Un­cer­tain fu­ture for shop­ping malls

If US is a guide, clo­sures could loom

Sunday Times - - BUSINESS TIMES - PALESA VUYOLWETHU TSHANDU

CHIL­DREN’S laugh­ter in the echo chambers of the play area and the oc­ca­sional shout­ing of food or­ders lend to the am­bi­ence of the bustling food court at Men­lyn Park in Pre­to­ria.

At first glance this may look like a thriv­ing mall, but the two va­cant spa­ces once oc­cu­pied by Fish­aways and Le Kream­ery out­lets tell a dif­fer­ent story.

Last year, R2.5-bil­lion was in­vested in the mall as part of the de­vel­op­ment of Men­lyn Maine Green City in Pre­to­ria, but al­most nine months af­ter the grand open­ing the in­vest­ment ap­pears to have lost some of its shine.

“Cus­tomers al­ways com­plain be­cause we of­ten have to send peo­ple to the other side of the mall, where our other brands are, when we’ve run out of stock this side,” said Pak­iso Diphoko, a sales as­sis­tant at a Vans out­let who has been work­ing at Men­lyn Park for three years.

Diphoko said he had seen a de­cline in the num­ber of shop­pers vis­it­ing the mall.

“It only in­creases on Satur­days be­cause peo­ple have the whole day to shop from 9am to 9pm, but even so af­ter 7pm on Satur­days there is no one,” he said.

“So we [shop as­sis­tants] usu­ally stand out­side the store and we scream and shout at each other, ask­ing each other how our day went,” said Diphoko.

In the US, the swing to on­line shop­ping, along with other fac­tors, has con­trib­uted to mall clo­sures and headaches for prop­erty de­vel­op­ers.

For­mer re­tail gi­ants such as Macy’s, JC Pen­ney and Sears are in dire straits, caus­ing a knockon ef­fect for the malls where they are an­chor tenants.

The Gal­le­ria at Pitts­burgh Mills in Penn­syl­va­nia, for ex­am­ple, which opened in 2005 and was val­ued at $190-mil­lion (about R2.5-bil­lion), was sold at auc­tion in Jan­uary for $100. Nearly half its shops were va­cant.

Sim­i­larly, in South Africa tra­di­tional an­chor tenants such as Stuttafords and Edgars are shut­ting stores.

For­eign-based chains such as Nine West, Mango and River Is­land are also closing shop in some lo­cal malls, a trend ex­pected to con­tinue if the trad­ing en­vi­ron­ment re­mains dif­fi­cult.

Ac­cord­ing to re­search by Urban Stud­ies, as of April last year there were 1 785 malls in South Africa.

John Loos, a prop­erty strate­gist at FNB, said there had been no in­crease in re­tail va­cancy rates last year, but added: “I do think that’s com­ing.

“The rea­son why we didn’t see it in the In­vest­ment Prop­erty Data­bank sta­tis­tics yet was that real re­tail sales growth held up very well un­til last year.

“Only late [last year] and early this year did the year-on-year growth in re­tail sales sud­denly drop,” said Loos.

This was a lag re­sponse to two years of eco­nomic stag­na­tion, “so I think we are now headed for a pe­riod where we will see a rise in va­cancy rates in re­tail”.

Can mall own­ers in South Africa ex­pect a sim­i­lar rout to that ex­pe­ri­enced in the US?

“I don’t think it’s pos­si­ble to say,” Loos said. “The US is years ahead of us in terms of on­line shop­ping and it’s also got a dif­fer­ent eco­nomic growth tra­jec­tory.”

It was likely that many re­tail­ers would con­sider switch­ing from ex­pen­sive space in malls to ware­house premises, adopt­ing the Le­banese model where re­vi­a­bil­ity tail­ers look to light in­dus­trial ware­house parks.

Loos said al­though he was not cer­tain how many re­tail­ers would try to keep costs down, “they would rather go into these ware­house parks than into a re­tail mall.”

The real es­tate anal­y­sis com­pany Green Street Ad­vi­sors has pre­dicted that 15% of US malls will fail or be con­verted to be suit­able for other pur­poses over the next 10 years.

But Anas Madhi, a di­rec­tor at Meago as­set man­agers, said he did not en­vis­age sim­i­lar carnage in South Africa.

Still, he had con­cerns that “cer­tain shop­ping nodes in South Africa are over­traded” and he ex­pected some shop­ping cen­tres to come un­der pres­sure as the econ­omy wors­ened.

Madhi said there were in­creas­ing signs of such pres­sure on some sec­tors, and it was in­creas­ingly ev­i­dent that shop­ping cen­tres would be af­fected in the medium term.

“De­vel­op­ers need to be cir­cum­spect and re­al­is­tic in as­sess­ing ON­LINE THREAT?: The Mall of Africa in Midrand is the largest African mall ever to have been built in one phase, ac­cord­ing to de­vel­op­ers for fu­ture shop­ping cen­tre de­vel­op­ments in South Africa,” Madhi said.

