September 27 2023
Activity in South Africa’s retail sector is contracting in a bleak environment, but it is still outpacing consumer price inflation in 2023, the Clur index has showed. SA retailers and landlords need to adjust to get through challenging times.
The index is derived from The Clur Report, an asset management industry standard, which tracks performance for listed and unlisted property funds at more than four million square metres of prime retail space in over 100 centres across SA and Namibia. It is is the most comprehensive real estate index in Sub-Saharan Africa.
The index was conceived by Belinda Clur, MD of Clur International, who has worked extensively in retail and property for more than 20 years. Clur is a retail strategist with a pioneering, industry leading and innovative approach to shopping centre assessment, asset and risk management. This is proved by the fact that much of her methodology has been adopted as an industry standard.
Growth in trading densities in South African shopping centres covering more than 4-million square metres of retail space continued to contract in the first half of 2023, but still outperformed the consumer price index, according to the index.
With consumers constrained by a harsh economic climate and GDP growth expected to be muted into 2024, the continued fall-off was expected.
Nicky Weimar, Nedbank’s senior economist said at the annual South African Property Owners Association (Sapoa) conference held last week in Sun City, that South Africans had to ride out at least another year of muted growth before economic policy measures started to bear fruit. However, it was key that independent power projects were able to feed into the country’s grid.
Weimar said that people in the private and public sectors would use opportunities in the coming months to the economy through its difficult environment. Renewable energy offered long-term investment opportunities. Many projects were already underway.
The private sector was working to bridge the country’s 6 000 MW baseload energy gap. To eliminate loadshedding, about 18 000 MW of renewable energy and storage are needed.
Weimar predicted economic growth would suffer this year, owing to structural problems, forecasting 0.4% gross domestic product (GDP) growth.
Clur said SA’s retail market was in a tricky position but conditions could improve.
“This market position requires acute strategy to capitalise on a powerful combination of under-traded opportunities and over-traded cautionaries amid bustling leasing activity and increased risk appetite,” she said.
The Clur Index for all centres in the second quarter of 2023 showed annualised trading density at R39 879/sqm, a growth of 8.4% on the June 2022 figure. It was however 3.4% down on the growth figure for the December 2022 quarter and 1.7% down on the Q1 2023 growth figure. The growth beat consumer price inflation (CPI) of 5.4% for June by 3%.
Larger malls maintained the highest trading density levels, recording a 9% rise year-on year over the June 2022 figure. That was 2.1% less than the growth reported for the March 2023 quarter. Super regionals were top of the pack and achieved trading density of R47 327/sqm, a growth of 11.5% on the June 2022 figure.
Smaller centres continued to show resilience in the current tough trading environment, with annualised trading density for the June quarter at R35 282/sqm. That represented 7% growth but was only 0.8% lower than the trading density growth for both December 2022 and March 2023 quarters.
Clur said indications of a fall-off first emerged in the latter part of 2022, especially from last September, when exacerbated load shedding started.
“The retail property market is now finding a more natural position. As people have returned to a more interactive world, recent years have seen a swing from a Covid survival tenant mix to a post-Covid curated lifestyle mix. This is now evolving into a bolder balanced mix, containing clear elements of experimentation and depth of texture as the market responds to a more settled consumer,“ said Clur.
The second quarter’s new lettings showed a substantial rise in space take-up relative to the first quarter.
“Key trends emerging from this leasing activity are a greater appetite for risk which we have seen building over the year as well as asset management preparations in the lead up to Black Friday and festive season trading, and an increase in new concept local and international brand entries,” said Clur.
Apparel, groceries, speciality, homeware, furniture and interior and food service categories dominated, making up a combined 75% of new lettings space take-up across the index.
Apparel lead the way, comprising 28%. Within apparel, shoes showed the largest footprint, making up 5% of space.
From a consumer perspective, trendy trainers and elegant flat options were favoured which showed a shift caused by the Covid-casual-comfy athleisure approach to clothing.
This is followed by unisex wear and women’s wear, at 3.2% and 1.8% respectively, showing a preference for either boutique or large space options, and not the middle ground.
Clur said the unisex wear category sees stores of less than 250sqm (4.4%) and greater than 1 000sqm (3.7%) being placed, and women’s wear opting for stores of under 250sqm (2.2%) and between 500 and 999sqm.
“This reinforces the current increased appetite for risk, with a shift away from small size stores, a message of be distinct, make a statement, don’t be in the middle and bland,” said Clur.
Men’s wear came in at 1.5% of the take-up, with minor representation from children’s wear and sports wear.
The grocery/ supermarket category, the “next big new lettings leader”, had a 15.1% area take-up across the index in the second quarter, with large supermarkets of between 1 000 and 4 999 sqm at 13.5%, and minor representation from smaller superettes (1.6%). The food service sector, at 7.6%, showed further fast casual dining formats taking 5.5%, and smaller fast foods stores 1.7%.
Clur cautioned that in-depth results suggested that the apparel sector, representing 20.4% of the overall index is becoming over-traded, and is at a tipping-point in terms of space over-representation.
“This could have a dilutionary effect on trading densities. By contrast, the grocery/ supermarket and food service sectors show signs of being under-traded, with room for a responsible space take-up. That is encouraging as these together make up over 20% of the full index,“ she said.
Mall and retailer strategies for these sectors should not ignore the growing consumer movement toward ethical food and clothing decisions, which will increasingly define future consumption patterns.
“Digging deeper into Clur Index apparel findings points to sound growth opportunities within athleisure wear, men’s wear and small format unisex wear stores, which show signs of being under-traded,” she said.
Speciality, an increasingly important differentiator, making up 13% of new space entries, saw toys and baby stores coming to the fore at 4.1%. Other significant speciality categories include homeware and DIY (1.9%), second hand dealers (1.5%) and pet and vet stores.
Homeware, furniture and interior, at 11.2% of take-up, continues to favour hard furniture (8.1%) rather than soft furnishings (3.1%), with a specific focus on bed and mattress, as well as new international furniture stores. Discount department stores also feature within this context at 5.2%.
“These indicate the current consumer trends around creating a home sanctuary for cocooning, pre-loved and thrift shopping and ongoing elevated ‘pets as children’ status,” said Clur.
She cautioned that department stores are showing firm signs of being over-traded.
“That is a critical finding given that the sector makes up 22.8% of the full index. The category is signalling a need to be pruned back to protect trading densities for this large space component and open opportunities for better performers,” she said.
The technology sector contributed 4.1% to new lettings space over the quarter, with cell phones and supporting services and larger electronics and games stores accounting for 2.4% and 1.6%. Clur said this sector was substantially under-traded, with a most favourable trajectory indicated for the successful addition of space.
The remaining new mix is a spread of books and stationery, food speciality and bottle stores, health, beauty and wellness, general and motor services, luggage and leatherware, accessories, jewellery and watches, eyewear and optometrists and sports, outdoor, fitness and entertainment themes.
Specific under-traded growth opportunities are shown for health, beauty and wellness, food speciality and bottle stores, as well as accessories, jewellery and watches.