Pareto CEO Marius Muller
Amid mounting consumer pressure, recently opened shopping centres, as well as those set to open in the coming months, could experience a slow start to trading as they open ahead of the requisite market demand for additional retail developments, property loan stock firm Pareto CEO Marius Muller has cautioned.
The Pareto head, whose company boasts a stake in a portfolio of regional and super-regional shopping centres, including the Cresta Shopping Centre and Sandton City, in Johannesburg, the Menlyn Park Shopping Centre, in Pretoria, and Cavendish Square, in Cape Town, noted that, while some developments would quickly progress beyond these “growing pains” to become thriving retail successes, others may not be sustainable.
“The success of a shopping centre has as much to do with site selection as it does with execution from its developer. Right now, the listed property sector is hungry for chunky retail development, but cannot find high-quality stock in the market.
“[As a result], they’re dipping into the next tier and creating demand for B-grade retail property at keener yields than found previously. Developers are aware of this demand and putting it out there,” he said in a statement on Monday.
Muller noted that this resulted in some developers delivering shopping centres that were oversized or that opened too far ahead of market support, which brought the long-term sustainability of these malls into question.
This model, although not without early challenges, had resulted in some of the country’s most successful malls.
He cited Canal Walk Shopping Centre and Gateway Theatre of Shopping, in Umhlanga, as centres that had entered their markets well ahead of consumer support and at sizes not sustainable when first opened.
As a result, they were met with challenging trading in their early days.
“But, as their markets grew, these centres were right-sized. Now, they are growing with their markets and are star performers,” he asserted.
The developing 120 000 m2 Mall of Africa, due to open in Waterfall City, Midrand, in 2016, could experience a similar pattern, Muller argued, as its shopper market grows.
He believed, however, that it would ultimately be successful.
“However, there are cases where delivery to market is far too early, because there does need to be some market demand. There are malls that are too big and are being built too far ahead of time. In one case, a significant portion of one such development has had to be mothballed,” he said, adding that large retail developments in the Eastern Cape were of particular concern in this regard.
Developers were advised to adopt a more cautious approach in the current economic climate, initially developing a centre that suited the existing market, before growing in a phased approach, as market support expanded.
This phased development strategy had proved highly successful at a number of local malls, and mitigated the risk of early slow trading.
Muller added that national retailer expansion strategies were also impacting the wave of new retail space entering the market.
“While some retailers, such as Shoprite, have made it clear that their growth will not see them cannibalising their own stores, others are less defensive of their existing outlets.
“As profit margins are being squeezed, they are hoping to offset this with greater turnover. This is resulting in retailers expanding their footprints because their competitors have to shut out competitors, which doesn’t always make sense. More stores are not always the answer and can sometimes result in little gain,” he held.