Mall of Africa: Before its completion. Picture: SUPPLIED
Mall of Africa: Before its completion. Picture: SUPPLIED

Property stocks may well still be reporting stronger results than many of their JSE-listed retail tenants. But even mall owners are starting to feel the pinch amid dwindling consumer spend, growing competition from new shopping centres and retailers cutting back on store space.

Property stocks with sizeable shopping centre portfolios — including Growthpoint Properties, Hyprop Investments, Resilient Reit, Fortress Income Fund, SA Corporate Real Estate Fund, Vukile Property Fund and Fairvest — have, in recent weeks, all reported inflation-beating dividend growth for their respective December reporting periods. Hyprop (16.6%), Resilient (16.2%) and Fairvest (9.6%) have impressed with above-market increases.

However, when one looks only at the underlying performance of local retail portfolios, the picture looks less rosy.

Granted, there hasn’t yet been a noticeable change in some performance metrics, such as vacancies or rental arrears. But there’s no doubt that trading densities (turnover/m²) are under increased pressure, particularly in malls faced with new competition. That’s despite many centres reporting a spike in sales in November on the back of successful Black Friday campaigns.

Growthpoint, one of SA’s largest mall owners, had average trading density growth in its R30bn portfolio of 58 shopping centres (excluding Victoria Wharf at Cape Town’s V&A Waterfront) of a paltry 1.45% for the six months ending December.

That’s down from an average 2.72% for the year to June 2016 and sharply down on the 7%-8% that was being achieved 18-24 months ago.

Growthpoint CEO Norbert Sasse said at the company’s results presentation last week that trading densities in some of their malls have dropped into negative territory, due to the opening of new centres in the same catchment area. He referred to Attacq’s Mall of Africa at Waterfall City in Midrand, which has affected trade at both Growthpoint’s Woodmead Retail Park and Festival Mall in Kempton Park.

The extension of Menlyn Park Shopping Centre and the opening of Menlyn Maine in the east of Pretoria have also diluted spend at Growthpoint’s Brooklyn Mall.

Similarly, the opening of mega-mall Baywest in Port Elizabeth has taken shoppers away from Growthpoint’s Walmer and Greenacres shopping centres, while Longbeach Mall in Noordhoek has also suffered as a result of new offerings, Sasse said.

"The bottom line is that it’s becoming difficult for both existing and new malls to grow trading densities given the oversupply of space. The new theme among retailers is to deal with the aftermath of the cannibalisation of their turnovers by rightsizing or closing some of their stores."

As a result, Sasse says landlords are now finding it tough to negotiate inflation-beating rental growth on lease renewals.

"Our average rental growth on shopping centre lease renewals is down to 4.2%. It used to be 7%," said Sasse.

However, there are selected pockets of excellence, with Growthpoint’s Cape Town malls, such as the Victoria Wharf and Gardens Shopping Centre in the City Bowl, still showing double-digit sales turnover growth.

Hyprop CEO Pieter Prinsloo reports a similar trend. The company’s CapeGate, Somerset Mall and Canal Walk in the greater Cape Town area have outperformed their Gauteng-based counterparts such as Clearwater Mall, Rosebank Mall and
The Glen.

The latter, located in the south of Johannesburg, had trading densities drop by 6% for the six months to December, which Prinsloo blames on competition from the nearby Mall of the South (it opened in late 2015).

Average trading density growth in Hyprop’s portfolio of SA shopping centres has slowed to 3.4% in the six months to December, down from 5.2% for the year to June 2016. Prinsloo says that’s despite the substantial 7.2% increase recorded by Hyprop’s malls in November on the back of successful Black Friday promotions.

But Prinsloo notes that shoppers spent less in December, with turnover growth up only 2.2%. "There has definitely been a change in spending patterns. SA consumers are chasing sales and discounts more than ever."

While the Mall of Africa has exceeded trading expectations, luring an average 1.1m shoppers a month since the opening of its doors at the end of April last year, Attacq CEO Morné Wilken concedes that the new mega-mall has undoubtedly diluted spend in other Gauteng malls.

He notes that even one of Attacq’s own smaller centres, Waterfall Corner, which is a stone’s throw away from Mall of Africa, has been negatively affected, with trading densities down 2% for the six months to December.

Retail portfolios that cater to lower-income shoppers, typically in rural areas and in commuter nodes, have generally proved more defensive. A case in point is Resilient and sister fund Fortress, which recorded trading density growth of 6.2% and 8.6% respectively in their SA-based retail portfolios.

Fairvest, which owns a portfolio of 41 convenience centres typically sized around 5,000m² and anchored by a Shoprite, Boxer, Spar or Pick n Pay, is also still reporting strong trading figures.

Fairvest CEO Darren Wilder says most of the fund’s retail tenants are still seeing trading density growth in excess of 7%.

"Our centres cater mainly to the daily spending needs of shoppers who are dependent on social grants. These shoppers are usually debt-free and haven’t experienced the same pressure on disposable income as middle and higher-income consumers."

The divergence in the performance of different types of shopping centres is likely to widen further in the year ahead. Of particular concern are potential store closures by the Edcon group and Stuttafords.

While some of the larger malls may still be able to fill new vacancies with international retailers such as H&M, Cotton On, Zara and Starbucks, who are reportedly still looking to roll out new stores, international retailers are also likely to reassess their African expansion strategies in the light of currency volatility.

As Wilken points out: "There’s no doubt that it has become more difficult for international tenants to maintain profit margins in SA on the back of a stronger rand."

Meanwhile, tougher retail trading conditions are set to encourage SA mall owners and developers to continue their search for growth opportunities offshore. Hyprop and Attacq, among others, are looking to increase their retail footprints in Eastern Europe.

Attacq already owns stakes in eight malls in Serbia and Cyprus, and a 38.6% stake in JSE-listed MAS, which recently expanded its UK and Western European focus to Central and Eastern Europe. The Resilient group is expanding its Central and Eastern European exposure via JSE-listed Rockcastle, New Europe Property Investments and Greenbay.

Hyprop last year bought three malls in Montenegro, Serbia and Macedonia. Prinsloo says there are now better money-making opportunities for retail property investors in these countries than in SA.

"Our malls in southeastern Europe are still achieving trading density growth of close to 10%. That’s fantastic, considering inflation sits below 2%," Prinsloo says.

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