South African Shopping Malls Multiply

Despite talk of a looming oversupply of shopping malls, Commercial Property Investors and Developers continue to pour billions into South Africa's retail property sector.

The drive to revamp existing malls and open new ones in SA will continue in 2014‚ potentially leaving listed property stocks overexposed to retail.

Some analysts have warned that an oversupply of malls could lead to declines in profitability for the listed property sector. However‚ historically shopping centres have been defensive and delivered solid returns for listed property counters.

“At least 14 malls between 17‚500m² and 116‚000m² will be completed in SA this year‚” investment management house Sesfikile Capital said on Twitter on Monday.

Annenberg Property Group has a Shopping Centre in development. The Stables Shoping Centre in Killarney Gardens is set to open in June of this year.

“Not all 14 will come online this year but mall development is healthy in SA. For the past 15 years or so‚ retail has been defensive for the property sector‚ which is why we see listed property so overweight towards it. It makes sense for more and more big property groups to get involved in mall development‚” said Sesfikile director Mohamed Kalla.

He said the completion of 14 malls in a year was not abnormal for SA.

The R260bn listed property sector’s exposure to regional malls exceeding 30‚000m² has doubled since 2010‚ according to Macquarie Research released in 2013.

The research showed that in 2010 as little as 30%-35% of regional malls were owned or part-owned by listed funds. This has risen to between 55% and 60%. As such‚ by the end of last year‚ retail represented 51% of the listed property sector’s assets‚ with offices at 31% and industrial at 18%.

Hyprop Investments (HYP) has the largest exposure of the listed property groups to malls - exceeding 55‚000m². Kalla said the main shift was that more shopping centres were being built outside of big metropolitan areas‚ closer to the source of many customers.

“We are seeing more malls being constructed in rural areas. In 2007 and 2008‚ the metro malls reached saturation in terms of profits so a healthy shift to towns is happening‚” he said.

“Mall owners want to get to shoppers in rural areas on weekends‚ not just when they are at work in cities or on farms‚” Kalla said.

However‚ this did not mean that large metro malls such as Sandton City in Gauteng and Canal Walk in the Western Cape would not perform well this year.

“Many large malls are doing impressive tenant management. We have 80%-90% of mall space being let to national tenants countrywide. Some big local tenant department stores are facing competition but that is only good for landlords.

“Big foreign clothes retailers like Cotton On are making waves‚ opening more and more stores in SA. Topshop and Zara are here too and the likes of H&M is on its way. It leaves landlords with reliable clients who are in SA for the long haul‚” Kalla said.

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