yesterday that the group had revised downwards their forecast of an economic decline this year to a gross domestic product of -8 percent to -10 percent year-on-year, “if not worse,” from a previous forecast of -4.8 percent.
“Much will depend on the progression of opening up the economy.
“The very slow pace so far has driven our worsening forecasts, as has the sheer length of the lockdown to date, which has seen incomes fall (both due to rising unemployment and firms cutting back on staff remuneration versus last year), and demand to collapse,” she said.
Loos said two other “wild card” risks for retailers to consider in the aftermath of the lockdown was the fear of crowded spaces, causing a portion of consumers to avoid shopping centres in part or in full, and the possible fear over households’ financial future may cause many to spend far more cautiously and increase their savings rate, he said.
“We expect a significant, but for the time being not a ‘full’, consumer and retail recovery”, he said.
Loos said all three major categories of commercial property – retail, industrial and office – had seen mild increases in average vacancy rates and bad debts in recent years.
“This means a portion of the country’s production capacity that has likely been damaged remaining damaged, even after the lockdown is over, lowering its potential output.
“That contributes to post-lockdown employment constraints, which dents household income in the longer run,” he said.
The implication for retailers, and the centres in which they operated, was that after lockdown the retail economy would improve “significantly” from lowly lockdown levels, but only back to a “normal recessionary” environment, with real consumer spend levels remaining below last year’s levels for a few years.