Consumers to stick with what they know and where to go in 2015

Pareto CEO, Marius Muller

According to Marius Muller, CEO of SA property giant Pareto, this is true for all categories of commercial property. "For office and industrial property, a prime location in a dominant business node will reinforce a quality, defensive asset. Offices have had a tough run with weak fundamentals at play in recent years. The office market is likely to continue to take a beating in 2015.

"There are still new office developments coming to market, although this is expected to be tempered by South Africa's electricity crisis. Therefore, if a development is not tenant-driven, it needs to be a top quality building in a prime location with competitive occupation costs, if it has any chance of attracting good tenants in the current market. That's a tall order."

Retail needs excitement

For retail property, dominance is essential, whether it be on a neighbourhood, local, regional or super-regional basis. "Shoppers are not prepared to buy in the same way they did previously. In this market, you want a shopping centre that is the first choice with customers, and can stand up strongly against any competition, or new market entrants."

In achieving this, it is not only the size and location of the shopping centre that plays a big role, but also how well a mall's tenant mix meets its shoppers' ever-changing needs.

He foresees the entry by, and dominance of, international retail brands playing an even larger role on the SA retail landscape in 2015.

"Unfortunately South African retailers do not seem able to react fast enough to the competitiveness of these new market entrants. While we have some of the most mature and experienced retailers in the world, it would seem their historic lack of competitors of substance has left them exposed in the current environment and not able to dominate in their local market."

Edcon is the big elephant in the room. "There is some concern around this retailer, which is carrying enormous debt at huge interest rates, squeezing its bottom line. It also seems to be challenged around merchandising and in-store experience. However, it certainly is not alone in trying to deliver a meaningful shopping experience that appeals to today's shoppers.

"Sadly, we will see landlords having to exit some of the more traditional South African retail brands in favour of the better performing international brands. South Africa's consumers, who remain under pressure on the economic front, are spending less and driving this transformation.

"After the global financial crisis in 2008, South Africans bounced back with a lot of unsecured lending, but this was artificial and unsustainable. The household debt service risk has now started reducing. Therefore, it gives us more confidence that our retail figures are a reliable reflection based on solid, sustainable growth. This is good for the market. It is a sign of an economy and industry that is now growing on better principles.

With more conservative spending being the name of the game in 2015, consumers are not only looking for great value from the products they buy but also to benefit from an enjoyable experience while they are buying them. "This means retailers must provide exceptional in-store experiences.

"When people shop, they're not only seeking the products they want, but also to be delighted, whether by an effortless shopping experience with great customer service, or by a more entertaining experience. Creating this will be one of the big challenges for retailers in 2015, and an important factor in achieving market dominance," concludes Muller.