Retail property offers best recovery potential

"We are seeing all categories of retailers gradually beginning to recover from a highly challenging trading period following the global financial crisis and recent recession experienced in South Africa. It is true that the retail sector is recovering off a low base and vacancies seem to have bottomed, with arrears and bad debt improving, however the rollout of new shopping centres has slowed," he says.

"In regard to the latter, while the recovery in retail sales is prompting retailers to take a fresh look at their expansion strategies, retailers remain cautious to open in new shopping centre developments, preferring to look at expanding some of their existing stores in selected retail nodes where they already have well established and successful outlets."

Increase in retail sales

Positively for the first half of 2010, major flagship malls managed by the company recorded an increase in retail sales turnover in excess of 12% over the same period in 2009. For the month of June 2010 retail sales in real terms increased by 7.4% compared to June 2009, reflecting a 1.8% increase from May 2010, while growth of 3.1% was achieved for the first six months of 2010 (in real terms).

"Trading densities in centres managed by our company are strategically driven by ensuring that the right tenants are placed in their preferred location, size, layout and design, taking into account consumer behaviour and spend. As a result of this strategy, vacancy levels in the portfolio under our management have averaged lower than 4% for the calendar year to date."

In the current market it is imperative that the tenant mix of any shopping centre is tailor-made to attract the right target market and for tenants to optimise market share and sustain profitability and growth. "Amid the difficult trading conditions, most landlords have opted to cement relationships with tenants by offering 'recession assistance', which enables landlords to retain tenants rather than have to fill vacancies. It is also important to develop entrepreneurial skills at tenant level through effective mall management and to have a true understanding of the retailer's business plan.

"Although the constrained economic climate has put pressure on the retail environment, a recovery is anticipated when taking into account that consumer spend is being stimulated by lower interest rates coupled with inflationary targets which are being met. Consumers are managing to recover from debt, allowing for a better position to spend, which will have a further positive effect on retail sales.

Rising costs could stall recovery

"Having said that, a key risk that could slow the retail sector's recovery is the rising operating cost, particularly regarding electricity, rates and taxes that increase the total occupancy cost for tenants and reduce the landlord's negotiating position. The group manages this risk through diligent processes of energy saving solutions and reputable utility management service providers, thereby alleviating the pressure on occupation costs for tenants - as only proper verified consumption costs are passed on."

On an optimistic note, expansion projects comprising a total capital investment of in excess of R500 million are continuing in shopping centres under its management. Among others these include the extension of the Kolonnade Retail Park in Montana, Pretoria North, a planned extension in Greenstone shopping centre just west of Edenvale CBD, as well as plans to increase the size of national retailers in the Kolonnade Shopping Centre, also in Pretoria North.