South Africans are in love with shopping malls – but are running out of money to spend

South Africa’s retail malls had a strong year in 2022, staving off a tough economic environment that saw price pressure on consumers and businesses alike.

According to the latest Clur Report, trading density in the country has not only beaten the downturn from the Covid-19 pandemic, but has continued to grow and beat pre-Covid performance.

The Clur Report is an asset management industry report that tracks the performance of listed and unlisted property funds, covering more than four million square metres of prime retail space in over 100 centres across South Africa and Namibia.

Trading density performance and growth at South African shopping centres in 2022 was the highest in four years, according to the Clur Shopping Centre Index.

“Despite the tough operating environment, the retail property heartbeat, backed by new leasing activity, looks strong,” said Belinda Clur, managing director of Clur International, which produces the index.

“Super-regional and regional shopping centres have maintained the highest trading density levels since mid-2018, when the Clur indices were introduced. Smaller centres show a consistent improvement. In 2022, super-regional centres showed the steepest climb in trading density levels,” she said.

Major centres grew year-on-year trading density by 13.6% to R41,103/m² in 2022, outperforming annual inflation by 6.7%.

In particular, super-regional centres achieved a trading density of R45,933/m², a 17.7% increase and outperformance of CPI by more than 10%.

For the Clur index for all centres, the growth was 11.5% to R39,155/m², 4.6% better than CPI in 2022.

Small regional and smaller centres grew trading density by 6.9%, on par with inflation, to R35,057/m².

According to Clur, overall, the renaissance theme in retail property after the Covid-induced downturn continued in 2022, with a further growth surge in centre performance.

“Significantly, the trading density index for the combined November-December period for all centres was R52,841/m², an increase of 9%. The index for the rest of the year – January to October- was R36,372/m², an increase of 12.3%. This underscored a previously noted pattern of festive season business driving trading density levels with the rest of the year boosting growth levels,” she said.

“These results highlight the extent of consumer support for physical retail space and the important role the sector plays in supporting communities as well as the economy. They also show that agility in response to shifting consumer dynamics and tailored tenant mixes are helping drive improvements in trading densities.”

More malls on the way

Clur said new leasing activity suggests a shift from “survival” to more of a “lifestyle-oriented” tenant mix as the Covid-19-related hard rules and their dire implications become a distant memory.

“There’s been a distinct uptick and renewed confidence in apparel, with the segment taking up about a third of new lettings in terms of gross lettable area,” she said.

The homeware, furniture and interior as well as hardware categories continue to be popular and see growth, with about 20% of new lettings GLA going to this segment.

While regional and super-regional malls emerged as key drivers of the market in 2022, the year also saw a continuation of another major trend in the retail mall space: huge growth in rural and remote location malls being developed.

In the latter months of 2022, South Africa saw five new smaller-scale malls open up in remote areas around the country, as well as the opening of a major luxury mall in Umhlanga.

The R1 billion Oceans mall in Umhlanga added 36,000 square metres of shopping space into the mix of 200,000 square metres of retail space that opened during the year.

For 2023 and beyond, there are even more projects in the works, with one developer alone planning 14 retail developments, adding over 260,000 square metres of retail space.

Red flags rising

Despite the outperformance in retail trading density in 2022, analysis by banking group FNB is throwing up red flags for the sector.

Importantly, it’s undeniable that consumers in the country are under extreme financial pressure, and this is starting to reflect in spending habits and data coming from big shopping periods.

According to FNB, retail sales volumes closed 2022 on a sour note, declining by 0.6% y/y in December, from a relatively muted 0.8% increase in November.

“On a month-on-month basis, seasonally adjusted volumes declined by 0.6% in December, from a 1.0% increase previously. Still, retail sales increased by a marginal 0.3% quarter-on-quarter, suggesting a meagre contribution to the 4Q22 GDP growth,” the bank said.

Together with weak mining and manufacturing output, this data supports the view that GDP performed poorly in 4Q22, primarily due to hard load-shedding and elevated living costs for consumers.

FNB said that the decline in retail was broad-based, with six out of seven categories recording a slide in annual volume sales.

More worryingly, the bank suggests that the sluggish economic environment is likely to keep pressure on households in 2023, while economic metrics like employment recovery and wage growth – thus spending power – are also likely to be hit.

“Another downside is the depletion of household financial buffers, including savings, which up until recently had allowed them to weather the economic downturn. These, combined with elevated inflation, suggest continued financial pressure on households,” the bank said.

But even amid the bleak outlook, there are still positives, it noted.

“The credit market remains active, with consumers accumulating consumption credit at a faster pace, which could provide auxiliary support to household consumption.”

“However, this may also increase the risk of credit defaults due to slower income growth and the accumulation of more expensive lines of credit, resulting in strained household financial positions down the line,” the bank said.

Nevertheless, the 4Q22 FNB/BER consumer confidence results indicate that consumers have a more positive outlook for their finances in the year ahead, highlighting the disconnect between macro fundamentals, household behaviour and certain market outcomes.

Read: 200,000 square metres of new shopping malls in South Africa – with more to come