In the next few weeks investors will no doubt keep a close watch on how individual property stocks have delivered on earnings and dividend growth promises as the sector starts to report December results.
It’s likely that lower interest rates and debt repayment costs have started to filter through to the bottom line of several real estate investment trusts (Reits).
Independent property analyst Keillen Ndlovu points out that savings on diesel costs and fewer disruptions due to the suspension of load-shedding last year should further support a recovery in Reit earnings.
“The outlook for most property companies that delivered negative earnings growth in 2024 has turned positive for 2025,” he says.
Retail-focused companies, which were hardest hit in recent years by pandemic-induced trading restrictions and rental relief packages, the 2021 riots, load-shedding and softer consumer spending, are likely to stage a stronger rebound than those that are overweight to the office and industrial sectors.
South Africa-based mall owners that are expected to achieve income growth either in line or exceeding inflation for their respective 2025 reporting periods include Hyprop Investments, Vukile Property Fund, Resilient Reit, Fairvest and Attacq.
Festive season trading updates released by mall owners in recent weeks suggest that consumers have regained their appetite for retail therapy.
Black Friday, which many retailers turned into a week or even a month of discounted prices, was particularly successful last year.
Waterfall City developer Attacq, whose flagship retail assets include Mall of Africa in Midrand, Garden Route Mall in George and Eikestad Mall in Stellenbosch, recorded a decent 8% turnover growth in its mall portfolio in November (year on year).
The 130,000m² Mall of Africa was its star performer. It achieved 10% turnover growth in November while visitor numbers — or foot count — increased 6.3%.
December sales across Attacq’s retail portfolio grew by a somewhat lower rate of 3.2%. Foot count was up an overall 4.5% in November but declined slightly by 0.9% in December.
Attacq CEO Jackie van Niekerk ascribes December’s more muted performance to there being only four weekends in the month last year compared with five in December 2023.
She says the homeware, furniture and interior category performed particularly well in Attacq’s malls in the fourth quarter. She believes spending on nice-to-haves instead of necessities may have been boosted by withdrawals from the two-pot retirement system.
Van Niekerk also notes increased spending on domestic brands in Attacq’s malls. Notable beneficiaries of the trend include Beauty on Tapp, Era by DJ Zinhle and Galxboy.
Vukile, whose local retail portfolio is made up of 33 shopping centres worth R16.4bn and caters largely to lower-income shoppers in townships and rural areas, recorded 6.1% year-on-year growth in trading density (sales per square metre) for the combined November and December period.
The festive season’s 6.1% increase is up from 2.4% in March and 4.2% in September, which Vukile CEO Laurence Rapp says signals an encouraging acceleration in retail sales growth.
He believes spending over the festive season was bolstered by easing pressure on consumer wallets due to interest rate cuts, improved political sentiment, electricity reforms and two-pot retirement payouts.
Vukile’s township mall segment outperformed rural and urban centres and notched up impressive trading density growth of 9.6%.
Foot count across Vukile’s portfolio increased 5% in November year on year but remained flat in December.
The Reit’s Iberian portfolio of 18 shopping centres worth R23.6bn, held through Spain-listed subsidiary Castellana Properties, had an equally robust festive season.
In Spain, sales turnover rose by nearly 5% in November and December; foot count increased by a hefty 9.7% in November and 2.4% in December.
Turnover in Vukile’s newly acquired malls in Portugal was up 8.5% in November and a slightly more muted 2.8% in December. Foot count grew 4.6% and 2.1% respectively.
Rapp cites Iberia’s strong employment figures, a healthy savings rate and manageable inflation as key reasons for the buoyant performance.
Hyprop, which owns nine shopping centres in South Africa and four in Eastern Europe, reported similarly robust sales figures across both portfolios.
Trading density at Hyprop’s local portfolio, which includes Rosebank Mall in Joburg and Canal Walk in Cape Town, was up 6% year on year for the combined November and December period.
Tenant turnover and trading density in its Eastern Europe portfolio increased by 8.8% and 7.2% respectively over the same time.
Hyprop CEO Morné Wilken says the continued growth trajectory in retail activity across its local and Eastern Europe portfolios is a result of “our continuing efforts to enhance the relevance and competitiveness of our centres”.
He adds: “It is also a precursor of the growth potential we can achieve in the future.”
The trend of muted growth or declining foot counts despite rising turnover is evident in festive trading numbers released by retail developer Flanagan & Gerard, which co-owns several malls with listed Reits.
Its portfolio — which includes Morningside Shopping Centre and The Neighbourhood Square in Joburg, Mall of the North and Thavhani Mall in Limpopo, Ballito Junction in KwaZulu-Natal and Boardwalk Mall in Gqeberha — recorded 6% year-on-year growth in trading density in November and December while foot count grew by only 1.1%.
MD Paul Gerard says this aligns with the trend of shoppers making fewer visits to centres but buying more when they do go.
He says the rising popularity of online grocery delivery services such as Checkers Sixty60, Woolies Dash, and Pick n Pay asap! has undoubtedly contributed to fewer shopping centre visits.
Still, stronger sales activity should lead to increased demand for retail space and make it easier for landlords to negotiate rental increases with tenants.
In fact, Liliane Barnard, CEO of Metope Investment Managers, expects more Reits to return to inflation-related rental growth this year after three or four years of mostly negative reversions — where landlords are forced to lower rentals on lease renewals or risk losing tenants.
“Rentals have now rebased from an overrented position before Covid. Given the demand for space, we can expect to see inflation-related growth in rentals from these rebased levels.”
Barnard says there is further cause for optimism as retailers’ occupancy cost ratios — the metric that measures total operating costs in relation to revenue — have fallen to pre-pandemic levels.
That’s good news for mall owners as it means renting a shop has become more affordable for tenants, which should further underpin demand for retail space — and ultimately rental growth.
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