Township malls are big business

There is presently as much retail development activity in former townships and rural areas as there is in the CBDs and suburban areas, although obviously not in terms of the scale of some of the larger metropolitan centres.

This is according to Rob Lockhart-Ross, managing executive of the Property Finance Division at Nedbank Corporate and Investment Banking. 

“This activity is led by a number of experienced developers like the Twin City, McCormick, Heriot, Collins, Fundamentum, Masingita, Eris and Billion groups, which have long and successful track records of identifying opportunities and delivering appropriately sized and tenanted centres,” says Lockhart-Ross.

“The driver of this activity is that — unlike in suburbia, where there is arguably already an oversupply of existing centres and hence limited opportunities for new retail schemes — there are still numerous nodes where there is evident retail demand but present undersupply.”

 This demand is often fuelled by income flowing into these rural and peri-urban nodes from government grants, which in turn attracts retailers looking to expand their retail footprint and market share by establishing a new or extending their existing presence in these nodes.   

Areas that are supported by growing industries, government job creation and government grants are performing at present, while retail centres that are heavily dependent on mining or large manufacturing plants are struggling, according to Antoinette Coetzee, retail analyst at Redefine.   

“The level of surrounding formal retail, the proximity to a regional centre, transport nodes and the offering within a township centre can all influence the return currently being experienced, even if the macro environment is not supportive,” she says. 

Adding that South Africa still has a relatively shallow tenant pool, she notes that township malls are typically anchored by one or two food retailers. Depending on the size of the centres, landlords will typically then include fast food retail, value fashion retail and services such as banks and cellular stores.  

Lockhart-Ross says there is a fairly standard formula applied by these rural and township retail developers, who supplement food retail tenants with other big name chains in the building supplies, fashion and furniture sectors.

“This means that there is relatively low risk for these developers in that typically over 80% of their centres are tenanted by familiar, national retailers on five- or even 10-year leases, which secures the sustainability of the cashflows and returns,” he says.

Coetzee notes that in Redefine’s view, the mix is driven by the size, purpose and target customer, while taking into account proximity to other large retail offerings. “The average age of your shopper is also very important, and of course in South Africa, many customers still rely heavily on credit provided by retailers.”

She says every area has different requirements: for example, the tenant mix at Maponya Mall is vastly different to the tenant mix at Turfloop Plaza.  

Tony Galetti, joint chief executive and co-founder of Galetti Knight Frank, points out that retail saturation in the metropolitan areas is encouraging developers and property companies to turn their attention to the township markets and rural communities. 

“This market has boomed recently due to strong demand for an improved shopping experience in townships, as well as the massive boom in small household disposal income in rural areas,” he says. “As a result, retailers have completely changed their outlook on the less formalised regions. JSE-listed property companies that are actively investing in this market include Resilient Property Income Fund, Vukile Property Fund, Dipula Income Fund, Rebosis Property Fund and Farivest.” 

Lockhart-Ross points out that these retail centres obviously play a vital role as a catalyst for rural and peri-urban development. They often lead to or are premised on infrastructural upgrades, they create temporary jobs during construction and permanent ones upon completion, and they stem the outflow of spend in urban areas.

There are some innovative developers out there, doing things a little differently to the stereotypical strip malls one finds across South Africa’s towns and cities. 

In Phillipi in the Western Cape, an old cement factory has undergone a multi-million rand metamorphosis into shopping precinct that, over the next four years, will include a four-storey hotel, a nightclub, a private hospital and an education zone, as well as the biggest “container” shopping mile in the country. 

Known as The Hub, the developers have set out to create a vibrant new urban space in which to work, learn, create and play. 

“We’re looking to stimulate the local economy and see a reduction in daily migratory patterns, with more cash staying in the community,” says Amor Strauss, general manager of Phillipi Village.

“We have adjusted our expectations on return on investment to allow for the economic conditions in the area,” she says. “We also have social tenants who are subsidised, and the container walk is subsidised subject to the tenants signing up for business courses. Our rentals [are] half that of other shopping centres in the area.

“South African consumers are pretty savvy and [they] all want a great shopping experience.  Even if they are only spending a few hundred rands, they have worked incredibly hard to earn it and they want to be offered the best possible facilities, retailers and product offerings when they do spend their money.”

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