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Retail property in a slump

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Sector is in for some tough months with no sign of strengthening yet

South Africa’s retail property sector is in for some tough months ahead as economic strength continues to weaken and consumer confidence declines.

This is despite the sector performing better last year than in 2017.

GDP growth dropped to 1.4% in the last quarter of 2018, and this means that retail property is facing an uphill climb, says FNB property economist John Loos.

“Looking into the sectors that are key to the strength of property, we find weak fundamentals relating to the retail property sector. The ‘retail and wholesale trade, catering and accommodation’ sector, of which a key component is retail, saw its Q4 quarter year-on-year rate slowing, from a 1.1% peak in Q3 to a meagre 0.25%.”

On the whole, though, Loos says 2018 turned out to be slightly stronger for this sector in 2018 compared to 2017, growing by 0.6% after the previous year’s 0.3% contraction.

However, the slowing of the renewed growth over the final three months of last year combined with slowing consumer confidence, “does not point to any sustainable strengthening in this sector’s growth in the near term”.

Community shopping centres though could have more to look forward to, if they evolve and are repurposed as lifestyle centres, says Gregg Huntingford of Spire Property Management.

“Community centres that are close to large regional centres need to remain relevant by changing the way they do things.”

Recent repositioning projects, such as the Link Hills Shopping Centre in KwaZulu-Natal, include general facelifts, overhauled mix of tenant to offer customers conveniences not available at the nearby regional malls, and family-friendly concepts and environments.

Retail property had a better 2018, but the months ahead are still going to be tough. Picture: Supplied

Huntingford adds that offerings such as fitness centres, garden centres, pet shops, health and beauty salons, art galleries and family restaurants with outdoor play areas are all examples of tenants not accommodated in large shopping malls.

“Experience has shown that consumers increasingly want a shopping/retail experience and so smaller centres can remain relevant by offering amenities that fulfil this need. More greenery and park-like settings, increased natural light, interesting architecture and speciality retailers are all drawcards.

“Additionally, the foodie culture is now mainstream, and the typical food court options don’t cut it. Community retail centres can offer exciting dining options for the surrounding community,” he adds.

Ease of access and free parking are additional drawcards held by smaller centres which see them surviving in the face of larger regional centres springing up nearby.

The tenant mix in a community-based retail centre, however, needs to be well planned for that centre to flourish.

“Shops and services need to be matched to the needs of the surrounding neighbourhoods.”

Despite the struggles being faced by the retail sector, Lightstone statistics show that, during this quarter, retail property experienced the most registrations out of the three major commercial sectors, the other two being office and industrial properties. A total of 525 transfers were recorded.

Lightstone analytics director Paul-Roux de Kock says that, although growth within the retail space slowed down in 2018, there was still progress which was catalysed by consumer spending habits.

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