SAPOA Retail Trends Report – September 2019

Key findings:

  • South African shopping centre trading performance as measured by the MSCI South Africa Quarterly Retail Trading Density Index, recorded its best year-on-year growth since December 2016. Trading density growth (sales per square meter; annualised), came in at +5.7% year on year (y/y) to June 2019 in current price terms– up from +3.2% recorded for the year to March 2019.
  • The index is based on data collected by MSCI Real Estate’s Retail Performance Bench marking Service which quantifies sales performance as well as other key retail performance metrics across 24 merchandise categories in more than 100 retail centres, covering in excess of 4 million square meters.
  • The 5.7% y/y increase in trading density was a function of a positive 6.3% sales growth & a 0.6% increase in the amount of reported trading area (i.e. a dilutionary impact). The above-inflation sales growth is particularly encouraging given the macroeconomic backdrop and a continuation of this trend will be positive for occupancy rates and occupancy cost ratios.
  • Trading density growth for the year ended June 2019 was a function of spend per head increasing by 4.2% while aggregate foot count/sqm grew by 1.4%. It marks the first period of positive foot count per square meter growth since September 2016 .
  • From mid-2016 to 2019Q1, negative footcount growth detracted from trading density growth suggesting that consumers were visiting malls less frequently even though their spend per visit kept pace with inflation. Growth in shopper numbers is an important element of trading density growth and will play an important role in supporting ATD growth for the balance of 2019 as we approach Black Friday and then head into the Festive Season.
  • South African household expenditure continue to be constrained by consumer and administered price increases as well as higher income tax and additional levies such as the carbon fuel levy that’s added 9 & 10c/l to petrol and diesel respectively.
  • Despite increasing at an aggregate level, annualised trading density growth has been mainly driven by the smaller retail formats.
  • The Super Regional shopping centre segment saw its annualised trading density growth rebound after fears that it was running out of runway during the previous quarter.
  • Mid-tier centres also saw their trading density growth increase on the quarter before but remain in the low single digits (negative when viewed in inflation adjusted terms). These ‘mid-sized’ centres often don’t dominate their catchment area amid a need to balance convenience, experiential and comparative shopping elements.
  • Among the five largest merchandise categories, Department Stores outperformed with an annualised trading density growth of 7.5% for the year ended June 2019. The Food category (mostly comprising Grocery/Supermarket tenants) and Electronics also reported ATD growths in excess of 6% y/y.
  • Retailer’s cost of occupancy, as measured by the ratio of gross rental to sales, continued its upward trend with a 10bp y/y increase to June 2019. This was the result of a 6.3% growth in overall sales and a 5.9% y/y increase in aggregate gross rental.
  • On a segment level, Super Regional centre’s cost of occupancy remain significantly higher than the other segments. As at June 2019, Super Regional tenants pay R11.30 towards their gross rental for every R100 in sales, followed by the Regional and Small Regional segments at R9.00 and R8.60 respectively.
  • The vacancy rate of the 100+ shopping centres forming part of the MSCI Retail Trading Density Index was recorded at 4.3% at June 2019, above the long term average of 2.9%.
  • On a segment level, the highest vacancy rates are in the Neighbourhood and Super Regional retail segments at 5.3% and 4.7% respectively. However, these two have been the only segments to have recorded improvements in their occupancy rates since the start of 2018.