Malls and shops have been hard hit by the lockdown and, with most rental relief now withdrawn, are looking to Black Friday and festive season sales to boost revenue
Retail property owners are hoping Black Friday and the festive season will inject some much-needed consumer spend into the industry as the impact of the Covid-19 pandemic continues to plague tenants and affect shopping malls.
Many tenants are in arrears with their rents and are asking for further payment relief from landlords while lease renewals are also strained, says Theresa Terblanche, divisional director at Broll Retail Leasing.
However, the easing of lockdown regulations has seen a pick-up in the number of shoppers returning to malls and retailers are adapting their business models to suit the current environment.
This includes offering lay-byes, credit and discounts, and creating innovative and interactive stores to attract customers and improve their experience.
“However, there are still huge challenges facing tenants to overcome the ripple effect of the lockdown and try to bring in enough sales to improve cash flow,” she says.
“Landlords are still faced with the challenge of tenants requesting further rental relief, even though turnovers are marginally impacted, and arrears remain a problem as tenants are faced with cash-flow issues following the hard lockdown.”
While some landlords have offered payment plans to assist tenants, lease renewals are “taking strain” with shorter lease terms introduced and rental increases reduced. Foot traffic and turnover continue to improve for supermarkets and pharmacies, but there has been a decline in foot traffic across other trading categories, due to consumers visiting stores less frequently, the convenience of online shopping and financial strain.
“Independent line shops have taken the biggest knock which has affected rent collection in this regard as landlords are not giving further rental relief. Landlords are carrying high arrears and have appropriated deposits to offset arrears and create some cash flow in some convenience centres.”
Despite the situation, Terblanche says there has been “minimum closure of shops at the malls” in Broll’s portfolio, apart from Edcon. There are, however, some independent and family-owned stores in malls that have closed down. Cosmetic/fragrance/ beauty, jewellery and speciality shops have also taken a knock.
“While some stores have closed their doors this has provided an opportunity for tenants (especially anchors) that do trade well to expand their premises and national chains have used the opportunity to roll out stores.”
In general though, Terblanche believes we are seeing only the early effects of the lockdown. Looking six months ahead she says: “As tenants are no longer receiving relief and financial assistance, they now have to carry their full overheads with challenged turnovers. I believe we will continue to see an increase in arrears until such time as the economy regulates itself. We will also see an increase in vacancies as more shops go online or just have to close their businesses. “
“Landlords are going to be under pressure to review their rents downwards, perhaps more than currently.” FNB’s large retail customers are “indeed struggling” in light of consumer behaviours and changing buyer patterns, says Preggie Pillay, commercial property finance chief executive.
However, most of its retail business is concentrated in neighbourhood and community shopping centres and these have been “quite resilient” through this crisis. Across commercial property sectors, he says, most customers took out Covid-19 relief to create some extra liquidity and there has been a “relatively small surge in arrears”.
“Customers who were experiencing difficulties were offered additional relief. “The bank further considered balance sheet financing options to help customers create some liquidity and continue their business operations.”
Pillay also notes that “relatively few” commercial property customers approached FNB for assistance. “The bank had geared for huge volumes of customers seeking a second round of relief, however, this has not been the case. Larger customers have been pre-paying their facilities with surplus cash that they had. Also, lower interest rates have also helped provide some much-needed relief.”
He says the next six months will provide a better view of the situation although the tourism, hospitality and entertainment sector is likely to take longer to recover.
“This sector may only start turning in the next 18 to 24 months,” Pillay says. The bank is also receiving “a lot” of commercial property loan applications but this is about half of pre-Covid volumes.
Louis van Rooyen, commercial property broker for Rawson Helderberg, says there has been an upswing in the industrial property market but more office spaces are being listed for sale. These are slowly being “picked up” by buyers.
“Companies that invested heavily in tech and thought they would work remotely on a permanent basis are now finding it not to be that easy to run in the long term. They now prefer to have their staff back at the offices due to the upkeep of corporate culture, training and mentoring staff members, and daily management of core staff.”
He says companies might now look to move from larger office spaces into smaller, more suitable, spaces to host core staff, as during lockdown some companies may have retrenched staff so the number of employees has dropped.
“There is an uptick in people inquiring about property rents and sales. Listings are stabilising. “With regards to financial strain it is highly unlikely that those who haven’t caved in due to the financial impact of Covid will do so now. They have found ways to manage their monthly payments and will do so until they are stable again.”