Saturday, April 20

Economic domino effect hits commercial sector

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Retail industry has been hard hit as consumers cut down on shopping

The economic slump has been a nightmare for the retail property industry and even more store closures, consolidations and downsizing could be seen in the near future.

A number of retailers, such as Hamleys, have already gone into business rescue while others, like Stuttafords, Nine West and Mango, have closed, states Broll Property Intel’s latest report. As a result, the report titled “The Evolution of Retail” says competition between retailers is stronger than ever.

Consumers are anticipated to become more mindful of spending and focus more on needs and less on wants, says Theresa Terblanche, a divisional director at Broll. This shift could negatively affect retailer turnovers which could result in store closures, consolidations and downsizing. Broll portfolio executive Wilna Savio says in tough economic times it is critical for shopping centres and retailers to offer “great service and an exceptional shopper experience”.

The SA Reserve Bank’s March Quarterly Bulletin “did not make for good reading”, says FNB property economist John Loos. Recent economic growth saw real household disposable income drop from 1% in the third quarter of last year to “a meagre 0.6% in the final quarter”.

“This continues a recent slowing growth trend from a relative high of 3.7% year-on-year as at the third quarter of 2017.” Of further concern, Loos says, is that nominal household disposable income growth has weakened to rates last seen around 2009 at the time of the “financial crisis”.

The only thing keeping this rate “slightly positive” is a very low inflation environment. Also noticeable in the data was that, from a post-financial crisis high of 11.7% in 2010, wage remuneration growth had slowed to 4.2% by 2018, a marked deceleration from 7.4% just a year before in 2017.

“The near term looks set to be a period of even greater pressure on household consumption spend and retail sales growth,” Loos says, adding that indebtedness and financial stress had started to rise.

“Early signs are that 2019 will be a tougher year for retail property than 2018.” To balance the dip, more retailers are turning to lay-by sales, the Broll report says. Changing demographic trends also need to be noted by retailers who are trying to counter the decline.

“With the younger customer being the future customer, understanding different generation groups is vitally important within the retail environment.”

Elaine Wilson, director of Broll Property Intel, says: “In the face of increased competition, shopping centre owners, developers, managers and retailers need to be alert to and agile in responding to the latest trends, consumer behaviour and technology in a fastpaced, ever evolving industry.”

Retail property investment in South Africa declined last year. Picture: Supplied

Transactions in KwaZulu-Natal have fallen

The JLL 2018 Investment Review has shown R4.2 billion in retail property investment was recorded in South Africa last year, down from R4.5bn in 2017. 
These figures were reached following 21 retail property transactions last year and 29 in 2017. The average price per sector, however, increased by 14.5% from 2017 to 2018.

This, the review says, suggests there were several high-value retail properties sold last year. “The Western Cape achieved the highest value per m² at R21 663 and Gauteng the second.

There was a R3 490 difference in value per m² between the Western Cape and Gauteng. At a provincial level, Western Cape accounted for 21% of the transactions value, boosted by the sale of Century Mall and Waterstone Village, with one of the sales in the top three transactions by value.”

In terms of volume, JLL says Gauteng came first, recording a total of 12 retail properties transacted. KwaZulu-Natal went from a peak of 38 retail transactions in 2016 to less than a quarter of that last year.

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