Vuso Majija
Fortress Retail
Executive Director
Following a challenging period for the commercial retail property market in South Africa, shifts in the country’s economic outlook and improved consumer sentiment are buoying the local sector.
Issues such as a lack of service delivery, energy and water constraints, meagre economic growth, constrained consumer spending, and various external factors have created a tough trading environment. In response, retailers and property companies in South Africa invested in creating greater resilience by self-provisioning electricity through solar power, batteries and generators and installing backup water tanks and pumps to minimise the impact of outages on trading.
Working to craft the ideal mix of retailers in shopping centres supported rental performance by creating attractive customer offerings. This is a critical element to get right, especially in an environment of sustained low economic growth and high interest rates, which negatively impacts consumer disposable income and spending patterns.
Fortress Real Estate’s strategy focuses on convenience and commuter shopping centres, which has paid off for us. This trend of malls smaller than 10 000m² has increased to 64% of the total centres. The main reason for this growth is that retailers compete in the convenience market. Shopping behaviour has changed to consumers wanting a quick in and out experience, and it needs to be close to work or home. Convenience has become much more complex and broader because of time pressures, more working families, longer working hours, and lifestyle changes.
With consumer preferences focused on essential goods and services, smaller shopping malls that offer groceries performed well. However, the focus on value offerings in fashion, health, beauty, fast food, and restaurants further helped maintain positive turnover and stabilise rental income.
The latest Retail Trends Report by the SA Property Owner’s Association (SAPOA) highlights that the retail industry is stable; it notes that:
Year-on-year annualized trading densities had increased by 6.2%.
In March 2024, vacancy rates had declined to 4.4%, down from the peak of 7.1% in March 2021.
The tenants’ occupancy cost (or rent-to-sale ratio) was at its lowest level in over a decade.
Having successfully navigated this extremely challenging period, the shopping centre industry is now stable and ready to prosper as the economy improves.
Recent developments that positively impact the sector’s outlook include greater political certainty following the election outcome and the formation of the Government of National Unity (GNU).
Decreased load shedding has brought financial relief to shopping centre owners and tenants and improved market sentiment. Collaborative efforts between the government and the private sector, like Operation Vulindlela, are addressing pressing structural issues to advance the economy and unlock growth.
According to data from the Bureau for Economic Research, if properly implemented, Operation Vulindlela could help the local economy grow by 3.5%, which would pave the way for sustainable growth and improved trading conditions.
The long-awaited turn in the interest rate cycle coincided with new regulations around retirement fund withdrawals. The widely publicised two-pot system, which allows consumers to access a portion of funds, should provide additional impetus to consumer spending, supporting a strong end to the year for shopping centre footfall and retail spending.
As such, the time has come for commercial retail property owners to make investment decisions today to deliver a return in the years and decades ahead. Those who hesitate risk losing ground to their competitors and may fall behind the curve for years to come.
Research conducted by the South African Council of Shopping Centres (SACSC) suggests bullish market sentiment, evidenced by a robust development pipeline. The report, produced in collaboration with Phil Barttram, identified planned developments amounting to 1.7 million sqm across 101 shopping centres, 23 (300,000 sqm) of which were due for completion by 2024.
With the improving economy and political certainty, developers will hopefully greenlight more of the remaining 78 shopping centres (1.4m sqm) in the pipeline.
Beyond these greenfield developments, the future of shopping centres looks promising, with ample opportunities for growth and innovation. However, the sector’s relevance and sustainability are closely tied to its ability to respond to evolving consumer demands and diversify rental income streams for more sustainable and efficient business models.
Investing in technology and digitalisation is a prolific trend driven by multiple factors. Consumers demand a blended digital and brick-and-mortar shopping experience, lower friction, and greater convenience in more functional physical spaces.
Technological advancements will transform the shopping experience, enhancing accessibility, convenience, and efficiency. For instance, the integration of artificial intelligence and augmented reality will redefine shopping, offering immersive experiences and personalised offers for buyers. Added conveniences like smart parking solutions and robust online-offline integration are additional focus areas for the industry.
Technology also holds the potential to help property managers contain costs, streamline operations and meet sustainability targets through green building practices, energy-efficient systems, and eco-friendly initiatives.
By addressing trends through focused investments, commercial retail property owners will transform shopping centres into dynamic community hubs that seamlessly integrate retail, entertainment and social experiences, favourably positioning the sector for a more prosperous future.