Justin Thom
Galetti Corporate Real Estate
Director
South African food inflation has been at its lowest level in 14 years, significantly relieving cash-strapped consumers.
Stats SA reported a sharp decline in food inflation in November 2024, as food price inflation slowed to 2.3% from 3.6% in October 2024. For the first time since 2010, consumers can spend more on everyday items like groceries and personal care products.
According to Justin Thom, Director at Galetti Corporate Real Estate, this positive economic spin-off is set to impact the retail property sector.
“South Africa’s retail property sector has experienced notable growth over the past decade. There are currently around 2,000 shopping centres in South Africa, with ample plans for further expansion in the pipeline.”
Thom comments that while the retail sector has remained somewhat immune to economic uncertainty and rising costs, recent financial consumer relief will accelerate growth and investment in the retail property sector.
“As disposable income rises, retail demand continues to perform. This rebound is particularly significant for low-income households that have faced the brunt of inflation, which peaked at 11.3% in April 2023.”
With inflation lowering and borrowing costs easing, confidence is returning to consumers. The improved domestic political outlook further supports this positive shift due to the GNU, comparatively stable power supply from the national grid and three repo rate cuts since September.
Thom says retail recovery can also be attributed to the adoption of South Africa’s two-pot retirement system in September 2024: “SARS reported that retirement fund members have withdrawn around R35 billion from their ‘savings pot’ which is another possible driver for increased consumer spending.
Withdrawals peaked in October, coinciding with the annual Black Friday and festive season shopping spike, both of which saw a notable boost in sales last year.”
V&A Waterfront Expansion Makes Headlines
One standout example of the trajectory of South African retail growth is the R20 billion expansion of Cape Town’s V&A Waterfront. This iconic site has become a beacon of investment potential. “The R20 billion expansion into Granger Bay demonstrates strong investor confidence,” notes Thom.
The V&A Waterfront, co-owned by Growthpoint Properties and the Government Employees Pension Fund, has seen its value skyrocket from R9.6 billion in 2011 to R23 billion in 2024. The planned development will involve reclaiming land from the sea and integrating landmarks – Oranjezicht City Farm Market and Oceana Power Boat Club – to enhance the retail experience.
Thom says that the current 450 retailers at the Waterfront are already outperforming national averages, with a remarkable 14% increase in foot traffic in 2024 and a vacancy rate of just 0.3%. “With 25 million annual visitors, the demand is clear. This expansion is set to meet that demand and represents a unique opportunity for investors.”
A New Frontier for Township Retail
Retail growth isn’t just limited to urban hotspots like Cape Town. Vukile Property Fund, a leader in the retail REIT space, reported a 6.1% increase in trading density at its South African retail sites, primarily driven by the informal cash economy in townships. Vukile’s properties, like Phoenix Plaza and Gugulethu Square, are thriving, achieving an impressive 9.6% growth in trading density compared with 2023.
Thom emphasises, “While tourist areas like Cape Town are seeing more spending, the retail potential in rural and township areas is huge. Vukile has a footprint in these areas is reaping the benefits of its rural-specific investments and the current favourable economic climate. These strategic investments are paying off, with vacancy rates under 1%, because they meet consumer needs at reasonable rents.”
Exemplar, a REIT organisation focused entirely on township retail, has also noted robust growth with properties like Diepkloof Mall, Alex Mall, Maake Mall, Katale Square, and Bizana Mall, reporting vacancies below 3%, and 5% rental growth on renewals.
Thom says the performance of budget-friendly retail giants, Boxer Superstores (acquired by the Pick n Pay Group in 2002), and Shoprite continue to highlight the potential within the rural market.
Recently listed on the JSE, Boxer has grown in sales by 16.1% compared with the previous four quarters. It has established itself as an anchor store alongside Shoprite in the low-income sector, outperforming competitors like Spar and Pick n Pay. “Boxer is the largest grocery retailer in the country, with an annual turnover of R37.4 billion and a trading profit of R2.1 billion in 2024. As of 12 February, Boxer’s shares are trading upwards at R65.20 (up by 1.59% this week), underpinning the retail potential for companies positioning themselves well in the township market.”
REITs in 2025
The resurgence of the retail sector spells good news for South African consumer and property investors. “Investors can reap the rewards of the retail boom without the hassle of managing properties by turning to REITs,” Thom explains. With a stellar 34% return year-to-date in 2024, the REIT sector outperforms other asset classes.
As consumer sentiment improves, Thom anticipates that savvy investors will consider the long-term benefits of getting involved in retail real estate: “REITs will continue to gain ground, and I think that we’re going to see some investors reap the rewards in 2025.”