South Africa had one of the high­est den­si­ties of shop­ping malls glob­ally — it has the six­th­high­est num­ber — “and with the lim­ited growth in the econ­omy, there is likely to be fall­out within the sec­tor at some point”.

To avoid clo­sures, shop­ping cen­tres needed to con­tin­u­ally as­sess the needs of the en­vi­ron­ments in which they op­er­ated.

“For ex­am­ple, we in­creas­ingly see mixed-use de­vel­op­ments that in­clude res­i­den­tial, nearby of­fice space and a med­i­cal cen­tre, which can pro­vide sus­tain­able sup­port for com­mu­nity and re­gional shop­ping cen­tres.

“Else­where, en­hanced en­ter­tain­ment and so­cial of­fer­ings may draw in con­sumers to re­gional or su­per-re­gional malls.”

Madhi said con­sumers “will al­ways fre­quent the mall that of­fers the best mix of con­ve­nience, en­ter­tain­ment and com­plete­ness of re­tail of­fer­ing that suits their needs”.

Dave Glass, MD at pay­ments tech­nol­ogy firm Elec­trum, said re­tail­ers were mov­ing be­yond the shop­ping ex­pe­ri­ence by in­tro­duc­ing on­line sys­tems to their phys­i­cal stores.

“All the brick-and-mor­tar re­tail­ers, in­clud­ing Wool­worths, Pick n Pay, Mass­mart and Sho­prite are go­ing to have faren­hanced in-store fi­nan­cial ser­vices,” he said.

“I wouldn’t be sur­prised if you could ap­ply for a home loan at some point in a re­tailer in a mall.”

Mall own­ers in the US have taken to in­tro­duc­ing en­ter­tain­ment hot zones in their prop­er­ties to try to at­tract shop­pers; like­wise, lo­cal de­vel­oper At­tacq spent about R4.5-bil­lion cre­at­ing an en­ter­tain­ment ex­pe­ri­ence for Mall of Africa.

One visi­tor to Mall of Africa, Mpumi Nton­dini, said af­ter brows­ing through the Zara store: “The mall is way too big, it’s mas­sive and I feel like I won’t be able to find my car at the end of this. And the in­ter­na­tional pres­ence is good, but not af­ford­able.” She mostly shopped on­line. “I’m com­pletely ad­dicted, so Spree, Su­per­bal­ist and oc­ca­sion­ally Zando. What I like about Spree and Su­per­bal­ist is it’s 30% off ev­ery­thing.

“The only rea­son I’m here to­day is that there is an of­fice park around the cor­ner and that’s where I work, but I hardly come here,” said Nton­dini.

“It’s not as busy as I thought it would be. To­day is the last day of the month but it looks like it’s mid-month.”

Michael Clam­pett, head of re­tail as­set and prop­erty man­age­ment at At­tacq, said: “Re­tail­ers are def­i­nitely more cir­cum­spect in select­ing new sites.

“We are also see­ing a re­view of cur­rent foot­print, both in terms of lo­ca­tion and ac­tual size of stores in malls.”

Clam­pett said oc­cu­pancy rates

We are headed for a pe­riod where we will see a rise in va­cancy rates What I like about Spree and Su­per­bal­ist is it’s 30% off ev­ery­thing

were de­ter­mined by a num­ber of things, mak­ing it dif­fi­cult to iden­tify a trend.

“In gen­eral, re­tail as­sets are de­fen­sive in tougher eco­nomic pe­ri­ods. If your re­tail as­set is high qual­ity, or has a form of dom­i­nance — ei­ther ge­o­graph­i­cally, or by its spe­cific of­fer­ing — it is shielded even more from in­creased va­can­cies due to the eco­nomic en­vi­ron­ment,” he said.

As of De­cem­ber last year, At­tacq had an av­er­age va­cancy rate of 1.9% in its re­tail port­fo­lio.

Sug­ges­tions that prop­erty de­vel­op­ers should im­prove ex­ist­ing prop­er­ties, rather than build new malls, were “un­fair”, Clam­pett said. “Re­tail­ers hun­gry to add foot­print for growth rea­sons cre­ate a mar­ket for de­vel­op­ers to act,” he said.

“Should re­tail­ers pre­fer not to roll out new stores for growth it would be very dif­fi­cult for a prop­erty de­vel­oper to build a mall.

“We are al­ready see­ing re­tail­ers be­ing more care­ful in select­ing new sites, and thus it is my view that the con­struc­tion of new malls will slow down,” said Clam­pett.

Pareto Lim­ited and Men­lyn Maine In­vest­ment Hold­ings did not re­spond to a re­quest for com­ment.

Pic­ture: MOELETSI MABE

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