New trend sees developers move to retail specialisation for more returns
Developers and investors are increasingly targeting niched property opportunities, leading to speculation whether this is business as usual, or a new trend of one-stop-shop type developments offering more benefits – and returns – than the usual tenant variety mix.
Recent developments appear to indicate an acceleration of developments targeting specific business segments, tenant types or consumers looking for a specific product.
Broll Property Group’s Frank Reardon says the question of specialisation versus diversification has also played itself out in the South African listed property sector for years. Funds with retail, industrial hospitality or other focuses have been common, with the advantages of focusing and developing competitive advantages in specific areas weighed against risks associated with all one’s eggs in one basket.
“While many recent specialised developments are to some extent a sign of a more mature property industry with fewer gaps in the ‘traditional’ market, the retail industry has from the first cities and towns had areas, districts or high streets that serviced specific products and consumers. Examples include textile districts, medical streets, antiques districts and fresh produce markets.”
Reardon says an example of modern retail specialisation is Joburg’s Design Quarter. It incorporates design and interior with focused retailers and tenants in a one-stop-shop environment. Durban’s Stamford Hill Road factory clothing district is a high-street version of a targeted retail district.
New niched retail developments include those that deploy a specific type of architecture or construction materials that take root, seen by the proliferation of “Box Parks” made out of shipping containers.
“An innovative specific node is Durban’s Professional Quarter, which uses a mix of location, a differentiated product, supplementary services and positioning to target the legal profession. Its proximity to the supreme court, with a shuttle service, premium office environment, mediation and arbitration facilities, members’ club and IT infrastructure, have attracted commitments from leading advocates and attorneys.
“Initiatives and nodes targeting call centres, student housing and education have also been developed across South Africa.”
The industrial sector has seen zoning and health issues coupled to the desire to create synergies between businesses in the same sectors grouped together. Chemical processing and manufacturing, automotive, technology and pharmaceutical areas are commonplace, he says, adding that the hi-tech world of modern logistics has seen the development of targeted logistics parks such as Clairwood in Durban and Plumbago in Joburg.
“Recent developments in the retail and listed property sectors have also driven a rethink regarding diversification in respect of individual companies versus exposure across multiple shares, or even index trackers.”
Reardon says the challenge becomes “slightly more complicated” when individual companies’ success and size means they come to dominate a sector.