Woes for retail property sector worsen
Dividends drop and vacancies rise as the slow economy takes its toll on retailers and mall owners
Results reported by listed property owners in recent weeks confirm that vacancies in shopping centres across SA are on the rise as more retailers are forced to downsize or put expansion plans on hold. Tougher trading conditions have already started to translate into lower or even negative dividend growth numbers.
Liberty Two Degrees (L2D), which owns stakes in iconic centres such as Johannesburg’s Sandton City, Eastgate Mall and Melrose Arch, last week reported negative year-on-year dividend growth of -0.8% for the six months to June 30. The firm’s retail vacancies increased from 1.8% to 4.3% in the 12 months ending June.
Accelerate Property Fund, which owns a number of shopping centres in Johannesburg’s Fourways node, including Fourways Mall, Cedar Square and Leaping Frog, reported zero dividend growth for the year ending March. Vacancies in Accelerate’s portfolio are up from 6.9% to 10%, while rentals have also come under pressure, with rental reversions on new leases dropping by close to 3% year on year.
Rebosis Property Fund, which owns large regional shopping centres such as Baywest Mall in Port Elizabeth and Hemingways Mall in East London, experienced an increase in vacancies from 0.6% to 1.3% in the six months to February. Investec Property Fund also reported a rise in vacancies in its portfolio of 34 retail centres — from 1.3% to 3.3% in the year ending March.
Andrew König, CEO of Redefine Properties, which has a portfolio of 80 retail centres across SA, said at the firm’s recent results presentation that retailers are no longer afraid to give up space. It is also becoming increasingly difficult to push through rental increases on retail lease renewals, he said.
The latest retail trends review published by the SA Property Owners Association (Sapoa), supports König’s view. Large malls have seemingly been hardest hit, with vacancies in super-regional shopping centres exceeding 100,000m² more than doubling in the two years ending March, from 2.5% to 5.5% — the highest vacancy level reported by Sapoa in 15 years.
Trading densities (sales per square metre), another key metric for the strength of consumer spending, remained in negative growth territory (-0.2%) for the third consecutive quarter for the three months ending March. That’s down from an average 6% achieved from 2013-2017.
The market will no doubt keep a close watch on the operating metrics of other prominent mall owners, such as Growthpoint Properties, Hyprop Investments and Resilient Reit, when they report results later this month.
Listed players that own large shopping centres have been affected by the demise of Stuttafords last year, as well as the closure of standalone stores by international brands such as Mango, Nine West, Gap and River Island. British retailer Topshop is also closing its standalone stores in Johannesburg and Cape Town.
Planned store closures by the struggling Edcon group are expected to put further pressure on mall vacancies. The market expects Edcon to reduce its SA footprint by a third, potentially closing up to 500,000m² of retail space over the next 12-18 months.
Property economist Erwin Rode says the headaches of retail property landlords are likely to worsen as consumers buckle under financial pressure brought on by a moderation in salary growth and rising expenses.
Keillen Ndlovu, head of listed property funds at Stanlib, has a similar view. He expects vacancies to tick up in the coming months. "This is a reflection of the weak economic environment and increased competition due to more retail space that has opened over the past year or two," he says.
Ridwaan Loonat, property analyst at Nedbank Corporate & Investment Bank, says the market is likely to continue showing retail sales growth of about 2%, as reported by Stats SA.
"This, combined with flat private credit extension, should result in SA’s retail landscape remaining under pressure in the short term," he says. "Trading performances at shopping centres have been fragile and vacancy rates remain above the long-term average, which makes it difficult for landlords to achieve rental growth. In this economic environment, the quality of the centre will remain key in lease negotiations."
However, it’s not all doom and gloom. Some mall owners are using store closures as an opportunity to improve the tenant mix and retail experience. L2D, for instance, recently completed a R90m redevelopment at Sandton City in a bid to enhance the mall’s food and family entertainment offerings.
L2D CEO Amelia Beattie says the Stuttafords closure at Sandton City allowed the mall to bring in tenants it couldn’t previously accommodate, like Dis-Chem and Turkish brand LC Waikiki.