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Small community retail centres outperform larger outlets and seldom experience vacant spaces

Community retail centres, specifically those in residential nodes, are doing better than big retail centres.

While not unscathed by tight economic times, they have not seen the reduction in rentals, turnover and profits big retail centres have seen.

It is all about location, says Sean Paul, executive director of Spire Property Management, which oversees many retail centres across South Africa.

He says because community retail centres sit firmly in residential nodes, they are attractive from a convenience point of view. 

“Consumers living in nearby suburbs will frequent their local centre on an almost daily basis to buy household goods and groceries, for a meal at a local restaurant or to socialise over coffee, and make use of other services offered, such as a hairdresser.”

Ease of access and free parking are additional drawcards held by smaller centres, which see customers returning frequently. As a result, smaller centres often do not struggle with vacant spaces as much as larger centres.

“Rentals in a small centre are more affordable and they often operate on a gross rental structure rather than a turnover-based structure. This is appealing to entrepreneurs and small business owners who can be daunted by the high costs associated with renting retail space in a large shopping centre, and they also like the certainty of fixed rentals.”

Because of this, and because shop sizes in general are smaller, smaller retail centres hardly ever see vacancies, and tenant turnover is low, Paul says.

“Tenants within these centres are usually from the surrounding community, so they have an intrinsic understanding of what the market wants.” He does caution that tenant mixes in community-based retail centres must be well planned.

“Shops and services need to be matched to the affluence levels and needs of the surrounding neighbourhoods.” Community centres that get this mix right offer great investment opportunities for property buyers looking to add to their commercial portfolios, he says.

“These centres are also far more affordable, comparatively speaking, than the large shopping malls, which means private investors can afford them more easily. Added to this is the fact that monthly operating expenses and overheads are smaller than large retail centres,” says Paul.

The South African Property Owners Association’s (Sapoa) latest Retail Trends Report, based on retail performance in the fourth quarter last year, indicates although community centres posted the largest decline in annualised trading density growth from June to December, they were still the top-performing segment between 2015 and mid-2017.

“Since 2015, community centre trading density growth was aided by a significant improvement in vacancy rate (from 8.8% to 3.4%). However, with the vacancy rate of community centres stabilising and starting to edge back towards 4.5%, trading density growth has come under pressure,” the Sapoa report says.

In the three years ending December 2017, food retailers increased their share of sales in community centres by 4.8%. This mirrors market share losses in the three larger retail segments, suggesting community centre food retailers have gained market share

Shopping centre definitions types

Super Regional > 100000m²

Regional 50000m² to 100000m²

Small Regional 25000m² to 50000m²

Community 12000m² to 25000m²

Neighbourhood 5000m² to 12000m²

Source: Sapoa

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