Competitive South African retail sector offers room for growth

Posted On Friday, 25 July 2014 15:11 Published by
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Both global retailers and retail property investors are taking advantage of South Africa's appeal as a competitive retail destination, according to research released by global real estate advisory CBRE recently.

Elaine Wilson

"South Africa currently ranks 53rd out of 61 countries in terms of international retailer presence, up from 14% in 2013," says Elaine Wilson, director of research and marketing at Broll Property Group, which is part of the CBRE affiliate network.

"Our increased ranking is a sign of increased interest from retailers across the globe."

Within South Africa, Johannesburg has the highest concentration of global retailers, including recent entrants like H&M, Lush, Lovisa and City Chic.

"In the past year, Johannesburg has moved from 146th to 145th of 189 global cities in terms of international retailer presence, while Cape Town has skipped up three places to 153," explains Wilson.

Furthermore, she says South African retail property yields competitive results for investors.

On average, a typical regional or super-regional shopping centre in South Africa has a 2.2% vacancy compared to 6.5% and 12.4% in the US and UK respectively. Indeed, the affordability of retail rents holds the promise of room to grow net incomes for retail property investors.

"Compared to Hong Kong, which achieves $46,642/m² a year as the top retail destination in the world, South Africa costs about $314/m² a year," says Wilson.

In the Sub-Saharan African context, South African property achieves stronger net rents than Kenya, Malawi or Namibia.

"South Africa doesn't match the high rents in Ghana, Mauritius and Madagascar but these are markets with a limited supply of retail space," she says.

Another advantage of South Africa's retail space is annual net rent escalations of 7%-10% which are typically higher than other retail markets in the region. The same is true of operating cost escalations which run at 7%-10% a year.

"South Africa's property operating costs are relatively high at $80/m²/annum but are mitigated by escalations which are not the norm in many other Sub-Saharan African property markets," adds Wilson.

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