THE development of shopping centres in previously neglected middle and lower-income areas is gaining momentum.

The latest planned development is a R130m shopping centre to be developed in Atteridgeville, near Tshwane. The centre will be developed in a joint venture between Old Mutual Life Assurance and Pareto, the public unlisted property company, which owns regional shopping centres such as Cresta in Johannesburg and The Pavilion in Durban.

The construction of the 20000m² centre, on the corner of Church and Tlou streets, is expected to start in the third quarter of this year, once 80% of the space has been pre-let.

Pareto MD Alex Phakathi says the development will serve a market with an annual purchasing power of R1bn.

"The entire western sector of greater Tshwane is showing impressive residential growth, with an emphasis on social and lower middle income housing," he says.

Phakathi says there are 40000 households in the primary catchment area with most residents younger than 35. He says these residents mainly shop in the Pretoria central business district and other areas, and there is an opportunity for a centre whose tenants sell food, clothing, furniture, appliances and household goods.

Economists say that although developments aimed at the lower market have higher risk, there are also major benefits.

Adrian Saville, chief investment officer at Cannon Asset Managers, says if companies want to gain exposure to portions of SA where income is growing, the place to look is in the lower and middle-income segment.

"As the economy continues to enjoy rapid growth, it follows that the jobs that will be created are more likely to be created in that segment of the population and that will probably be boosted by government public works programmes," says Saville.

He says the planned Gautrain rail link between Pretoria and Johannesburg, for example, will create jobs in the lower and middle-income segment.

"If you look at the patterns of growth in spending ... the most rapid growth is taking place in those segments. There has been a huge increase in spending when it comes things like durable household goods," Saville says.

He says any property development which caters for these kinds of needs is obviously "leaning in the right direction" and should enjoy above average growth.

But he says the problem is that these lower income developments are not as well understood by investors as higher profile opportunities or developments.

Developers who want to enter the lower end of the market must have the necessary expertise because these developments are more risky. This expertise is not readily available, he says.

"If there is an economic downturn, for example, you would expect spending power in that segment to fall more sharply than in higher income segments."

But property economist Erwin Rode, of Rode & Associates, says because of the lack of population growth in established middle class areas in SA, developers are now looking to areas they used to shun because of the higher risk.

"The problem is, it is much more difficult to make shopping centres work in working-class areas because a shopping centre can’t make a profit unless it has a strong line shop component which offers high mark-up lines, like fashion," says Rode.