Shopping malls were already in crisis before the Covid-19 pandemic, with the worry in the real estate industry centered around the fate and fortunes of mega malls across South Africa. 

Dominant and large malls have become one of the most challenging sectors of the real estate industry in recent years. They have lost their lustre as a main source of entertainment for families and the SA economy was already in the doldrums pre-Covid-19, impacting consumer spending and retail therapy patterns. 

The worry about shopping malls has intensified among industry players as there is also a step-change in the behaviour of consumers, with more people embracing online shopping and avoiding crowded malls for fear of contracting Covid-19.  

A post-Covid-19 world has also brought in many business failures, resulting in a rising number of empty shops or vacancies at malls. Underscoring this is the recent results of JSE-listed real estate companies that have reported a rise in vacancies at their shopping malls across SA. 

Rebosis Property Fund, the owners of Baywest Mall in Gqeberha, Forest Hill City in Gauteng and Hemingways Mall in the Eastern Cape, released its financial results on 11 May, indicating that vacancies in shopping malls increased from 9.1% to 9.5% in the six months to end February 2021. Vacancies are predicted to reach double-digit territory over the next four years. 

Trading density growth (sales per square metre), a key metric used to gauge the performance of shopping malls, in the Rebosis retail portfolio has resembled a roller coaster ride in recent months, reaching R2,589 in February 2021 – similar levels last seen in September 2019. 

Hyprop Investments, the owner of Gauteng’s Rosebank Mall, Hyde Park Corner and Canal Walk in the Western Cape, also saw vacancies rise from 2.4% in June 2020 to 3% in December 2020. Its trading densities in 2020 were still in negative territory compared with 2019. 

Liberty Two Degrees (L2D), the co-owner of some of Gauteng’s shopping precincts including Sandton City, Eastgate, Melrose Arch and Nelson Mandela Square, is still seeing pressure in sales. L2D’s shopping malls saw a sales recovery in the first quarter of 2021, with sales being -3.9% compared with -9.3% in the final quarter of 2020.  Sandton City recorded the highest turnover in L2D’s shopping mall portfolio of 41% in March 2021. 

Most real estate companies have recorded a recovery in the foot count at shopping malls since lockdown regulations were eased by the government in June 2020. 

L2D CEO Amelia Beattie recently said the hard lockdown meant that wealthy consumers were saving money on overseas travel – money that was redirected to retail therapy once the government allowed luxury clothing stores to operate.  

“The queues in front of Louis Vuitton, Gucci and the like at Sandton City’s Diamond Walk clearly [indicated] a story of wealthy consumers rewarding themselves with retail therapy at a time when overseas travel wasn’t an option,” she said. 

More worries about retail 

Despite a recovery in footfall and retail sales in some cases, market watchers are worried about the fate of large malls – known as super-regional malls that are more than 100,000 square metres in size. 

Keillen Ndlovu, head of listed property funds at Stanlib, believes that bigger malls will still feel more pain. “Some of them [bigger malls] are oversized for the new environment we are now in. Online shopping is growing but will not grow to the same levels as the developed world like the US, UK and Europe,” Ndlovu said. Online sales are still less than 2% of total sales in SA. 

Shopping mall landlords will find it difficult to fill empty stores in an environment of growing business failures. Another big threat for landlords is that their existing tenants are downsizing retail space at malls. For example, new Woolworths CEO Roy Bagattini plans to cut costs by reducing the retailer’s trading space by 20% over the next few years. And the days of new tenants signing 10-year leases are gone, with five-year leases being the norm. 

Ndlovu said the lockdown has favoured small neighbourhood and community malls, which give consumers a quick in-and-out shopping experience instead of them negotiating a parking bay maze and dozens of stores before getting to where they want to be.

Anas Madhi, the director of Meago Asset Managers, is also worried about the future of shopping malls, saying their recovery will depend on SA’s vaccine rollout, which will limit prospects of further lockdowns damaging the economy.

He said retail precincts “will continue to be under significant strain with rising vacancies, as footfall in those nodes is slow to recover owing to business failures, work from home trends and the overall poor economic environment.” DM/BM