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Thursday Feb 14, 2013

Experts differ on need for more shopping centres

More shopping centres are expected to be built this year as retailers roll out new stores to unlock markets despite a sluggish economy.

Amanda Stops, the chief executive of the South African Council of Shopping Centres, said large shopping centre developments would be focused on metropolitan areas.

"For the next two years, new shopping centres bigger than 30 000m2 include several greenfield developments of large regional shopping centres on the fringes of our metropolitan areas. Residential growth in their immediate vicinity will drive the sustainability of these centres," she said.

However, Erwin Rode, the chief executive of property services company Rode & Associates, said suggestions that the metropolitan areas were "beyond saturation point" in terms of the supply of shopping centres were valid.

Rode said shopping centres had been extremely popular among investors for the past 10 years, but it had not yet sunk in that the rules of the game had changed and consumers would be under pressure for the next 10 years because of their appetite for debt during the recent consumer boom.

Turnover growth of 10 percent a year by retailers was not sustainable, and landlords who did not see this were "living in cloud cuckoo land".

"I suspect shopping centre landlords will be facing a completely different future compared with the past 10 years," he said. "One reason shopping centres have become so popular (among investors) is because they have done so well over the past 40 to 50 years and been the best performer among the property asset classes. But I think things are changing."

Rode said vacancies were seldom a serious factor in shopping centres because landlords were willing to adjust rentals to accommodate retailers that were struggling but that they wanted in their centres.

In the office and industrial property market, rentals "are more sticky".

Fran├žois Viruly, a property consultant and professor at the School of Construction Economics and Management at UCT, said dynamics in shopping centre development were changing, particularly with the growth of internet buying.

Viruly confirmed there had been a shift towards the development of shopping centres in small towns but highlighted that much of the buying power in these towns arose out of social grants.

He believed there were still opportunities for shopping centre developments in the metropolitan areas. Even though population growth was levelling off, the level of urbanisation was increasing.

"The forecast is that there could be another 10 million people in the Gauteng city region in about the next 20 years. The story is not about population growth but urbanisation, and that by itself provides opportunities.

"As cities densify and there are more people, that will play a role," he said.

He added that the middle class was growing and was located largely in the urban areas.

Stops said the retail sector was the third most important contributor to the country's gross domestic product.

She said the focus of shopping centre development in metropolitan areas made sense considering the latest population statistics.

Major metropolitan areas, such as Johannesburg, Cape Town, eThekwini and Tshwane, had the highest population growth figures by far, which affected the need for housing, job creation, schools and general infrastructure, including retail centres, she said.

Stops said Gauteng and the Western Cape would be the focus of shopping centre development in coming years because they boasted higher population growth and household income than other provinces.

The average national household income was between R9 000 and R10 000 a month, while the average for the Western Cape and Gauteng ranged between R12 000 and R13 000 a month, she said.

Stops said shopping centre development plans under way for this year and next would create about 600 000m2 more retail space in shopping centres that were more than 30 000m2 in size.

However, Stops said this growth rate of 3.8 percent was subdued compared with recent years. Total retail space in shopping centres larger than 30 000m2 increased from 1.8 million square metres in 1993 to more than 7.8 million square metres last year - a growth rate of 7.8 percent a year.

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