Moderate sales growth aside, South Africa’s retail sector remains attractive to property investors, including individual buyers seeking niche opportunities such as neighbourhood convenience centres, says Elton Holland, director of Ikon Property Group.
“The success of neighbourhood centres is primarily driven by ease of access for consumers residing or working in the vicinity, as long as the tenant mix and product offering is geared to suit their needs.
He says a case in point is Mountain View Shopping Centre in Gordon’s Bay on the scenic False Bay coastline in the Western Cape, which was sold for R27.75 million in a transaction concluded by Mike Dicky, Senior investment broker for Ikon Property Group.
“Acquired from a property fund by a local investor, the location of the centre at the entrance to the town via Sir Lowry’s Pass ideally serves local residents. Initially a 711 store with a few small shops, then revamped in late 2012 and now best described as a neighbourhood convenience centre, Mountain View currently comprises a gross lettable area of 3208sqm. It is anchored by an 860sqm Woolworths store which has plans for expansion in the centre . Other tenants include a gym which occupies 534sqm, a bottle store, pet shop, Crazy store, biltong and clothing shops, laundramat and popular local pub plus two bank ATMs.”
The owner of the centre has subsequently acquired an adjacent vacant site of 4600sqm with the intention of developing a second major retail anchor for Mountain View, which would also entail reconfiguration of the centre for optimal consumer appeal.
Says Holland: “The purchaser has made a sound investment – small neighbourhood centres are sought after – particularly in a comparatively affluent area such as Gordons Bay. I believe the Pick n Pay franchise store down the road has the highest trading density in the Western Cape, so there is serious buying power in this node. Set against the Hottentots Holland Mountains, picturesque Gordon’s Bay is well situated only 10 minutes from Somerset West and 45 minutes from Cape Town.
“Neighbourhood centres anchored by Woolworths Food/Shoprite/Pick n Pay Family are the better performing centres with initial net yields of 9 to 9.5 percent, whereas centres with say a 711 anchor would need to show a net yield of at least 10 percent to attract investor interest, unless there is a possibility to substitute the cafe store for a national retailer.”
Adds Dicky: “Due diligence needs to be done on the line shops in a neighbourhood centre as these are generally ‘mom and pop’-owned traders who, unless they offer the neighbourhood community an essential service or commodity, are marginal traders who may easily fall into arrears. Essentially the neighbourhood centre is not a passive investment and an investor would often need to remix the tenancy to ensure the ongoing success of the centre and its tenants.
“As a result, a suitable tenant mix would include, for example, a hair salon, pool shop, pet shop, niche coffee shop/restaurant, estate agency and so on, to complement the food anchor.”
He says in the current economy, the increases in rates, taxes, electricity and security continues to impact on tenancy occupancy costs with gross rental increases overtaking sales growth, thereby reducing traders’ bottom line. In protecting capital appreciation of his/her asset, the landlord must likewise bear some of the increased costs as opposed to passing them all onto the tenants.