Oversupply doesn’t mark the end of investment opportunities in South African retail sector
South African retail, JLL Research
JOHANNESBURG, October 2019 - The growth of ecommerce has disrupted the retail market globally and resulted in an excess supply of physical space in many markets. While South Africa has not been totally immune to this trend, with vacancy rates increasing above historic levels, retail remains an attractive asset class, with selected centres offering investors the potential of stable rental income and potential capital growth in the longer term.
Commenting on the findings of JLL’s latest research report, Henry Playne, Head of Capital Markets at JLL South Africa notes “Smaller retail centres in metropolitan areas are facing increasing pressure due to competition, but dominant rural and township centres are still performing well. This solid performance supports the current development pipeline for shopping centres in these remote areas.”
Successful retailers are responding by developing omni channel distribution strategies combing physical stores and e commerce channels. This means that many well-known retailers having plans for store expansions across South Africa. These include food and beverages, entertainment and concept stores, that have all showed above average growth in sales turnover.
The retail development pipeline is a lot less aggressive than in the office and industrial sectors. Over the next two years SA will see the completion of an additional 307,000 square metres (sq m) of retail floor space representing a marginal 1% increase in the national stock compared to a 2.3% rise in the office sector and a much larger increase in the industrial sector given projects that have already broken ground and land earmarked for tenant-driven developments.
According to JLL’s Research Analyst Omphile Ramokhoase “The total stock of retail space in South Africa (SA) has increased from 23,663,000 sq m in 2015 to 25,073,500 sq m at the end of 2018, an increase of 8.1% over that period. The future retail pipeline has slowed, as developers are concerned by the excess stock in the market Despite the challenging economic climate trading densities increased by 2% - 3% in Q2 2019”.
“There remains investor interest in the retail sector and we expect an increase in the volume of retail malls sold over the next 12 months as the more challenging market conditions have increased the availability of product in the market and is beginning to reduce owner’s expectations. This may provide opportunities for investors to acquire retail assets at more realistic price levels and benefit from the long-term potential growth in income,” concludes Henry Playne.
Please visit JLL Sub-Saharan Africa research for the full report.
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