More shopping centres built despite sluggish economy

For the next two years, new shopping centres bigger than 30 000 sqm include several greenfield developments of large regional shopping centres on the fringes of our metropolitan areas. Residential growth in their immediate vicinity will drive the sustainability of these centres.

Infill shopping centre development, where there is already a large numbers of households in an area underserviced by retail, will also occur. This capitalises on existing infrastructure and these centres should act as catalysts for other commercial activities.

Metro growth

The focus of shopping centre development in metropolitan areas makes sense considering South Africa's latest population statistics. Major metropolitan areas, such as Joburg, Cape Town, eThekwini and Tshwane, have the highest population growth figures by far. This affects the needs for housing, job creation, schools and general infrastructure, including retail centres.

Boasting higher population growth and household income than other provinces in South Africa, Gauteng and Western Cape will be the focus of shopping centre development in coming years. According to the latest census, both these area show positive increases in population numbers.

Gauteng's annual growth rate of 3% from 2001 to 2011 confirms its attraction for job seekers. The Western Cape annual growth rate is 2.6% for the same period. South Africa's annual population growth rate was a relatively slow 1.5%.

These two provinces also have the highest average annual household income. South Africa's average household income is around R9000 to R10 000 a month. Averages for the Western Cape and Gauteng range between R12 000 and R13 000 monthly.

Growth rate lower than recent years

Shopping centre development plans underway for 2013 to 2014 will create some 600 000 sqm more retail space in shopping centres over 30 000 sqm alone. However, this growth rate of 3.8% is subdued, compared to recent years.

Total retail space in shopping centres above 30 000 sqm increased from 1.8 million sqm in 1993 to over 7.8 million sqm in 2012 - a growth rate of 7.8% a year. Most of these larger shopping centres - around 72% - are in South Africa's five metropolitan areas. The rest are mainly in cities, with only 3% in rural areas.

Several shopping centres are built in rural areas, but most are smaller. However, some should expand above 30 000 sqm this year. Many suitable rural areas have already gained retail development in recent years, but there are still growth opportunities here.

However, in a competitive market and subdued economy, every shopping centre development must guarantee its financial feasibility before breaking ground.

Prudent shopping centre development needs sufficient population and income in a local trade area. The market must be sustainable with adequate supporting households and enough disposable income. With this in mind, the demand for retail space will keep on increasing in Gauteng and Western Cape, while this growth will be much lower in other provinces.

Established shopping centres will remain under pressure to stay competitive in the prevailing economic environment.

Beside our shopping centre owners and managers developing innovative strategies for tenant mix, advancing service levels and investing in an attractive shopping environment, there are other important factors needed to support a healthy shopping centre industry and economy. The key to future growth in South Africa is stability and strong GDP growth where new job opportunities can be created.

South Africa's retail sector is the third most important contributor to the country's GDP.