It’s no secret that shopping centre owners have had a horrible two years.
Profits have been eroded on multiple fronts and led to the demise of Stuttafords, a brutal restructuring at Edcon, as well as closure of international stores including River Island, Topshop and Victoria’s Secret.
All the while, utility costs and municipal rates are rising and electricity, thanks to Eskom, is intermittent.
But it’s not all doom and gloom.
Latest shopping centre performance metrics released by some JSE-listed mall owners suggest that many are using the downturn to boost flagging sales and footfall.
Some mall portfolios have already undergone something of a recovery in trading density (turnover/m²) growth levels, a key measure used to gauge shopping centre performance.
Liberty Two Degrees Ltd (L2D), which owns landmark Gauteng malls including Sandton City, Nelson Mandela Square and Melrose Arch, recorded average trading density growth of 3.6% for the year to December.
That’s up from 2.5% a year earlier.
Hyprop Investments, which owns mostly large urban malls in Gauteng and the Western Cape, posted an average 1.4% growth in trading density for the 12 months to December, from -0.5% in the prior 12-month period.
And Resilient Reit recorded comparable sales growth of 4.2% at its 27 shopping centres for the year to December, slightly down on the 4.8% achieved in 2018.
But at least half of the company’s malls are still achieving inflation-beating (4%-plus) sales growth — no easy feat in the current downturn.
The silver lining to the two-year rental concessions given by mall owners to Edcon is that most of the Edgars and Jet stores that were closed or downsized have been relet and, more importantly, at higher rentals.
L2D CEO Amelia Beattie says the new reality is that most tenants want to downsize to smaller stores.
"Five years ago everyone was taking as much space as they could get. Now it’s all about using less floor space more efficiently," she says.
Beattie argues that the trend has positive spin-offs: mall owners typically charge higher rentals per square metre for smaller stores while tenants are able to raise turnover proportionally. And for shoppers, it means more variety.
The upside of tougher trading conditions for tenants is that it has forced mall owners to become more amenable to negotiation on rentals.
"Tenant retention is key in this market," says Beattie.
L2D experienced an average 8.7% drop in retail rentals last year (on lease renewals).
Beattie is putting a brave face on it and says while that has placed pressure on income, it’s a necessary move to ensure the long-term sustainability of the group’s shopping centres.
"It’s far more important now to ensure tenants trade successfully instead of sitting with empty stores," she says.
In Hyprop’s case, rentals on lease renewals fell a brutal 12.9% last year, on average.
You could call that catastrophic, but Hyprop CEO Morné Wilken agrees that resetting rentals to a lower base now will help position malls for more sustainable growth in future.
Hyprop has already relet the nearly 17,000m² of space given back by Edcon at a number of its malls.
At Rosebank Mall, where Edgars vacated a huge store spanning more than 8,000m², new leases have been signed with Ackermans and Crazy Plastics as well as Checkers Liquor Shop and Checkers’ new premium FreshX concept.
While Crazy Plastics is hardly high-end, Checkers is targeting more upmarket shoppers and includes offerings such as chocolatier bars and temperature-controlled tasting rooms.
Wilken says malls will have to evolve to attract a far wider variety of tenants in future. He refers to bringing in doctors, clinics, crèches and schools.
"Malls have to become mixed-use community centres instead of just places to shop."
He says the SA market got a bit lazy and needs to become more creative — or "cookie-cutter" malls won’t survive.
The performance gap between retail centres is already becoming increasingly evident.
While L2D’s Sandton City notched up trading density growth of 9%, trading density at Eastgate fell 1%.
The performance gap between Resilient’s best and worst performers was equally pronounced. The company’s laggards are mostly those centres that cater to middle-and upper-income consumers in the larger cities, while its centres in rural areas and townships are still recording healthy sales growth.
Kelly Ward, investment analyst at Metope Investment Management, says urban malls that tend to rely on the "overtaxed middle class" have generally reported poorer results.
The stronger performers are typically malls exposed to mining activities, those located close to transport hubs and areas where a large proportion of spending is reliant on social grants.
Pranita Daya, real estate analyst at Anchor Stockbrokers, says urban malls that continue to do well are those that have beefed up their entertainment, and food and beverage sections, as consumers look to spend more on "experiential" offerings and less on luxury goods and apparel.
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