Shopping malls are surviving despite South Africans not having enough to spend

Despite the harsh economic conditions that South Africans find themselves in, Octodec, a leading real estate investment trust company, says its rental spaces in shopping malls have continued to see increases in rental income.

Higher rental incomes can often indicate more positive consumer behaviour and economic activity. This comes at a time, however, when South Africans are cash-strapped – overburdened with increased monthly debt repayments and soaring inflation.

Although there is stable shopping behaviour, consumers are at large shifting to spending on shelf-staple goods rather than luxury items, according to NielsenIQ.

Positive developments for shopping malls are reflected in Ocotdec’s latest interim results for the six months that ended 28 February 2023, which recorded income growth in its retail and residential sectors.

It said that several renewals of commercial leases are currently being concluded, with demand remaining strong in Johannesburg and Tshwane.

Although Octodec mainly deals with properties in CBDs, it has several malls or shopping centres in its portfolio – including Killarney Mall, Woodmead Value Mart in Johannesburg, Waverley Plaza, and the Park in Tshwane.

Across its entire portfolio, the group achieved 3.2% growth, mainly due to the 10.3% increase in its residential portfolio.

Octodec said that its retail shopping centres portfolio, mainly comprised of convenience shopping centres, continued to perform strongly, with core vacancies ranging between 0.1% and 6.4%, excluding Killarney Mall.

Overall rental income across all its shopping centres, including Killarney Mall, jumped by 3.6% on a like-for-like basis.

The group’s financial results can be seen below:

• Rental income increase of 3.2% to R974.2 mil (HY2022: R944.4 mil)
• Like-for-like rental growth of 4.1% (HY2022: 1.2%)
• Cash generated from operating activities before dividend payment R239.8 mil (HY2022: R93.9 mil)
• Distributable income after tax (REIT funds from operations R234.5 mil (HY2022: R211.8 mil)
• The all-in weighted average cost of funding is 9.0% (FY2022: 8.7%)
• Distributable income per share (cents) 88.1 (HY2022: 79.6)
• Dividend per share (cents) 60.0 (HY2022: 50.0)
• Net asset value (NAV) per share R24.01(FY2022: R23.28)
• Loan-to-value (LTV) 38.8% (FY2022: 39.7%)

Octodec said that its property operating costs only increased by 1.1% due to a reduction in assessment rates because of the favourable outcome of several municipal appeals and the decrease of bad debts.

However, the group said that its generator costs increased by R6.9 million (1HFY2022: R1.0 million) due to extensive load shedding over the six months to February 2023.

“We continue to investigate opportunities to install solar panels at some of our better-suited properties that have adequate and appropriate roof space,” Octodec said.

Shoppers returning 

Increased revenue for rentals in shopping malls aligns with recent reports that South Africans remain committed to shopping sprees over the weekend.

In mid-February, asset management company Clur released a report detailing that in 2022, trading density and growth for South African shopping centres were at their highest in four years.

The group added that despite tricky operating environments, the retail property sector is remaining resilient, backed by strong and new leasing activity.

In October last year, Eight20 reported that foot traffic in South Africa’s malls was steadily increasing.

Eighty20 said that foot traffic in seven of the malls it studied – including Sandton City, Mall of Africa and Canal Walk – had recovered and even exceeded pre-Covid 19 numbers.

Although more people returned to malls, the amount of time spent in the malls did not match previous levels – declining by 65% and 85% during the lockdown.

Andrew Fulton, a director at Eighty20, said the assessment showed that South Africans were far more deliberate in their shopping trips and spent less time browsing.

“People tend to go into the store, get what they need, and get out quickly to avoid lengthy contact with other shoppers,” noted Fulton. “The closing of cinemas, the shift to more online shopping and the rise of grocery delivery services are other likely contributors to decreased dwell time.”

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