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Tough times for retail landlords

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Mall owners are feeling the effects of Covid-19, with tenants forced to discontinue business operations, but help is at hand for those hardest hit

Retail landlords are suffering immensely under the lockdown conditions as the majority of their tenants are unable to pay rent. “Smaller malls may not survive at all,” says Neil Gopal, chief executive of the South African Property Owners’ Association (Sapoa).

The lockdown is having an “extremely detrimental” effect on the financial position of mall owners because up to 80% of tenants have been forced to discontinue business operations during the lockdown.

They are, therefore, not in a position to pay their rent. This, Gopal says, is causing mall owners to experience “serious cash flow problems” as they do not have sufficient finances to pay property rates and utilities.

“For the month of April, by and large, only approximately 20% of rent has been received by most shopping centres. “In most cases, landlords have not received enough rent to cover their interest; rates and taxes and pay for operational costs. Landlords need the cash flow to service operational expenses, including salaries and wages for security and cleaning; rates and taxes and amortising loan facilities.”

Gopal says the property industry has been at the heart of growth and development in South Africa over the past 25 years. The sector has spearheaded the development of world-class retail, residential, office and industrial properties and continues to do so as a sign of confidence in the country.

“No other sector of the economy has committed more capital than the property industry in the past 10 years, even under difficult conditions. In the process, the retail industry has become by far the largest private sector employer in South Africa aided by the investment the property industry has made.

“The reality is that many businesses will be closing down and many employees who are lucky enough to keep their jobs may be faced with reduced remuneration from their employers or, at best, zero annual increases.”

At the end of last month, major representative bodies for real estate in South Africa – the SA Reit Association, Sapoa and the SA Council of Shopping Centres formed a collective, The Property Industry Group, announcing an industry-wide assistance and relief package for retail tenants hardest hit by the initial 21-day lockdown.

Although the initiative focused principally on supporting affected SMMEs, spokesman Estienne de Klerk says it also provides relief and assistance to all other retail tenants and will be rolled out by landlords nationally.

“The initiative targets preserving jobs – for retailers, their suppliers and service providers. To qualify for the relief benefits, retail tenants need to undertake not to retrench staff during the relief period. Significantly, the package stipulates that all tenants whose accounts were in good standing at February 29, 2020, can be assured that there will not be any evictions for the next two months.

“In addition, retailers prevented from trading in compliance with South Africa’s government-mandated lockdown (non-essential services), and in good standing at the end of February 2020, are offered some form of assistance from landlords. The extent of that relief depends on the severity of impact.”

He says shopping malls accommodate a wide range of retail tenants affected by the lockdown and, when putting together the package, the property industry engaged with various groups of retailers to get their buy-in.

“We’ve seen retailers reverting to legal positions, but we don’t believe that litigation provides either side with timeous solutions needed to get through this unprecedented time. We need to stand together and find workable solutions that will benefit the country, protect jobs and sustain our businesses through this challenging time.”

This assistance package comes at a massive cost to the property industry, facing its own dire challenges, however, it is necessary for those needing assistance, especially small retailers, to get the support they need, says De Klerk.

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