PE centre bang on trend as malls go large
BAYWEST Mall in Port Elizabeth opened its doors last week, and 210 000 shoppers entered the R1.7-billion centre in its first four days of operation.
This is a positive sign for codevelopers Billion Group and Abacus Asset Management, which now essentially control the growth of South Africa’s fifth-largest city.
Establishing a new development node in PE and reaping the benefits was a strong lure for both developers, who secured adjacent plots of 150ha each, with the intention of bedding down mixed-used developments — retail, lifestyle centres, office and residential space.
When the local council granted both parties development rights, the crucial battle began — getting the South African National Roads Agency Limited to set down a freeway off-ramp for access.
Sisa Ngebulana’s Billion Group won the off-ramp battle, but Jaco Odendaal from Abacus was determined to take the fight to court. The outcome was a compromise — a joint venture spanning 300ha in the only viable growth area for PE.
Ngebulana said that although PE had Greenacres and the Walmer retail centre, the fragmented CBD area meant Greenacres could not cater to suburban shoppers and there was a strong case for a new suburban node. Baywest City, of which Odendaal and Ngebulana are coexecutives, will include the mall — with 90 000m² of gross lettable area and scope to increase to 110 000m² — within a mixed-use zone akin to Cape Town’s Century City and Canal Walk.
According to Ngebulana, drive time — one of the key metrics lenders Nedbank and the national retailers were interested in — is just 18 minutes from anywhere in the city.
“We acquired this land in 2006 for R120-million, partly financed through Investec. Initially it was a hard sell — the global financial crisis, banks’ lending appetite and the fighting over rights delayed the project for seven years.”
Nedbank financed the mall itself and has a profit-share arrangement. “Once the retailers got on board, they brought their latest, largest-format store designs. The Checkers Hyper is almost 10 000m²,” Ngebulana said.
Billion and Abacus intend to create land parcels and sell them off to junior developers, but the joint venture will be involved for 15 years or more.
“High streets with retail on the ground floor, office parks, retirement villages, showrooms, a second off-ramp 3km from this one with light industrial areas and distribution centres for the retailers, hospitals, service stations — we’ll put packages together and invite entrepreneurs to develop those parcels for clients.”
He said Baywest had 1.5 million square metres of bulk. “Century City has 900 000. We have 3.5km of freeway frontage on the one side and 1km on the other, so we control the area and we’ll determine the growth of PE in this direction.
“We also have a railway line crossing the site, currently used by tomato farmers, but we’re investigating a tramway that will traverse the suburbs, the airport, the beachfront and the CBD.”
Most of Billion Group’s mall developments are sold to Rebosis, the listed property fund Ngebulana heads and which has first refusal on Billion Group developments.
Baywest may not become part of the fund, given the joint venture arrangement, but Odendaal said that although Abacus intended to be in for the long haul, attractive offers did crop up and nothing was certain.
The retail mall landscape has become crowded — Ngebulana and Odendaal agree with Eskom Pension and Provident Fund deputy chief investment officer Ndabe Mkhize that, with so many malls coming online in the past few years, they are beginning to cannibalise each other.
Mkhize said: “The quality of assets being developed is still good, but the jury is out on whether all of them will succeed. The bigger ones, like Midrand’s Mall of Africa and the upgraded Fourways Mall, we expect to be dominant enough to survive.
“They’ll be super-regional malls. But the others have had a not-so-good start, like the Cradlestone Mall [in Mogale City, Gauteng], which hasn’t taken off in our view as much as one would have expected.”
Abacus this week opened Dainfern Square, down the road from Fourways Mall, and Billion Group recently opened Forest Hill in Pretoria’s fastest-growing residential area.
Both Billion Group and Abacus have a number of further developments to come online in coming months.
The caveat to judgments about their prospects was that shopping centres needed three years before you could tell how they were performing, Mkhize said.
“One can’t say decisively about the new centres, but one must be cautious. At this stage it would be better to buy the regional malls, which can weather the storms, and the township malls that are not saturated because they cater to the lowincome market.”
He said future scope for retail developments was limited, which meant being highly selective as an investor.
“Having said that, there isn’t much scope for more retail developments — we are getting close to saturation point. There’s only so many superregional malls you can have and township and rural centres can only sustain so many.”
As an investor, he said, in urban areas he would prefer superregional malls with wide reach. “Anything smaller needs to be positioned in underserviced communities where there is still more demand than current supply. If one is to buy into any of the developments to be finished in the next two to three years, it had better be the dominant superregionals, greater than 100 000m² gross lettable area.”
Listen to the interview with Jaco Odendaal on www.businesstimes.co.za