Positive turn for shopping malls in South Africa
South Africa’s retail property sector is showing some improvements, but investments are still riskier than before the Covid-19 pandemic.
The latest Rode’s Report on the South African Property Market for Q2 2024 gives the capitalisation (cap) rates for regional centres (50,000 to 100,000 sqm of rentable space) in South Africa.
The cap rate is calculated by dividing a property’s net operating income by the current market value. A higher cap rate indicates a riskier investment.
The Rode’s survey showed that cap rates of regional shopping centres in South Africa declined slightly from 9.3% in Q1 2024 to 9.2% in Q2 2024.
“Cap rates in 2024 so far have averaged a bit better than the 2023 average of 9.4%,” said Rode.
“Looking a few years back, national weighted regional centre cap rates remain well up compared to the 2019 average of 7.9%.”
“This reflects the under-pressure spending power as well as the construction boom before the pandemic.”
Although most of the major cities surveyed by Rode in Q2 saw cap rates that were mostly in line with the start of the year, Durban bucked the trend, with cap rates seeing some improvement.
Nationally, capitalisation rates for the smaller community (12,000 sqm—25,000 sqm) and neighbourhood (50,000 sqm—100,000 sqm) centres averaged 9.8% and 10.4%, respectively. These were both better than in Q1 2024.
“Retail property cap rates are currently still elevated compared to historical levels, although some improvement has been observed of late,” said Rode.
“Indeed, some indicators, like mall vacancy rates, look better.”
“The average vacancy rate of all mall types declined further to 4,4% points in Q1 2024 from 4,6% in Q4 2024. However, it is still slightly up from the pre-pandemic level of 4% (based on SAPOA/MSCI data).”
Other data shows that the market is under pressure, such as total nominal retail sales only growing 4.3% in the first five months of 2024 – down from the 5.6% seen over the entirety of 2023 (based on Stats SA data).
That said, in real terms, sales from the first five months of 2024 were roughly the same as those from January to May 2023.
The latest retail confidence index from the Bureau for Economic Research (BER) was still weak in Q2 2024, even if it increased from 34 in Q1 2024 to 39 in Q2 2024.
“Rode believes the outlook has turned more positive due to the prospect of better medium-term economic growth.”
“Note that the expectation of better growth existed even before the announcement of the Government of National Unity (GNU).”
The formation of the GNU has been well received by many South Africans and the market, with South African assets, such as equities, bonds, and the rand, having seen a rebound over the last month.
Although question marks over the longevity of the GNU have been raised, many believe that the tide might be turning after a tough few years for consumers and businesses in the country.
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