Retail market still going strong, say experts
03 August 2008
The country waits in anticipation of when SA Reserve Bank Governor Tito Mboweni will finally change the nation's interest rates' course. But the consumer concern has not slowed down expansion and developments of retail businesses across the country.
The point worthy pondering is why retailers and bankers alike are investing heavily in this property market.
Three retail property players recently aired their views on where the retail market is going, in the Madison Property Fund Managers' Property Innovation (July).
Mike Lewin, group retail director at Madison Property Fund Managers argues that retailers are trading in challenging times and any decision on where the future of the business is going has to be given considerable thought.
Lewin said that high interests rates, fuel price increases and electricity disruptions are some of the reasons retail trading is facing challenging times in 2008.
He added that a decision to expand or consider new premise development altogether requires critical decision-making as the above-mentioned factors are still impacting on retail.
Lewin says that in some cases, new premises may be just what the business needs at its growth stage.
"Where real opportunities arise to take up space in identified nodes, these opportunities should not be during a period of challenging retail as they may never occur again," said Lewin.
Retailers themselves have always known that 2008 will be a tough year because of rise in interests rates and inflation.
In all of this, they are aware of opportunities to get a front seat on the inevitable boom that's expected from mid-2009 and beyond.
Infrastructure development for the 2010 FIFA Soccer World Cup has fuelled demand for better quality retail by consumers, said Wendy Newton-Volkel, real estate executive at Woolworths in the Madison publication.
The current economic climate means that customers have less disposable income and expansion and new developments of retail premises should be such that they meet the need and demand of the targeted market, she said.
Property executive at Massdiscounters Brett Exner believes that retailers have entered a period of consolidation with measured expansion.
Existing developments with successful trading records can still improve on their service without having to expand.
Exner said retailers need to look closely at what needs their nodes meet and whether there is enough space enough for services needed, as an oversupply of space has a knock-on effect on the returns.
He warns that be it improving existing real estate or developing new premises for trading, decisions about how much space is needed for what has to be considered carefully to avoid problems later.
"Retailers will definitely focus on consolidation and improving processes within core existing business with continued organic growth where feasible," said Exner.
Why are retailers still expanding?
Challenging economic times offers opportunities for some in the property industry to position themselves for when the economy turns again.
People might not be able to afford to buy houses right now but food and clothing is a must for all consumers.
The overcrowding in shopping malls is enough to tell you that, while consumers are feeling the pinch of the down turn in the economy and have tightened their belts, they are still spending - in particular on necessities such as food and clothing.
Banks and developers cannot get enough of retail and Johannesburg has a very healthy and strong retail market growth in the country despite harsh economic times.
Just last week, three developments and expansions at upmarket locations for retailers were announced.
Etienne Eygenberger, retail consultant from Retail Africa, said retail demand is still growing even in the current economic market and Johannesburg of all the provinces in the country continues to show strong growth and demand.
"The demand is driven by an upward mobility in the population with the middle-income market moving up the ladder quickly, "said Eygenberger.
"For national tenants, trading currently is slow but they also know that three years down the line, they would be reaping rewards of their investments," he said.
The current market is hard on independent tenants, and they are extra cautious of what decisions to make without missing opportunities to grow.
"Retail demand is not going to stop, but retailers and investors alike are shifting focus to meet demand with adequate supply stock where needed," said Eygenberger.
Shopping malls to look out for in Johannesburg
The existing Melrose Arch in northern Johannesburg is currently being expanded to add more retail tenants and offices at a cost of R1, 720bn financed by Nedbank Corporate Property Finance. Phase one of this development will be complete in April 2009.
It's been described by Amdec Property Development, the developers of Melrose Arch, as having resilience to ride the storm of retail pressure due to the slow down in the economy.
Nicholas Stopforth, regional director at Amdec said Melrose Arch is "market desirable" with a unique concept and energy contributing to its trading success.
The Firs and The Hyatt in Rosebank will be redeveloped at a cost of R500m financed by Investec Property Limited. It is linked to the Gautrain station in Rosebank.
Rosebank is evolving into a higher-density, mixed-use transport node with a keen focus on pedestrian and street-level interaction, said Sam Leon, managing director at Investec Property Limited.
In the south of Johannesburg The Glen Shopping Centre located off the N12 Freeway has its own expansions which include road-widening from the Comaro Road off-ramp and Victoria Street developing into four-lane access to the centre.
Listed retail property fund Hyprop Investments Ltd (JSE: HYP) is funding the expansion of The Glen at a cost of R370m.
The Glen serves the surrounding areas such as Glenvista, Bassonia, Meyersdal, Brackenhurst and Mondeor.
Currently, existing stores at The Glen generate a monthly turnover of R100m.
Pieter Prinsloo, chief executive officer of Hyprop Investments said an economic downturn cycle is the ideal time for expansion so as to prepare the platform for growth in the inevitable recovery and subsequent up cycle.
Hyprop earlier this year announced a hotel project at Hyde Park shopping centre in conjunction with Southern Sun valued at R180m to be opened in June 2009.