Property company Fairvest remains confident in the enduring value of physical retail in the omnichannel landscape, particularly in underserved regions where its centres have a solid presence.
This optimism is reinforced by the JSE listing of Boxer, which was spun off from Pick n Pay in November and signals strong confidence in consumers who lower living standards measures, an important demographic for Fairvest’s tenants.
Fairvest has strengthened its position in that segment by increasing its shareholding in Dipula to 26% from 5%, further solidifying its reputation as a retail-focused entity.
“We are optimistic about the year ahead, anticipating a favourable interest rate environment and improved electricity availability, which should bolster economic and property sector performance,” the group said in it annual report.
“While geopolitical volatility remains a concern, our focus on stable domestic markets, particularly rural and township shopping centres, minimises exposure to external risks.”
The owner of Soshanguve Mall continues to build itself as a retail-focused fund by divesting noncore assets. Retail accounts for 70.6% of the fund’s value, while its shareholding in Dipula will increase both the weighting and the scale of the portfolio.
In January, Evan Robins, who manages Old Mutual’s SA Quoted Property Fund, said township and rural retail assets were seen as an attractive investment due to their resilience against online shopping disruptions. He highlighted that these areas benefited from lower rents and relied on more defensive consumption, with spending being less discretionary compared with other retail sectors.
“They are often in underserviced areas with a lot of demand (less competition) and can benefit from stable social grant disbursements. Retail, post Covid, has rebased and is beginning to show growth in line with trading density growth. It is no longer under great pressure,” Robins said.
Still, Fairvest, which also owns the Bara Precinct, noted lingering risks tied to the macroeconomic outlook, including the continued weakness of the economy, the lasting effect of the Covid-19 lockdowns, riots. These factors have affected lease negotiations and tenant retention, leading to higher arrears and increased vacancies.
While acknowledging these risks, the group has emphasised its efforts to engage financially stable national tenants with solid balance sheets and proven business models to help mitigate potential issues. It is also focusing on robust collections and arrears management, as well as strengthening its lease department to minimise losses from vacancies and rental rate declines.
Other risks include an unreliable water supply and quality from local municipalities.
“Water tanks and pump systems have been installed at certain properties to ensure a continuous supply and adequate water pressure for firefighting equipment,” the group said.
“Additionally, groundwater harvesting plants, off-grid water, and sewer systems have been implemented at select properties, with regular engagement with local municipalities.”
Another import risk is the rising cost of funding and the potential failure to renew bank facilities, coupled with a high loan-to-value ratio, which poses significant balance sheet and liquidity risks, Fairvest said.
But the group prepares and monitors regular cash forecasts, loan maturities are actively managed. The loan-to-value ratio is tracked and reported on a monthly basis. “However, risks related to share-covered loans and property valuations pose challenges, limiting our ability to fully control this risk,” Fairvest said.
In the year to end-September, the Sebokeng Plaza owner maintained a loan-to-value ratio of 33.3% and reduced vacancies to 4.3%.
“They are often in underserviced areas with a lot of demand (less competition) and can benefit from stable social grant disbursements. Retail, post Covid, has rebased and is beginning to show growth in line with trading density growth. It is no longer under great pressure,” Robins said.
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