Good news for shopping malls in South Africa

The gap between base rentals at South African shopping centres and inflation is closing fast, according to the Clur Shopping Centre Index for the third quarter of 2024.

The index looks at over 4.1 million sqm of prime retail space and 140 merchandising categories across SA and Namibia.

“Rental growth rates in September for the Clur All Centres Index were at 3.7%, only 0.1% below relative CPI of 3.8%,“ said Belinda Clur, managing director of Clur International which produces the index.

“Rental growth rates have consistently under-performed CPI since July 2020, during the Covid-19 pandemic.  They have also consistently underperformed annualised trading density growth rates from April 2021 through to March 2024.

“Q2 2024 suggested an inversion in this dynamic, with Q3 2024 confirming the shift, and rental growth outperforming annualised trading density growth throughout.

“This overall position has been driven by a continued retreat in domestic inflation, a solidification in rental growth at above 3% over 2024 and a further contraction in annualised trading density growth in Q3 ‘24.”

Clur added that in September 2024, the All Centres trading density index closed at R41,539 per sqm and 2.9% y/y growth.

“The All Centres base rent per square metre index closed at R234.59 and 3.7% year-on-year growth. Q3 showed a softer contraction in trading density growth of -0.5% relative to Q2 than the -1.7% against Q4 ’23.”

She added that an expected inverse relationship between trading density growth and growth in the rent-to-sales ratio is apparent.

“The annualised rent-to-sales ratio closed at 6.6% on Sept 24, with a flat y/y% growth rate. 2024 to date shows the lowest overall rent-to-sales ratio levels relative to the last five years, having peaked at 8.4% in January 2021. As a rule of thumb, the lower the rent-to-sales ratio, the lower the rental risk.”

The third quarter also continued to see the Western Cape being the top performer of the three key provinces in South Africa, with a trading density of R46,248/ sqm and 5% y/y% growth ahead of Gauteng and KwaZulu Natal.

It also had the highest rental and growth rate of the three at R252.22/sqm and 4.8% y/y% growth.

Clur added there are early signs of a shift in the dynamic between larger centres and smaller centres.

“Larger centres have grown faster than smaller centres since September 2021, but this trend reversed in September 2024, with the pack of super regionals and regionals slightly under-performing the pack of small regional and smaller centres by -0.1%.”

“Small regionals closed Q3’24 with the highest trading density growth rate of 3.7% y/y, followed by super regionals at 2.9% y/y. Super regionals have held the top growth performer position since August 2021, but since July 2024 small regionals have taken the top spot.”

“Super regional centres, however, achieved the highest market rental rate of R307.97/sqm in September 2024, with small regionals achieving the highest y/y% growth rate in rentals of 6%.

“Moreover, small regionals trading density growth expanded by 0.1% against Q2 and by 0.5% against Q4’23. The largest growth contraction of -1% against Q2 and -3.3% against Q4’23 was seen by super regionals.

Q3 showed the continuing trend of the highest trading densities being achieved by the very large and very small centres, with super-regionals closing at R49,443 per sqm, while community and smaller centres closed at R42,918 per sqm.

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