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Despite e-commerce boom, retail property remains attractive investment - JLL

06 Nov 2019

Vacancy rates in the South African retail property market have increased above historic levels due to the growth of e-commerce in the country. Retail, however, remains an attractive asset class, according to JLL's latest research report, 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."

Omni-channel distribution strategies

Successful retailers are responding by developing omni-channel distribution strategies combining physical stores and e-commerce channels. This means that many well-known retailers have 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 307,000m2 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.

A decade ago, building a profitable mall was simple. If you got the location, size, layout, parking and access routes right, you had retailers and shoppers in the bag...

Future retail pipeline slowed

According to JLL's research analyst Omphile Ramokhoase, "The total stock of retail space in South Africa has increased from 23,663,000m2 in 2015 to 25,073,500m2 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 Playne.

Article published courtesy of BIZCommunity

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