JSE-listed Growthpoint Properties’ leasing initiatives and re-tenanting across its retail portfolio is paying off with the company seeing reduced vacancies and improved rentals.
In the three months ended September 30, retail vacancies reduced from 6.3% to 6%. The company expects these figures to improve further once key redevelopments, which will be fully let, are completed.
“Our focus on tenant retention is apparent in the high renewal success rate of 91.5% from 83.3% during the 2023 financial year,” said Gavin Jones, Growthpoint’s head of retail asset management.
Rental reversions improved from -9.1% to 2.3%, with arrears improving from R40.3m to R37m.
Jones said for the remainder of the financial year, the fund will not maintain high retention levels as Game stores at Brooklyn Mall and Alberton City will not renew their leases. Several stores within the portfolio will be reducing space.
Edgars occupies 4.2% of the portfolio or 52,000m2 of gross lettable area with stores ranging from 1,500m2 -6,400m2.
Growthpoint is working with the Edgars team on a strategy to reduce the size of the retailer’s stores, Jones said. In some instances, Growthpoint is negotiating with the retailer about the amount of space to be reduced so it can find innovative ways to lease that space. The company has also discussed right sizing the Edgars stores in conjunction with renewals for the space.
Growthpoint has recycled a lot of the space surrendered by Edgars to the likes of Builders Warehouse, Checkers and Econo Foods, and found uses for these spaces in creative ways, such as gym formats and a variety of value fashion tenants.
“All this has resulted in vastly improved rentals and ultimately created an opportunity to place better tenants in this space in a more sustainable manner,” said Jones.
Jones said Growthpoint does not expect vacancies due to the right-sizing of Edgars stores except in Lakeside Mall in Benoni and Greenacres in Gqeberha. Here, redevelopment interventions are necessary to create access to the upper floors of about 2,500m2 that Edgars is vacating. Edgars has renewed in both centres on one trading level.
At Bayside Mall in Cape Town and Watercrest Mall in Durban both Edgars premises are being replaced with alternative supermarket anchors, and at Beacon Bay Retail Park in East London Growthpoint has an offer from a national hardware store for large premises.
Jones said Growthpoint’s broad strategy is to optimise its SA portfolio and maintain its dominant retail holdings in preferred trading areas, and to acquire suitable assets where feasible.
The sale of noncore assets continues with the fund having sold City Mall in Klerksdorp for R202m and City View in Durban for R263m.
“Both malls measure below 25,000m2 and are in CBD environments where we have seen deteriorating trade conditions and increased competition,” said Jones.
Another three assets and two properties that Growthpoint intends subdividing from existing malls have been approved for disposal for R721.3m.
Trading density growth for the quarter slowed from 6.2% in June to 5.2% at the end of September due to consumer challenges putting pressure on retail sales growth.
“We do not expect improvement in trading densities, given the weaker response to Black Friday in 2023 and 2022. However, we anticipate retail trading densities to remain static over the next eight-month period to the end of June 2024,” said Jones.
Trading density is the sales turnover achieved per rentable square metre in a store or shopping centre. It usually indicates the profitability of a store or mall.
Data from the South African Property Owners Association (Sapoa) Retail Trends Report for the third quarter of 2023 shows year-on-year growth in annualised trading density slowed from 8.4% in the previous quarter to 7.6%.
Sapoa said continued low economic growth, high unemployment and rising interest rates were the main contributors to the fall.
The figures are according to the MSCI SA Quarterly Retail Trading Density Index, which is based on data for 112 retail centres covering more than 5.2-million square metres. Trading density ended the quarter at an annualised R40.1/m2.
At the end of September, overall monthly trading density growth of 16.8% comprised 13.7% rise in foot count and a 2.7% increase in spend per head.
Vacancies were down 50 basis points to 5.1% with small retail centres reporting higher vacancies than large malls. Neighbourhood malls of between 5,000m2-12,000m2 improved 70 basis points to 8.2%, while large community centres improved 90 basis points to 5.2%.
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