With more than 23 million square metres of retail space in South Africa, this commercial property segment continues to be one of the most actively traded assets on the auction floor by private investors and real estate investment trusts alike.
According to data from Lightstone, retail property last year registered the highest volume of transactions - almost 30% of total commercial property transactions completed at an estimated value of R15.8 billion.
Lightstone also noted that mall visits between January and October 2023 were up three percent when compared to the same period in 2022.
Broll Auctions and Sales has done several sales across all provinces over the past year relating to shopping centres, including regional malls, local convenience centres, mixed-use properties and larger malls, as these assets remain hot property for investors.
“Retail was the most robust sector throughout the pandemic, especially neighbourhood and rural centres because of the restrictions on travel and the need for convenience. These assets have weathered the storm and stood the test of time, and as a result, they are trading well and are in high demand,” said Norman Raad, CEO of Broll Auctions and Sales. A well-tenanted, prime retail centre in Mahikeng was knocked down for north of R80-million recently, while other sales were concluded in and around Johannesburg.
Centres which have a good tenant mix and which offer easy access are most popular – 6 000m² to 10 000m² is the sweet spot, Raad said. “These are the most valued at the moment, along with outlying rural shopping centres.”
The trend for these smaller centres is to have “everything you need condensed into a smaller mall, from a top-end grocer, lower-end grocer, pharmacy and all the necessities”.
At the next Broll Auctions and Sale auction on May 22, several shopping centres will go under the hammer. These include a small retail centre in Brits and an expansive 6 300m² retail centre in the Rustenberg CBD, as well as a leasehold for Melville’s 9 907m² The Boulevard – a prime corner retail centre with a strong anchor tenant. Broll Auctions and Sales has been mandated to take both a modern 4 000m² shopping centre in Pomeroy, KwaZulu-Natal and a township retail centre of 7 700m² with strong anchor tenants in Gauteng’s Tsakane to auction on July 11.
Buyers include private individuals, property funds, pension funds and property REITS – some of which have mandates to buy strictly in rural townships due to the captive audiences who do not want to rely on taking multiple taxis to access shops.
“These investors are looking firstly for location, the supporting demographics in the neighbourhood, risk of competition, the rate per square metre tenants are paying, trading density and turnover of anchor tenants.”
Raad said that while there had been dire predictions for the future of large malls in the United States, the converse had been happening as developers and property owners saw opportunities to adapt and rethink traditional retail spaces.
“On the local market, our large malls are focused on offering a unique experience, to attract shoppers for the day. It’s an excursion for the whole family, with entertainment for the kids, top restaurants and exclusive brands you don’t find elsewhere. People no longer visit a large mall for only convenience shopping, the experience is what matters and what sells.”
When it comes to which provinces had the most active shopping centre sales, Raad said the Western and Southern Cape assets were “tightly held” due to their low yields and proximity to highly populated areas. “Durban, on the other hand, has infrastructure and service delivery issues which affect sales. Funding is key – the banks need to be willing to put the money up.”
Raad said the property market had bottomed out and there was hope that increased stability after the May election would improve municipal management. “It is difficult to operate in an unpredictable environment - we are seeing buyers and sellers holding onto assets - we need certainty to move in a particular direction. I believe good things lie ahead,” he says.
READ: Tips for beginner property investors
Arnold Maritz, Co-Principal for Lew Geffen Sotheby’s International Realty in Cape Town’s Southern Suburbs and False Bay, shared the main advantages of real estate investment.
Cash flow: Unlike many other investments, real estate has the ability to generate cash flow, either in the form of profit once you’ve paid off your mortgage or as rental income, whether from an income-producing flatlet on your primary residence or from separate properties. Cash flow from real estate is also far more stable and predictable than most other businesses.
Ability to appreciate: Generally, the value of properties appreciates with time which means that the longer you’ve owned property, the more it will be worth, making it the ideal nest egg.
Tax concessions: As a real estate operator, you’re able to deduct items such as interest and maintenance over time as business write-offs.
It gives you leverage: By consistently servicing the mortgage, you have the opportunity to tap the equity that you have built up and if you own multiple properties or buildings with several units under one roof, you have the option to cash out at any time.
Loan pay-down: When you buy a property with a mortgage in order to rent it out, your tenant is paying at least part of the monthly bond repayment, which means your property is essentially a savings account that grows automatically without you investing very much more – if anything at all.
Hedge against inflation: When inflation increases, so does your rental income and often your property value as well. In other words, when the cost of living goes up, so does your cash flow.
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