Shopping space demand still strong

Posted On Friday, 26 March 2004 02:00 Published by
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The development of shopping centres remains a lucrative field of investment, although the greater Durban area's capacity to support regional facilities could have been reached - for the next few years anyway.
Keith Ross
Issue : 24 February 2004

The development of shopping centres remains a lucrative field of investment, although the greater Durban area's capacity to support regional facilities could have been reached - for the next few years anyway.

But with so many of South Africa's top retailers showing exceptionally good profits, the demand for shopping space seems certain to grow further.

This is the view of some leading thinkers in the property investment field, who were asked by the HighRoad whether or not they felt the boom in development of shopping centres could continue.
PETER TILLARD, KZN property management director of JHI Real Estate, relaxes at Spriggs in Fields Shopping Centre, arguably one of the most consistent shopping complex performers in the region. Served by Carmen Kenton at this popular eatery, Tillard says that a proactive management approach that constantly reviews the tenant mix relative to the market is key to ensuring good sustained returns in retail centres. JHI manage one of the largest retail portfolios in KwaZulu Natal.

They were confident that the returns on well-researched developments would continue to be attractive if macro-economic factors - such as a sharp rise in interest rates - did not cause a drop in retail sales.

"In the past 12 months a low interest rate environment has prevailed," said Durban's Peter Sparks, managing director of SA Retail Properties. "We have seen impressive trading successes of the retailers, especially the major anchors: Pick 'n Pay, Shoprite, Spar and Woolworths. There have been significant improvements in the trading densities of line shops - a growth in the ratio of their turnovers to floor areas."

Sparks said there had also been a significant firming of the property loan stock and property unit trust sectors on the Johannesburg Stock Exchange. "The listed property sector has performed admirably.

"This has increased the demand for shopping centres, locally and nationally. The demand for shops has caused a decrease in vacancies and firmed rental levels."

He said his company invested only in convenience and neighbourhood shopping centres, a proven asset class.

"We develop and own these shopping centres in communities that will continue to supply a demand. People always patronise their community centre."

Sparks said all the regional shopping centres in the Durban area were operating "optimally", with one exception, Gateway. "But I believe that in time Gateway will become a mature centre. It will become the flagship regional centre of this province."

Gateway's future is already assured and the developers, Old Mutual Properties, are negotiating further expansion. Old Mutual's retail executive, Brian Wiltshire, said the expansion of the centre was a sign of the steady northwards expansion of greater Durban.

"Gateway has been a catalyst in the commercial and retail development of the new Umhlanga town centre," he said. "It is a node that continues to attract investment, one of the latest additions being a City Lodge Hotel. "From our own perspective, we are expanding Gateway to accommodate stores for the top-rated retailing group, Edgars Consolidated Stores (Edcon). "Negotiations under way may lead to a further expansion, hardly two years after the centre opened.

"Edcon is boosting its presence in the KwaZulu-Natal market by opening Edgars and Jet stores in Gateway. Accommodating these stores entails a 7 000m2 expansion to Gateway's gross lettable area of 107 000m2." The growth of the retail property market in recent years has been exceptional and many experts believe it can be sustained.

"A lot of the big retailers are performing very well at the moment and that bodes well for this sector of the market," said a Durban property developer and former director of JHI Real Estate, Tommy Osborne. "But when it comes to regional centres, the greater Durban and Pietermaritzburg areas seem well catered for at the moment. There could still be some need on the South Coast."

Osborne said the neighbourhood convenience centres had performed very well in recent years and he expected them to continue to do so. But he felt caution should be exercised in the rush to develop such centres and each new project should be well researched because the development of a new centre "can sometimes cause the demise of another in the same area". Osborne said the movement of businesses out of "downtown" Durban had helped to change the face of the city, but he believed this trend had now stopped. "I think most of the organisations that were going to leave the CBD have now left and we will not see much more movement. Most of the organisations left in the downtown area are quite comfortable there and are likely to stay."

He said the great difference between the cost of office accommodation in the city and in places like the Umhlanga Ridge could lead to a gradual revival of the fortunes of the central business district. "There has been a lot of growth on the Ridge. It is aesthetically very pleasing there. But some businesses might not want to pay R70/m2 to R80/m2 a month for office accommodation there when they can get something similar in the city centre at half the rental.

His view was shared by Durban's Gerard de Rauville, a former director of Pangbourne Properties, a listed company.

De Rauville said it was his personal view that emerging companies would start to fill some of the many vacant offices in the central business district.

"And the bigger the gap between the cost of A category office accommodation - such as on the Ridge - and the B and C category, the more likely this is to happen."

He said Durban had for many years been different from the other major centres in that few offices had been built "on spec" in the city. In Durban, offices tend to be built to order.

"And Durban is not a head-office city, so there is seldom a demand for office accommodation on a massive scale. I expect the market accommodation to continue to grow steadily."

De Rauville predicted that the big growth in Durban's property market in the next few years lay in residential and industrial development. "I believe the market for residential property in the higher price range - R2 million and upwards - has become a bit overheated. I advise caution. "But there will be a growing demand for residential property in the R500 000 to R900 000 price range."

He said industrial development had for a long time been falling behind in Durban. "At the moment we have some development at places like Riverhorse, Falcon Ridge, Mahogany Ridge, Mariannhill and at the old Natal Estates north of Durban, but there is room for a lot more. The scope for industrial growth in this part of the world is enormous. More and more industries will see the value of being in KwaZulu-Natal, with all its resources. So I believe it is in the field of industrial development that the scope for growth will be the greatest in the next five or 10 years."
According to Durban's Peter Sparks, managing director of SA Retail Properties, Gateway (above) is the only shopping centre in KZN not operating optimally. However, he believes this is only short-term and the centre will become the flagship centre in the province.

Publisher: Mercury High Road
Source: Mercury High Road

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