In a rising inflationary and interest rate environment, resulting in reduced consumer spending, township and rural malls continue to show strong performance due to their focus on providing essential products and services.
These retail assets will consistently outperform, thanks to carefully chosen tenant mixes providing stable income.
“The defensive characteristics of rural and township malls means there is less volatility through different stages of the economic cycle, particularly in downturns that may adversely affect the consumer,” said Saneh Memela, an investment analyst at Meago Asset Managers.
Memela said though factors such as load-shedding have had a negative effect on trading, the profile of the supportive shopper base has not changed.
Data from The 2023 Township Customer Experience (CX) Report by Rogerwilco and Survey54 show that 23% of those surveyed say they spend 25% to 50% of their income in townships.
With food prices constantly on the rise, township residents tend to stretch their rand by buying smaller items closer to home instead of spending on travelling to shops, the report reveals.
Memela said rental levels at these malls are sustainable, vacancy rates are near historic lows for some portfolios, and reversions are flat to positive, driven by continued demand for space from retailers.
Property groups such as Vukile Property Fund and Fortress Real Estate Investments are reporting strong retail property fundamentals from their township and rural malls.
For the period to the end of March, Vukile, whose township and rural portfolio is valued at nearly R8bn, reported vacancies of 2.8% and 0.8% respectively.
Retail sales at rural and township centres grew 6.7% with footfall up by 9.8%.
In its pre-close operational update in June, Fortress reported portfolio vacancies having decreased from 2.8% in December to 2% at the end of May.
Fortress owns a portfolio focused on essential goods and services in convenient locations and commuter nodes. These include rural, township, CBD and suburban malls.
Its township centres include Park Central Shopping Centre in the Johannesburg CBD, located opposite the MTN (Noord) Taxi Rank, Evaton Mall in Evaton West, and Palm Springs Mall in Orange Farm.
These malls are close to residential areas with taxi ranks, thus reducing travel time and money, with informal trading stalls for last-minute shopping.
Vuso Majija, an executive director and head of the retail portfolio at Fortress, said at Palm Springs Mall, for example, 30% of their shoppers said they shop at hawkers, adding that they see these traders as mini semi-anchors to their mall.
Kelly Carmichael, an asset manager at Fortress, said their malls have high footfall, with marketing events such as educational activities during school holidays attracting a number of shoppers.
This also increases shopper dwell time, which is on average about two hours. Month-ends are among the busiest trading times because of social grant payouts.
Evaton Mall, for example, has a more youthful shopper base, which could be due to free Wi-Fi contributing to increased footfall and dwell time, said Carmichael.
Apart from having retail tenants that service the needs of shoppers in these communities, Carmichael said they also focus on “softening” retail — add-ons to make the malls more appealing.
For example, both Evaton Mall and Palm Springs Mall have dedicated play areas for children. Other add-ons include benches and soccer pitches at some malls.
“Our malls act as big community hubs where people shop, gather and socialise, and we are constantly listening to their needs to improve our retail offering,” said Carmichael.
Park Central, a CBD and commuter mall with about 40 retail tenants, services the diverse needs of city centre residents and those who work in the city as well as commuters passing through. Here, footfall is close to 2-million per month compared with nearly 1-million at Evaton Mall.
According to Metope CEO and portfolio manager Liliane Barnard, defensive retail assets of a manageable size, well located near public transport and with grocer and essential goods tenancies remain highly cash generative.
Barnard said specific and well-priced retail assets are still worth buying. “Smaller convenience centres remain in demand and are usually acquired by private investors while the market for larger malls has largely dried up,” she said.
Majija said the company has sold a bit of retail that was no longer core to its portfolio and is looking to acquire more commuter-convenience retail assets.
There was limited stock available and prices were high, “hence we will only consider acquisitions when prices come down”, he said.
Memela said retail assets that service the everyday needs of shoppers such as convenience-neighbourhood shopping centres, township and rural centres, are relevant in a challenging economy.
“It is also worth investing in dominant retail assets such as super-regional malls which draw in footfall and provide shopping and experiential elements that appeal to consumers,” said Memela.
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