Retail vacancies are on the rise, with smaller towns in particular hard hit by the rationalisation in the sector, says Michael Schirnig, head of Corporate Real Estate Services at Old Mutual Properties.

“Top retailers may have had bumper seasons, along with leading shopping centres, but the reality is that there have been a massive number of store closings,” he says. “In the wake of their problems, large chains such as Retail Apparel Group, Fashion Africa, CNA and Profurn have put upwards of 500 shops back onto the market, as they revamp strategies to remain competitive in a challenging economy.

“Add to this surplus the vestiges of space shuttered in corporate clean outs done at Esic (John Orr’s and other brands), Shoprite, Ster Kinekor and other retailers over the last few years, and landlords, particularly in smaller centres, are finding the going tough as a result of this rationalization.”

The surplus is becoming a bigger problem with the reduction in deals and more excess space coming on the market, Schirnig says. Currently, his Corporate Real Estate Services (CRES) team is marketing more than 200 000m2 of sublease space – equivalent to 20 rugby fields or the combined space of SA’s two largest malls - for just a handful of tenants. CRES focuses exclusively on helping tenants make more out of property.

“Sadly, the impact has been worsened by an absence of replacement traders, unlike in the UK, where retail space is hard to find and in the continuously expansionist USA where new retail concepts appear to sprout like mushrooms, filling the void left by bankruptcies and store repositionings.

“Retail expansion in SA has slowed and the pool of retailers has shrunk,” Schirnig says. “At the same time, retailers have more options due to rising vacancies in existing and newly constructed shopping centres.”

Schirnig says one indicator of the severity of the problems plaguing the retail property market is that some of the national chains announced liquidation proceedings in advance of the key December trading period, rather than trying to push through and secure the revenues and hopefully associated profits.

“You would be hard pressed to find another year where there were announcements of store closings in the run up to the peak trading period,” Schirnig says. “That is a tell-tale sign that all was not well for South Africa’s second-tier retailers in 2002.”

Schirnig says that, apart from liquidations, another trend influencing the volume of surplus retail space is retailer repositioning. He notes that retailers continually regenerate their portfolios by re-evaluating stores in light of changing trade areas or evolving prototypes. “Pep for instance has repositioned probably 200 stores in the last few years and seen significant increases in sales as a result,” says Schirnig, “Also, in the tough economic climate of the past 12 to 18 months, retailers are down-grading shops that in the best of times would be considered mediocre performers, and labeling them as full-scale problems, with resultant closures.

 “Given the number of stores our clients are trying to dispose of, we’re continually on the look-out for local retail formats that can take over our client’s surplus space and we also market the space to national traders and retail brokers to ensure maximum exposure,” says Schirnig. “Typically the prime locations are snapped up quickly, but we’ve often had to look at non-retail users or quite small traders for the less desirable locations in order to generate some revenue.”

First prize, he says, is always to find a replacement tenant with whom the landlord will enter into a totally new agreement; this approach removes the liability for future rental payments from the books of the initial tenant, and provides a neat exit from the obligation.

“In smaller towns,” says Schirnig, “our experience is that the sub-tenant’s covenant (ability to pay the rent for the full lease term) isn’t normally blue-chip, so the initial tenant has to continue carrying the risk of payments on the premises. Often, then, we look at paying the landlord some kind of once-off payment, in addition to providing the sub-tenant, to free our clients of the longer term obligation.”

Ends

ISSUED FOR Old Mutual Properties

BY Michael Kerkhoff & Associates

INQUIRIES Michael Schirnig 083-448-2502

                     Mike Kerkhoff  021-424-5280/082-882-8559