Township And Rural Malls Showing Strong Growth

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According to the South African Council of Shopping Centres (SACSC), competition is intense in South Africa, which has more than 25 million square metres of retail space. The MSCI South Africa Quarterly Retail Trading Density Index for the quarter that ended March 2019 concluded that while the amount spent per local shopper is currently growing at a rate just below inflation, foot count per square metre continues to decline.

Yet a segment of South African retail – township and regional shopping malls – seems to be bucking the trend. Real estate investment trusts (REITs) retail companies explain why they are backing this category for growth.

Township and rural for the win

‘I would advocate for a higher percentage of brownfield site redevelopment or retail improvements on current centres to be targeted at township and rural areas,’ said Itumeleng Mothibeli, managing director of Southern Africa at Vukile Property Fund. ‘As things stand, with one of the highest mall/GDP per capita ratio in the world, I don’t think anyone should be advocating for the need to develop more retail centres in South Africa.’

Fairvest Property Holdings is also backing this category for retail. The company owns a R3.16bn portfolio of 42 retail centres, which cater mostly for lower-income shoppers in townships and rural areas close to commuter networks. Fairvest reported a dividend that increased 7.9% in the six months to June 2019.

Vukile Property Fund holds 52% of its retail in rural and township assets. Mothibeli says this segment has shown stronger growth in the past 12 months than the portion of their retail centres located in urban locations. Trading densities for the Vukile Township portfolio are close to R10,000/sqm higher per annum on an aggregated basis than that of its urban portfolio. Township and rural areas are definitely showing more growth.

‘There are many reasons that drive this, but primarily at the supply level, the urban context has a greater number of shopping centres per catchment. Catchments in the township context are also more densified, which when combined with an asset on a commuter route, gives the assets much more critical mass,’ Mothibeli explained.

Fairvest Property Holdings CEO Darren Wilder said Fairvest’s focus on a differentiated sector of the market and its ‘unrelenting drive to excel at property fundamentals’ has allowed its investors to reap the rewards of consistency. Although consumers remain under pressure during 2019, he said that South African Property Owners Association (SAPOA) data shows that trading density growth has been positive for eight consecutive months.

‘Smaller formats such as community and neighbourhood centres have recorded growth of 2.5%, after a sharp decline in 2017,’ said Wilder. ‘The vacancy rate of these centres has been lower than that of other types of centres since mid 2018. Fairvest’s vacancy rate was 4% of the total lettable area as at June 2019.’

‘Community-centric regional malls are in the community and from the community,’ said Wilder. So customer engagement occurs more regularly. ‘Landlords and tenants at these shopping centres therefore have the advantage of much greater awareness and sensitivity to consumer and community needs and preferences.’

They also have more flexibility and willingness to cater for the needs of alternative traders around their shopping centres through innovation. ‘These might include providing trading space and upgraded facilities to informal traders in proximity to the shopping mall, and/or providing the opportunity to sell vendor produce through established retailing channels such as food anchor tenants, both of which Fairvest has initiated in our shopping malls.’

Mothibeli said centres must exist as part of the community and not as an island. Operational times of malls also play a role. He suggests looking to spaza shops for direction. ‘There are about 100,000 competitive spaza shops in South Africa – some close at 10pm.’ Malls, for the most part, are only open during general business hours.

He added that shoppers from townships and rural areas mostly use public transport and get to their neighbourhoods long after malls have closed. ‘Is this customer-centric? Township malls should operate as part of their communities and understand locality nuances, just as the informal sector does.’

This article was sourced from www.sacsc.co.za