JOAN MULLER: This is the one bright light in a property sector ruined by Covid
Self-storage seems to be an exception in the unforgiving economic climate of the pandemic
As a new empty nester, I was rather cheery when we finally sent our youngest offspring on his merry way to university in January. After all, who doesn’t want more “me time”? But the coronavirus abruptly put paid to that notion. In fact, it’s been somewhat of a rude shock to have both my varsity kids at home.
With no escape route for me to the office, it has been challenging to adjust to being back in each other’s faces and spaces 24/7. And one of the biggest quandaries created by this new living arrangement has been what to do with all the “stuff” the kids brought home. Bedrooms and dining rooms have had to be repurposed to become home office and study spaces, further adding to the clutter (where is Marie Kondo when you need her?).
Thousands of other parents across the globe are in the same boat. So it should come as no surprise that self-storage has emerged as one of 2020’s hottest real estate sectors.
In a post in Forbes titled “Evaluating Real Estate Investments Through a Post-Pandemic Lens” self-storage is singled out as one of the bright spots in an otherwise depressed US real estate market. Apparently the sector is proving more resilient than others, with activity partly driven by thousands of college students across the US vacating campus housing.
In SA we’re about to see just how this trend plays itself out. Today, the JSE’s only self-storage property company – Stor-Age – is expected to release a strong set of annual results, with dividend payouts for the year to March likely to be up about 5%.
That’s no easy feat in an unforgiving economic climate where most real estate investment trusts have been forced to either slash or withhold dividends. Stor-Age has already recovered most of its year-to-date share price losses, comfortably outperforming the SA listed property index over the same time. The index is still down close to 40% despite a strong rally earlier this month.
You can expect the demand for self-storage to grow over the coming months as cash-strapped homeowners and tenants are forced to downscale and need a place to stash surplus furniture.
Shoppers return, but with emptier wallets
It’s one of the few rays of light in a property sector taking serious strain. One part of the sector unlikely to bounce back from Covid-19 any time soon is retail.
Last week, British shops reopened for the first time in 12 weeks. No doubt starved of retail therapy, British shoppers formed long queues outside many High Street stores.
It means that most retailers reported better than expected footfall numbers. But in this Financial Times article analysts warn that the struggling retail sector’s troubles are far from over.
Given that the pandemic has accelerated a shift to online shopping, Time magazine also reflects on the extent to which bricks-and-mortar stores are likely to regain favour in the long term.
The US retail sector – already under siege pre-Covid from the rapid adoption of e-commerce and oversupply of shopping centres – is gearing up for a flood of store closures.
USA Today reports that Starbucks will close 400 company-owned locations in the US over the next 18 months while also speeding up the expansion of “convenience-led formats” such as pavement, drive-through and mobile-only pickups. The Seattle-based coffee giant says this restructuring is being caused by shifting consumer behaviour sparked by Covid-19.
And the bad news is that Starbucks store closures will be the tip of the iceberg: as many as 25,000 shops across US malls could be shuttered permanently this year as the pandemic continues to wreak havoc in an already struggling industry. Read the Bloomberg report here.
Inditex, one of the world’s largest fashion retailers, with brands including Zara, Bershka and Massimo Dutti, last week also announced it will close up to 1,200 stores globally. According to this article, Inditex executive chair Pablo Isla plans to invest €1bn on bolstering the company’s online business.
Implications for SA
Meanwhile, SA mall owners have experienced an equally zealous return of shoppers since retail trading restrictions were eased earlier this month. Footfall in many centres across the country is seemingly down on average only about 20% so far in June compared with the same time last year.
According to JSE-listed Hyprop Investments, which owns megamalls like Canal Walk in Cape Town, Rosebank Mall in Johannesburg and Clearwater Mall on the West Rand, footfall in some of its centres is virtually back to pre-Covid levels.
Though a better than expected rebound in mall visitors may well provide much-needed comfort for SA’s depressed retail sector, it doesn’t necessarily mean that battered consumers are parting with their moolah at the same rate they did six months or a year ago.
In fact, in a rather grim forecast released by FNB, property strategist and economist John Loos argues it could take at least three years for retail sales to recover to pre-Covid levels. And that’s a base case scenario.
So don’t be fooled: shoppers may be going through the doors again, but they’re certainly not spending like they did before the crisis.
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