SA’s townships have vast amounts of capital derived from formal and informal economies — but failing infrastructure and dysfunctional municipalities threaten the growth potential of these localities.
JSE-listed property groups with exposure to township malls report growth in these assets and increasing demand for space from national and independent retailers seeing opportunities in the sector.
Township malls not only boost the local economy, but also create employment during construction and post-development periods — enabling locals to spend more without leaving their localities.
However, the incompetence of local governments is a threat to growth of township economies, said Mmusi Maimane, leader of political party Build One SA.
“If we are to invest in townships, we need to create competent local governments that are able to do town planning effectively and deliver services or investments will dry up,” said Maimane.
Maimane was addressing delegates at the second annual Township Retail Investment Summit, held at the Mall of Thembisa. The summit is a platform for investors and developers to get a better understanding of the township retail sector and opportunities to meet businesses looking for retail space to formalise and expand their operations.
Maimane said that to boost township economies, and create jobs and wealth for citizens, the government needs to make policies that enable businesses and citizens to thrive, rather than throttling them.
“New policies should aim to create jobs and grow the economy rather than adding another layer of red tape for businesses,” said Maimane.
SA cannot urbanise or increase the size of its cities by allowing shacks to spring up everywhere — it is not sustainable, he said.
He said townships should be declared special economic zones to attract investment. Citizens should be given property title deeds enabling them to trade from, or with these assets.
Maimane said various sectors of the economy could invest in townships as long as conditions are conducive to do business. As an example, if business process outsourcing (BPO) call centres opened in the townships, hundreds of people who spend 40% of their monthly income on transport would save money.
“No economy could thrive in conditions that are unsafe, with failing infrastructure and lack of service delivery — businesses cannot work,” he said.
Itumeleng Mothibeli, MD at Vukile Property Fund, said the biggest concern to township trade was not rentals and demand for space, but rising expenses due to additional security and maintenance interventions because of failing municipal infrastructure while rates and taxes continue to increase at unsustainable levels.
However, he said they were encouraged by improved levels of engagement between the fund and local councils. “This improvement augurs well to drive partnerships as we tackle key social issues in some of the townships in which we operate.”
Vukile is a JSE-listed retail focused real estate investment trust (Reit), with exposure to township and rural malls.
Skills development
Maimane said education and skills development were critical for economic growth.
Jason McCormick, CEO of Exemplar REITail, said township malls were all about recycling capital back into the local economy and transferring skills to local entrepreneurs.
“Many retailers and investors are entering the township retail market because they see growth opportunities and the social value in uplifting communities through their investments,” he said.
Exemplar is a listed Reit and the only SA fund focused exclusively on rural and township retail. It owns retail properties in five provinces including the Mall of Thembisa, which opened at the height of the Covid-19 pandemic in 2020.
McCormick said the Mall of Thembisa opened the Kasi CoLAB — a retail incubator that provides local township retail entrepreneurs access to market and capital. Local township entrepreneurs trade in this space rent-free for a year — and many have become successful businesses.
“We do not just build shopping centres, we develop communities,” said McCormick.
Vukile invested about R9m to bring informal businesses from the townships into its malls to build a pipeline of new tenants for its retail portfolio in SA. These businesses trade rent-free for a year at selected shopping centres in Gauteng while being mentored to improve their operations.
Mothibeli said the project aimed to incubate emerging retail businesses in a formal shopping-centre environment.
“Not only will the entrepreneurs benefit from the skills development of growing their businesses, shoppers will have more product choice and offering,” he said.
Rita Zwane, an entrepreneur and founder of Imbizo Shisanyama said they appreciated the development of malls in the townships as they reduced travelling costs and time. She said in many communities, people could spend up to R100 on a trip to access basic services — money they could spend at their local mall if one existed.
“Township malls, such as Mall of Thembisa through the Kasi CoLAB give entrepreneurs and small businesses access to formal retail to showcase their goods and services,” Zwane said.
Zwane opened Imbizo Shisanyama — a unique braai experience — in 1997 and first opened a formal restaurant in 2019 in Midrand, where she traded for five months before the Covid-19 pandemic hit.
That same year, she opened a much bigger restaurant at the Mall of Thembisa, but the establishment closed at the end of May. Zwane said that the business did not fully recover from the effects of the pandemic, adding that poor service delivery in the township also contributed to the closure of the business.
Investments
Mothibeli said that within their retail portfolio, township malls, compared to rural, urban, commuter and value malls, generated the highest trading densities and lowest rent to sales, indicating the potential for sustained growth in earnings over the medium to long term.
“We continue to see increased footfall from this segment, at levels higher than at this point last year, which is encouraging,” said Mothibeli.
He said though those malls mostly provided essential goods and services, other retail categories had held up well — an indication of healthy disposable income in a difficult consumer environment.
During the first six months of 2023, national retail sales came under pressure, but townships continued to grow, Mothibeli said, adding that the fund remained bullish about the township sector.
He said the government grant underpin could be sustaining this growth, coupled with general public-sector spend at different levels of government, local and district as well as a very enterprising culture of informal trade in both goods and services across townships.
Ahmed Motara, analyst and portfolio manager at Stanlib said cash-backed community and township malls were very defensive in a weak economy.
“This asset class will remain a favourite because it offers solid income and low vacancies with sustainable tenants,” said Motara.
Motara said investors understood the value and growth potential of these assets, hence they were tightly held. Compared to about 20 years ago, a lot more convenience, community and smaller retail assets are being developed than large malls.
“Investors are always for growth — urban assets are not providing growth compared to rural and townships with positive rental reversions,” said Ridwaan Loonat, listed property analyst at Nedbank corporate investment banking.
Loonat said the Covid-19 pandemic accelerated the defensiveness of township retail assets, with Reits — including Vukile and Exemplar — providing growth in earnings and rentals.
He said banks were lending in this sector and they financed investors with experience and understanding of the nuances of township retail.
“We expect the township retail market to continue showing growth in the next three years,” said Loonat.
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