Perhaps the most intriguing snippet that emerged from Sandton City owner Liberty Two Degrees’ (L2D) latest results was this little anecdote from CEO Amelia Beattie: "As bizarre as it may sound, people have been queuing outside the Louis Vuitton and Gucci stores."
Beattie, perhaps hopefully, went on to ascribe the phenomenon to the feel-good retail therapy factor: shoppers looking to counter the negative impacts of lockdown by spoiling themselves.
A Louis Vuitton Neverfull GM tote, for example, sells for about R23,000, while the Pont 9 will set you back about R63,000.
Yet, the overall picture for Sandton City and Eastgate Shopping Centre — L2D’s flagship retail spaces — is pretty grim.
In the three months to end-June, the combined number of visitors at L2D’s seven malls dropped more than 60% year on year, from about 16.5-million to 6.4-million.
In June alone, foot count was down an average 45% versus the same month last year.
Sales turnover at L2D’s malls are only available up to the end of May, so it’s not clear where turnovers are currently sitting.
But sales fell by 90% year on year during April’s hard lockdown.
In May, when more retailers were allowed to open shop, turnover was down a slightly more palatable 45%.
But, Beattie says, there has been a noticeable uptick in sales in recent weeks at Sandton’s "Diamond Walk" wing, which houses a number of luxury international fashion, jewellery and accessory brands.
It’s clear, however, that what may be a boom for Gauteng’s super rich is not shared by the receding upper and middle classes.
L2D reported an overall 40.4% drop in net property income for the six months to the end of June year on year.
In addition, R1.5bn was simultaneously wiped off the value of its SA properties, taking its portfolio size from R10.2bn down to R8.7bn.
L2D is the first JSE-listed real estate investment trust (Reit) to release results that include the April to June pandemic-induced lockdown period.
The company owns stakes in seven shopping centres, three hotels (the Sandton Sun, the InterContinental Sandton Towers and the Garden Court Sandton City) and a few office blocks.
The large fall in L2D’s revenues and property valuations comes primarily on the back of a drop in rental income due to L2D’s rental relief packages.
Its tenants, on average, got a 40% discount for April, May and June.
More worryingly, rental renewals on existing leases were cut an unprecedented 27%.
Like most of its fellow SA Reits, L2D has postponed dividend payouts to the end of its December financial year-end.
Retail vacancies are also creeping up — from 2.3% to 3.5% over the period.
About 15% of L2D’s tenants (in terms of lettable space) still haven’t reopened for business — mostly cinemas, restaurants and gyms.
However, as Stanlib portfolio manager Nesi Chetty notes, the operating metrics for L2D’s retail portfolio as a whole mask the growing divergence in performance among individual shopping centres in terms of location, size and target market.
Beattie agrees, saying there is no doubt some malls are proving to be more resilient than others.
She says centres located in townships or rural areas that cater mainly to the basic needs of lower-income shoppers are outperforming mega-malls in urban nodes typically frequented by a higher-income crowd.
For instance, L2D’s Botshabelo Mall near Bloemfontein in the Free State, has experienced hardly any pandemic-related impact on foot count or sales.
In fact, trading density (sales per square metre) at Botshabelo Mall was still up a healthy 13.4% in the 12 months to end-May.
Similarly, Liberty Promenade in Cape Town’s low-to middle-income Mitchells Plain, one of L2D’s regional centres, recorded positive growth in trading density.
"In stark contrast, Sandton City has suffered a huge drop in foot count and sales since SA went into lockdown at the end of March," says Beattie.
Like Sandton City, which is in the middle of Gauteng’s wealthiest residential and business hub, neighbouring Nelson Mandela Square also had a sharp decline in foot count and sales since April. So did Joburg’s big-ticket live, work and shop precinct, Melrose Arch.
Beattie cites a number of reasons that Sandton City and Nelson Mandela Square have been particularly hard hit.
These include the recent spike in Covid-19 infection and death rates in Gauteng, which she says seems to be causing new "waves of fear" among well-heeled shoppers; more people working from home, which has led to a sharp drop-off in Sandton’s large tally of office workers who typically visit malls over lunchtime; and Sandton’s hotel closures, which have obliterated the usual tourist trade.
She doesn’t expect a marked overall recovery in foot count and sales at large urban malls until Covid-19 infection and death rates have passed their peaks.
Craig Smith, head of research at Anchor Stockbrokers, shares her view, and says the fact that higher-income city dwellers have easier access to e-commerce is another reason that urban retail centres are more susceptible to losing shoppers than their rural counterparts.
Spending capacity also continues to be supported in lower-income nodes by remittances and social grants, Smith says.
Smith believes it’s too early to tell what the full impact of Covid-19 will be on the retail property sector as there’s typically a lag between the economy and the real estate market.
That’s partly due to existing leases that often have a three-to five-year life span. Also, he says it’s not yet clear how retailers will respond in terms of their overall physical footprint post-Covid.
However, on a positive note, Smith says there is likely to be a pullback in new retail supply over the next few years, which should be supportive of a recovery in rental growth and vacancies over the medium term.
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