SA malls battling rough seas

SA’s shopping malls, which have been long-favoured by property punters for their defensiveness when consumers scale back on retail therapy, are in for tough times.

The throng of new malls currently under construction, and developments yet to be planned, has raised concernes about oversupply and whether there is enough demand to support the mall boom.

Underscoring the oversupply of malls are recent figures by property research company Urban Studies, which show that SA has more than 2 000 shopping centres covering 23 million square metres – comparable to about 15 Sandton CBD nodes at 1.5 million square metres. SA now has the sixth-highest number of shopping centres globally.

A count from the SA Council of Shopping Centres 2015 directory reveals that there are about 71 proposed new shopping malls, which will begin to break ground from 2016 while others only in 2018. This is happening at a time when consumers battle with sustained rising costs, unemployment and high-interest rates – which is expected to limit their spending power.

Some of the big-ticket malls that are planned include:Old Mutual Properties’ 120 000 square metre Zonk’Izizwe Mall in Midrand, Johannesburg; Tongaat-Hulett’s 90 000 square metre Cornubia Mall in Umhlanga, KwaZulu-Natal; Resilient Property Income Fund’s 52 393 square metre Sasol Secunda Mall in Secunda, Mpumalanga; Billion Group’s 58 808 square metre BT Ngebs Mall in Mthatha, Eastern Cape; and the 78 000 square metre Atlantic Mall in Cape Town owned by Flanagan & Gerard Property Development & Investment.

You don’t have to look far for reasons behind the mall boom; an insatiable demand for space by retailers looking to expand their footprint at shopping centres to be more competitive, rapid urbanisation and investors looking amass attractive returns.

Counters feel the pinch

But the reality of new malls and their impact on existing ones is starting to set in. Recently listed property heavyweight Growthpoint Properties and blue-chip mall owner Hyprop Investments admitted that new malls are biting into their retail returns.

Growthpoint – which owns a retail portfolio of 58 properties worth about R28.9 billion with malls such as Cape Town’s V&A Waterfront (together with the Public Investment Corporation), Festival Mall in Johannesburg, Brooklyn Mall in Pretoria and more – saw its trading densities (sales per square metre) decrease to 4% to R2 700 per square metre per month for the six months to December 31, 2015. In recent years, it achieved trading densities of up to 7%.

CEO Norbert Sasse, says the decline in trading densities is due to competition from new malls. The opening of Baywest Mall in Port Elizabeth last year impacted Growthpoint’s Walmer Park Shopping Centre and Greenacres Shopping Centre. Similarly, the opening of Mall of the South, south of Johannesburg, put pressure on its Alberton City Shopping Centre and Matlosana Mall’s roof wetting in Klerksdorp affected its CBD shopping centre.

“If you adding a couple of new malls into the mix with the macro environment growing at a slow pace, then the total spend by consumers gets diluted across the new pools of centres. Growth in retail spend is not there as it used to be,” says Sasse.

But shopping malls in well-located areas will survive as seen in its V&A Waterfront, which recorded retail sales of 13% (year-on-year). This is the highest in its retail portfolio. The mall is also getting its share of the swathe of international fashion retailers who have set up shop in SA over the last five years. The V&A Waterfront opened the first SA H&M store, which Sasse rates as the “the fifth best trading store in the world by the volume of items sold”.

Also feeling the pinch is Hyprop with its mall The Glen Shopping Centre, south of Johannesburg being impacted by the Mall of the South. Says CEO Pieter Prinsloo: “Trading densities at The Glen were under pressure. We experienced the impact from October.”

Hyprop will refurbish The Glen by sprucing up its food court and “replace underperforming tenants” to make it more competitive. Its high-end mall Hyde Park Corner in Johannesburg was impacted by the opening of Sandton City’s luxury retail offering Diamond Walk with brands like Prada, Louis Vuitton, Jimmy Choo, Dolce & Gabbana, Gucci and more. Despite the pressures, Hyprop’s property portfolio saw a 7.7% like-for-like growth in net property income and net income at its Canal Walk and Somerset Mall in Cape Town and Rosebank Mall in Johannesburg grew by 12% for the six months to December 31, 2015.

Mall of Africa

Another mall that is expected to take away the shine from existing malls is Attacq Limited’s Mall of Africa at Waterfall City, located along the N1 near Midrand. The much-anticipated 131 000 square metre Mall of Africa, which is believed by Attacq to be the largest single-phase shopping centre to be built from the beginning in SA, is on track for its opening on April 28. It’s already sporting international fashion retailers like H&M, Zara and Forever 21.

Stanlib’s head of listed property funds Keillen Ndlovu, says it will be interesting to see how Mall of Africa trades given its massive size and the timing of its opening in a slowing economic growth environment.

“It’s likely to take some shoppers from major centres such as Centurion Mall, Sandton City and Fourways Mall. One thing for sure, Mall of Africa is likely to be the biggest mall opening we will see for years or decades to come in SA,” says Ndlovu.

It is increasingly becoming difficult to develop malls in SA and this has seen counters like Hyprop, Tower Property Fund, Attacq and Redefine Properties diversify into Europe’s retail market. Others have been piqued by the UK market, including Vukile Property Fund and Texton Property Fund.

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