Strong retail sales growth vs strong retail space development and vacancy rates

Posted On Thursday, 14 July 2016 10:47 Published by
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Retail sales growth remains solid in real terms, having averaged 3.3% for the 1st 5 months of 2016, similar to the average growth for 2015 as a whole.


This is impressive, given that SA’s economy has hardly been growing at all in recent times. However, it isn’t obvious that such growth will contain vacancy rates in retail space on a national average basis, because the pace of new development of space has also been quite brisk, and much will depend on the future pace of both retail sales and retail building activity.

Real Retail Sales growth has remained solid, relative to economic growth in 2016 to date, averaging a still-healthy 3.3% year-on-year for the 3 months up to and including May 2016. While this still appears healthy, and the 3,3% year-on-year growth for 2016 to date remains in line with 2015’s 3.3% growth for that entire year, whether we will see under-supplies or over-supplies of Retail Space developing also has much to do with the level of new Retail development activity.

In this regard, StatsSA Retail Building Statistics point to very high levels of Retail Space Plans Passed for the 12 months up to and including April 2016 (May building stats not yet available), to the tune of 1,405,425 square metres. This was the highest 12-month total for plans passed since the 12 months to December 2008, which was the back end of the pre-2008 boom period.

This level also represents a very significant increase since 2014. While not all such plans translate into completions, normally building completions trends track trends in plans passed, and indeed in recent times we have seen some major high profile completions.  In short, the indications in recent years have been a very significant level of new development activity.   

We calculate 2 simple ratios to provide a broad indication as to whether the risk of a rising national vacancy rate could be changing as a result of changes in either the levels of retail sales growth or due to new space development. These 2 ratios are the “Real Value of Additional Retail Sales /Sq. m. of New Space Completed” per period, and the “Real Value of Additional Retail Sales/Sq. m. of New Space Plans Passed” per period. Back in the Consumer and Retail Boom Years, when these 2 ratios became more strongly positive from around 2003, implying stronger retail sales growth relative to new retail space development, a strong decline in the National  Average Retail Property Vacancy Rate (Using IPD data) followed, from 6.6% in 2002 to 2.6% by 2007.

The 2 ratios turned negative around 2008 and 2009, as recession arrived and the pace of Retail Space development reached very high levels, and not surprisingly a rise in the Vacancy Rate from 2008 to 2011 followed.  After a resumption of decline in the Vacancy Rate from 2012 to 2014, 2015 brought about a slight increase from 4.5% in 2014 to 4.7%.  

Does this national vacancy rate rise further in the near term? It is possibility. Since a high average of R3,178/square metre (at 2012 prices) in additional real retail sales/new square metre of Retail Space planned per month for the 12 months to December 2015, the ratio has declined to R664/square metre by the 12 months to April 2016 (May building stats not yet available). Simultaneously, the Additional Real Retail Sales/New Square Metre Completed declined from R6,335/square metre to R1,664/square metre over the same period.

The declines in the 2 “Additional Real Retail Sales/Sq.m of New Space Planned/Passed” ratios in the early stages of 2016 suggests that the risk of rising retail vacancy rates has been on the increase early this year. This is despite a solid real retail sales growth rate of 3% year-on-year for the 1st 4 months of 2016. It has been more the brisk pace of new recorded retail development that has led to some decline in these ratios. Admittedly, we may well have had a rise in these ratios in May, given strong retail sales growth in that month (but building stats for May are not yet available), and both ratios have still remained positive in recent times.

But the risk is that tough economic times lead to a retail sales growth slowing in the near term. The question would then be to what extent retail building activity slows, in order to maintain a supply-demand balance and limit any potential rise in the national vacancy rate? -

Last modified on Thursday, 14 July 2016 11:06

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