Global Courant 2023-05-16 13:37:23
Despite the harsh economic conditions South Africans find themselves in, Octodec, a leading real estate trust company, says rental income in shopping centers continues to rise.
Higher rental income often indicates more positive consumer behavior and economic activity. However, this comes at a time when South Africans are strapped for cash – overburdened by increased monthly debt payments and skyrocketing inflation.
While shopping behavior is stable, according to NielsenIQ, consumers are generally shifting to shelf goods rather than luxury items.
Positive developments for shopping centers are reflected in Ocotdec’s latest interim results for the six months ended February 28, 2023, which recorded revenue growth in the retail and residential sectors.
It said several commercial lease renewals are currently being negotiated, with demand continuing to be strong in Johannesburg and Tshwane.
Although Octodec is mainly involved in properties in CBDs, it has several shopping malls or shopping centers in its portfolio, including Killarney Mall, Woodmead Value Mart in Johannesburg, Waverley Plaza and the Park in Tshwane.
Across the entire portfolio, the group achieved growth of 3.2%, mainly due to the 10.3% increase in the residential portfolio.
Octodec said its shopping center portfolio, which consists mainly of convenience malls, continued to perform strongly, with core vacancy rates between 0.1% and 6.4%, excluding Killarney Mall.
Total rental income across all malls, including Killarney Mall, increased by 3.6% on a like-for-like basis.
The financial results of the group are shown below:
Rental income up 3.2% to R974.2 million (HY2022: R944.4 million) Like-for-like rental growth of 4.1% (HY2022: 1.2%) Cash generated from operating activities before dividend payment R239.8 million ( HY2022: R93.9 million) Distributable income after tax (REIT funds from operations R234.5 million (HY2022: R211.8 million) All-in weighted average borrowing costs are 9.0% (FY2022: 8.7%) Distributable income per share (cents) 88.1 (HY2022: 79.6) Dividend per share (cents) 60.0 (HY2022: 50.0) Net asset value (NAV) per share R24.01(FY2022: R23.28) Loan to value (LTV) 38.8% (FY2022: 39.7%)
Octodec said the property’s operating expenses rose only 1.1% due to a reduction in appraisal rates due to the favorable outcome of several municipal appeals and the decrease in bad debts.
However, the group said generator costs increased by R6.9 million (1HFY2022: R1.0 million) due to extensive load outages during the six months to February 2023.
“We continue to explore opportunities to install solar panels on some of our better suited properties with sufficient and appropriate roof space,” said Octodec.
Shoppers are returning
Increased rental income in shopping centers is consistent with recent reports that South Africans remain committed to shopping over the weekend.
In mid-February, asset manager Clur released a report describing that by 2022, trade density and growth for South African malls would be the highest in four years.
The group added that despite challenging operational conditions, the retail property sector remains resilient, supported by strong and new rental activity.
In October last year, Eight20 reported that foot traffic in South Africa’s shopping centers was steadily increasing.
Eightgty20 said pedestrian traffic in seven of the malls surveyed – including Sandton City, Mall of Africa and Canal Walk – had recovered and even exceeded pre-Covid 19 numbers.
While more people returned to malls, the amount of time spent in the malls fell short of previous levels – dropping 65% and 85% during the lockdown.
Andrew Fulton, a director of Eighty20, said the assessment showed that South Africans were much more mindful on their shopping trips and spent less time browsing.
“People tend to go into the store, get what they need, and exit quickly to avoid prolonged contact with other customers,” Fulton noted. “The closure of movie theaters, the shift to more online shopping and the rise of grocery delivery services are other likely factors contributing to reduced dwell time.”
Read: New mall opens in KZN – while another makes a big comeback after the 2021 riots
