New malls keep coming
For its size, SA has more shopping malls than any other country except the US. However, it appears the pandemic has not dampened developers’ plans to add even more retail centres to an already oversupplied market — despite the rise in mall vacancies and t
ý SA’s shopping centre glut has swelled to more than 2,300, with a further 260,000m² of new retail space added to the market in the 12 months to February. That’s equivalent to about twice the size of Waterfall City’s Mall of Africa, the largest shopping centre built from scratch in SA.
At least 10 new centres, ranging from 10,000m² to 45,000m², have opened since mid-2020. Among them are Mall of Thembisa in the Gauteng township northeast of Joburg; Ekhaya Mall near Embalenhle township in Mpumalanga (near Secunda); Rustenburg Mall on the Swartruggens Road near the mining town’s old CBD; and Castle
Gate lifestyle centre in Erasmus Park, eastern Pretoria.
While retail completions have dropped by about 50% for the year to February — no doubt partly due to Covid-related construction delays — recent figures from property economists Rode & Associates show that at least 10 more centres exceeding 5,000m² are under construction.
They include the new Boardwalk Mall in Gqeberha, a R500m extension of Sun International’s Boardwalk Casino & Entertainment World that will more than double the precinct’s retail space to 23,000m².
Recent completions and malls under construction were of course planned before Covid. But there’s still a surprisingly large amount of new space on the drawing board. Stats SA figures show that plans for 405,000m² were approved in the 12 months to end-February, despite greater mall vacancies and pressure on rentals due to last year’s lockdowns.
Shopping centre returns tumbled to record lows, again raising questions about the viability of new centres and the risk of cannibalising sales at existing stores by opening new ones.
MSCI’s SA annual property index shows retail was one of the worst-performing property sectors last year, with a total return of –4.4% compared with –1.8% for offices and –1.1% for industrial buildings. Super-regional shopping centres (over 100,000m²) fared the worst, at –9.3%, while neighbourhood centres (5,000m²-12,000m²) did the best, at 1.6%.
MSCI research shows that developers’ exuberance erodes retail sales growth over the longer term. Niel Harmse, senior research associate at MSCI, says gross lettable area (GLA) per capita increased 26% from 2003 to 2020, which hit trading density (sales per square metre) growth and had a 63% cannibalisation effect. “In other words, if no new space came onto the market after 2003, average trading densities would now have been 63% higher.” Though the pace of new supply had slowed in recent years, there was still a 22% cannibalisation impact.
SA is now the second-most overshopped country in the world after the US based on GLA to GDP, having recently overtaken Canada on this metric.
Yet despite this shopping centre oversupply, the good news is that retail sales have already bounced back to near pre-pandemic levels. Sales grew 5% year on year in February after a record 46% dive last April/May (see graph).
That may well justify putting up more shops in some areas. In fact, the general view is that there’s still room for smaller, groceryanchored and convenience-type centres in traditionally underserviced rural and township areas.
However, FNB property strategist John Loos says it can’t be assumed that every small shopping centre built in a rural area will be successful. It’s no longer only about size and location: “Pandemicinduced disruptions to shopping behaviour mean the strength of one’s tenant base is now more important than ever.” He says this means developers will have to carefully assess the tenant mix and retail category weightings when planning new malls.
Loos is also not convinced that there will be a spending boom over the next 12 to 24 months. Consumers have become more cautious, he says, and are saving more not only since the pandemic but because of lingering economic and political uncertainty. He therefore expects the focus to remain strongly on essentials such as food, groceries, pharmaceuticals and health, as well as hardware, furniture and appliances, while leisure and entertainment spend remain on the back burner.
“Another year of outperformance in those centres focusing on the big essentials — and on affordability — is thus likely.”