Key findings:
- South African shopping centre trading performance as measured by the MSCI South Africa Quarterly Retail Trading Density Index, recorded another quarter of improving growth.
- Trading density growth (sales per square meter; annualized), came in at +4.3% year on year (y/y) to September 2019 in current price terms– up from a revised +4.1% recorded for the year to June 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 just shy of 5 million square meters.
- The 4.3% y/y increase in trading density was a function of a positive 5.5% sales growth & a 1.2% increase in the amount of reported trading area (i.e. a dilutionary impact).
- Trading density growth of +4.3% comprised a 5.5% growth in sales while reported trading area was up 1.2% (i.e. a dilutionary impact).
- Looking at it from another perspective, trading density growth was a function of spend per head increasing by 1.7% while aggregate foot count/sqm grew by 2.5%.
- Foot count – expressed per square meter – has now grown every month since April 2019.
- However, of concern will be the fact that Spend Per Head growth has dipped to its lowest level since the end of 2015.
- So, shoppers are starting to visit malls more frequently but critically are not maintaining their spend per visit- possibly spreading out roughly the same level of spend over more trips.
- Despite increasing at an aggregate level, annualized trading density growth has been mainly driven by the smaller retail formats. The neighborhood retail segment has been showing strong growth in its trading density over the past two quarters (a like-for-like trading density growth of 9.0% y/y.
- The three larger retail formats have been growing their sales per square meter (or trading density) at around 2% – around half the current official inflation rate.
- Regional shopping centres, on average, are seemingly having a tough time of it. The segment has not seen trading density growth above 2% since early 2017 highlighting the difficulty these mid-tier centres face. Many of them operate in the same catchment areas as larger malls with more tenants and longer trading hours as well as smaller, convenience centres.
- Among the five largest merchandise categories, Electronics stores outperformed with an annualized trading density growth of 8.3% for the year ended September 2019. The Food category (mostly comprising Grocery/Supermarket tenants) and Department Stores also reported ATD growths in excess of 6.5% 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 September 2019. This was the result of a 5.5% growth in overall sales and a 6.1% 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 September 2019, Super Regional tenants pay R11.40 towards their gross rental for every R100 in sales.
Read the full report here.
