South Africa’s regional shopping centres – previously one of the best-performing commercial property investments – are under pressure and their performance is unlikely to improve despite growth in retail sales claims Erwin Rode, chief executive of Rode & Associates.
He says that the recent retail sales growth is unsustainable because of increasing financial pressure on consumers. Rode says that evidence that shopping centres were under pressure came from the rising capitalisation rates for this class of property resulting in their market values falling.
Capitalisation rates are the unlisted property equivalent of forward earnings yield for equities.
Rode says that if regional shopping centres were under pressure then conditions for community and neighbourhood centres were even more pressing.
Rode says the consumers will face increasing financial pressure when interest rates start to rise. He says that consumer debt levels are close to the peak that occurred two years ago and interest rate hikes will hurt highly-indebted consumers.
Meanwhile, John Loos, FNB’s property strategist says that real retail sales are growing by between seven and eight percent – an impressive figure considering that gross domestic product growth was between three and four percent.
Loos expects interest rates to increase to start increasing in November this year
Referring to office rentals, Rode says that rentals in decentralised Johannesburg had increased by about 10% year-on-year while in Pretoria rentals were up by 5% and in Cape Town by about 3%.
However industrial rentals had contracted, dropping by an estimated 4% by the end of last year.
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