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Higher interest rates left its mark on the retail sector and it's unlikely that the retail property sector will emerge unscathed. According to recently released figures the retail sector is heading for a recession and business confidence in this sector is the lowest in five years.

Experts say the negative sentiment will trickle down to retail property and the first signs that retailers' profitability are decreasing, are already appearing.

Absa Home Loans senior property analyst Jacques du Toit says it can be expected that the retail property sector will suffer, given the thorny situation consumers are finding themselves in and the pressure on their purse strings.

"Retail property is more closely tied to the consumer and households. This makes the sector more interest rate sensitive than the office and industrial property sectors," he says.

He says the pivotal question is what the SA Reserve Bank will be doing. "There are clear signs that the economy is cooling off and the factors currently causing inflation, is of an external nature," he says.

Small centres suffer
Investec Property Investments analyst Anton de Goede says although the larger regional and super regional shopping centres are more defensive, the smaller neighbourhood and convenience centres are starting to suffer. He says apart from the size, the bigger regional shopping centres largely differ from the smaller centres in that consumers can purchase comparable amounts of groceries in bigger centres under one roof, which makes them attractive.

He says consumers under financial pressure start to cut expenses at restaurants and luxury item stores. "Centres with a significant entertainment component are now at risk."

Also, stores tied to the residential market, such as household goods, will be affected. However, he says food and liquor groceries will remain strong.

The recent results of listed property funds for the period to the end of December still performed remarkably.

He says Hyprop, involved in prima shopping centres such as the Rosebank Mall and Hyde Park in Johannesburg and Canal Walk in Cape Town, performed superbly with record growth in distributions of 20% for the twelve months until the end of December.

Du Toit says the electricity crisis can exert pressure on new retail property developments, which could be advantageous to existing shopping centres and positively influence their income returns. (Property24/Elma Kloppers)

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