PROPERTY commentators are beginning to express concern about the retailer-led development of new shopping centres in Gauteng, Western Cape and, to a lesser degree, KwaZulu-Natal.

With retail sales skyrocketing in the current low interest-rate and inflation environment, these new centres are obviously viable, because of strong consumer demand. But analysts are concerned about the medium- to long-term prospects should there be a change in the economic environment.

Ian Anderson, investment director of The Income Specialists, a division of Marriott, says massive retail sales growth is prompting national retailers to look for space to expand. Anderson says this space is not available in existing shopping centres as these do not have land on which to expand their premises.

National retailers are now asking developers to build new shopping centres, he says.

This is all well and good while retail sales growth is strong, but if the economy slows, the risk lies with the landlords, cautions Anderson.

Listed property funds and companies are all chasing retail properties because retail property has been a "winner by a long way" if the past performance of various property types is taken into account.

Listed property stock Hyprop Investments, for instance, has been one the most successful counters on the JSE Securities Exchange SA because of the stellar performance of its retail portfolio, which includes such retail jewels as Canal Walk shopping centre in Cape Town and Hyde Park shopping centre in Johannesburg.

Anderson says strong growth has been recorded over the past year where companies had tenants paying turnover-linked rentals. But Anderson asks whether the strong growth in rentals and returns is sustainable.

"It is sustainable as long as we have low inflation, low interest rates and accelerating economic growth. This is the situation today, but it may not be the situation in three years’ time," he says.

Anderson says that in Amanzimtoti, for example, there are three property players competing for a single shopping centre site, highlighting the competition to build new centres.

Where this competition is not controlled by municipal councils, overdevelopment will result in an oversupply. This will limit opportunities for sustainable income growth, he says.

Listed property funds Sycom and Resilient Property Income Fund are competing, along with a third developer, to build the first regional shopping centre in the area.

Resilient MD Des de Beer says Resilient has a small interest in one of the three competing sites. He says the local council has said it would award development rights for only one of these.

He says a regional shopping centre for the area is long overdue and demand was felt even before the current retail boom.

On retail property development in SA in general, De Beer says that some "less relevant" shopping centres are being marginalised by new developments.

He says there are risks involved for shopping-centre owners and that is why Resilient keeps its centres in good condition and does not rush into developments.

Gerald Nelson, MD of Sycom, says he thinks the risks for landlords of regional shopping centres are mitigated by the fact that a landlord’s income stream for such a centre is underpinned by contractual leases of which 75%-85% have a "national covenant".

This means the risk in terms of a tenant’s ability to service its commitments is in effect restricted to the remaining 15% -20% of the retail component, and is thus limited in the event of a significant fall-off in retail spending.

Nelson says the main risk lies with small convenience and neighbourhood shopping centres. These small centres usually have a national retailer such as Pick ’n Pay or Woolworths as an anchor, while the rest of the tenants are local traders.

"If, six months down the line, someone puts up a competing centre, they suffer."

Nelson says smaller centres are hugely at risk from shifting consumer demographics.

Sycom has steered away from those types of retail properties and focused exclusively on regional shopping centres that have the critical mass to dominate their area.

"We are looking at Amanzimtoti because there isn’t a regional shopping centre in between Durban and Shelly Beach," says Nelson.

The site Sycom is working on already has rights in place and Nelson says he is confident Sycom’s development will proceed.