Real (inflation adjusted) retail sales growth for June 2022 reflected a negative -2.5% year-on-year rate, weaker than the previous month’s +0.1% meaning that the quarterly year-on-year growth rate has slowed from +2.8% in Q1 2022 to +0.5% in Q2 2022.
This slow growth in real retail sales reflects the recent acceleration in retail price inflation, most notably in the ‘specialised food, beverage, and tobacco’ category.
What are the key potential implications for shopping centres?
Weaker retail tenant rental payment performance, says John Loos, Property Sector Strategist at FNB Commercial Property, which is expected to remain the poorest of the three major commercial property categories in 2022. TPN data in Q1 2022 places retail tenants in good standing with rental payments at a low 62%, slightly below office’s 63% and industrial’s 68%. Not only do retail tenants have the challenge of weak real retail sales growth in the face of higher price inflation, but they also have to deal with rising interest rates on debt.
The recent decline in retail vacancy rates may stall. FNB’s Property Broker Survey reported that most property brokers have seen retail property vacancy rates decline during H1 2022, a new business start-up and expansion accelerated following the 2020/2021 lockdowns. But the recent renewed financial pressures on consumers are likely to slow demand for additional retail space for new businesses and existing business expansions for the time being.
Centres focussed on essential purchasing may still outperform, but it’s not guaranteed, with the ‘General Dealer’ category of StatsSA retail data, along with Healthcare and Pharmaceuticals Retail, feeling some sales pressure. Real ‘General Dealer Retail’ declined by -5.7% and Healthcare and Pharmaceuticals by -4.3%.
Larger regional centre categories may be at a disadvantage compared to many neighbourhood and convenience centres, because of their greater focus on clothing and footwear, fashion, and entertainment along with household furniture and appliances retail, all of which can be quite cyclical and experience pressure in tougher times.
However, recent data isn’t working against the larger centres yet. The major clothing, textiles and footwear retail categories recovered following the 2020 hard lockdowns and in June 2022, they were still 6.8% above the pre-lockdown level of June 2019.
The household furniture and appliances retail category is cyclical and not yet showing pressure as at June, growing by +0.5%, and still +10.4% above the level of June 2019 in real terms.
A key risk of pressure looks to be for those with a focus on hardware, paint, and glass which saw a major real decline of -8.6% year-on-year in June.
Low-income area essentials-focused retail centres won’t be immune. Former township and rural centres ‘outperformed’ others in many cases during the lockdown period, with their essential retail having avoided lockdown measures to a greater extent but they now have the challenge of keeping the basic items affordable in an environment where food price inflation may be outstripping income growth.
