Shopping mall investors face oversupply risk - expert

Durban – Expect a divergence in the performance of shopping malls in South Africa, cautioned Kundayi Munzara, a director of Sesfikile Capital which specialises in the listed property sector.

“Currently community shopping centres and super regional centres are still doing well, but cracks are appearing in regional and smaller community centres, especially those situated in the middle of nowhere,” Munzara said at the 19th Congress of the South African Council of Shopping Centres, which concluded on Friday.

Threat of vacancies

“We think that the risk of an oversupply of retail space in shopping malls started to increase since 2014. This could lead to cannibalisation and vacancies, especially if large retailers start closing stores. And there are already examples of that.”

At the same time, over the past 10 years since August 2005 until August 2015, the listed property sector in SA was the investment sector that performed the best.

“If you invested R100 in listed property 10 years ago, you would now have R603,” he explained.

“After the boom phase for listed property investment – between 2005 and 2009 – and the financial crisis, the sector is now in a questionable phase. The SA economy is not growing that much and there is a risk of oversupply of retail space in shopping centres due to new capacity being developed.”

At the same time, at a forward yield of 7%, Munzara said the listed property sector in SA is not cheap. He also pointed out that 24% of this sector’s earnings are by means of offshore exposure.

“I would be super cautious in this sector. There is less yield from the listed property sector than from bonds in SA at the moment,” he said.

Smart retailers lure customers with technology

“At the same time, although the local retail market is facing some headwinds, it is still an industry which is generally intact. International retailers are coming into the SA market and middle to high income SA consumers are still in a relatively good space as far as spending goes.”

One area where he said smart retailers managed to lure customers was by using technology.

“Smart retailers were quick to get consumers to browse online, but still come to the mall to shop. Many malls also use entertainment to make consumers come there and stay there and shop,” explained Munzara.

“Mall managers must become a kind of event manager than a mere collector of rent. Retail has become all about creating an experience for consumers.”

* Carin Smith is a guest of the SACSC at its congress.    

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