JHI property services group said on Monday that property analysts are unanimous in their view that the retail industry offers the best recovery potential.

Johan Engelbrecht, director, retail management for JHI property services, said the sector will lead the economic recovery as shoppers - further encouraged by the additional reduction in the interest rate - slowly but surely return to the malls.

JHI manages in excess of 170 shopping centres nationally, comprising a total area of 1.9 million square metres.

"We are seeing all categories of retailers gradually beginning to recover from a highly challenging trading period which resulted from the global financial crisis and recent recession experienced in South Africa.

"It is true that the retail sector is recovering off a low base, and vacancies seem to have bottomed, with arrears and bad debt improving, however the rollout of new shopping centres has slowed," he says.

"In regard to the latter, while the recovery in retail sales is prompting retailers to take a fresh look at their expansion strategies, retailers remain cautious to open in new shopping centre developments, preferring to look at expanding some of their existing stores in selected retail nodes where they already have well established and successful outlets."

During the first half of 2010, major flagship malls managed by JHI recorded an increase in retail sales turnover in excess of 12% over the same period in 2009, he said.

For the month of June 2010 retail sales in real terms increased by 7.4% compared to June 2009, reflecting a 1.8% increase from May 2010, while growth of 3.1% was achieved for the first six months of 2010 (in real terms).

Engelbrecht says in the current market it is imperative that the tenant mix of any shopping centre is tailor-made to attract the right target market and for tenants to optimise market share and sustain profitability and growth.

"Amid the difficult trading conditions most landlords have opted to cement relationships with tenants by offering 'recession assistance', which enables landlords to retain tenants rather than have to fill vacancies.

"It is also important to develop entrepreneurial skills at tenant level through effective mall management and to have a true understanding of the retailer's business plan.

Although the constrained economic climate has put pressure on the retail environment a recovery is anticipated when taking into account that consumer spend is being stimulated by lower interest rates coupled with inflationary targets which are being met.

Consumers are managing to recover from debt, allowing for a better position to spend, which will have a further positive effect on retail sales, he adds.

"Having said that, a key risk that could slow the retail sector's recovery is the rising operating cost, particularly regarding electricity, rates and taxes that increase the total occupancy cost for tenants and reduce the landlord's negotiating position."

Source: I-Net Bridge