Uncertain future for shopping malls

Children's laughter in the echo chambers of the play area and the occasional shouting of food orders lend to the ambience of the bustling food court at Menlyn Park in Pretoria.

At first glance this may look like a thriving mall, but the two vacant spaces once occupied by Fishaways and Le Kreamery outlets tell a different story.

Last year, R2.5-billion was invested in the mall as part of the development of Menlyn Maine Green City in Pretoria, but almost nine months after the grand opening the investment appears to have lost some of its shine.

"Customers always complain because we often have to send people to the other side of the mall, where our other brands are, when we've run out of stock this side," said Pakiso Diphoko, a sales assistant at a Vans outlet who has been working at Menlyn Park for three years.

Diphoko said he had seen a decline in the number of shoppers visiting the mall.

"It only increases on Saturdays because people have the whole day to shop from 9am to 9pm, but even so after 7pm on Saturdays there is no one," he said.

"So we [shop assistants] usually stand outside the store and we scream and shout at each other, asking each other how our day went," said Diphoko.

In the US, the swing to online shopping, along with other factors, has contributed to mall closures and headaches for property developers.

Former retail giants such as Macy's, JC Penney and Sears are in dire straits, causing a knock-on effect for the malls where they are anchor tenants.

The Galleria at Pittsburgh Mills in Pennsylvania, for example, which opened in 2005 and was valued at $190-million (about R2.5-billion), was sold at auction in January for $100. Nearly half its shops were vacant.

Similarly, in South Africa traditional anchor tenants such as Stuttafords and Edgars are shutting stores.

Foreign-based chains such as Nine West, Mango and River Island are also closing shop in some local malls, a trend expected to continue if the trading environment remains difficult.

According to research by Urban Studies, as of April last year there were 1785 malls in South Africa.

John Loos, a property strategist at FNB, said there had been no increase in retail vacancy rates last year, but added: "I do think that's coming.

"The reason why we didn't see it in the Investment Property Databank statistics yet was that real retail sales growth held up very well until last year.

"Only late [last year] and early this year did the year-on-year growth in retail sales suddenly drop," said Loos.

This was a lag response to two years of economic stagnation, "so I think we are now headed for a period where we will see a rise in vacancy rates in retail".

Can mall owners in South Africa expect a similar rout to that experienced in the US?

"I don't think it's possible to say," Loos said. "The US is years ahead of us in terms of online shopping and it's also got a different economic growth trajectory."

It was likely that many retailers would consider switching from expensive space in malls to warehouse premises, adopting the Lebanese model where retailers look to light industrial warehouse parks.

Loos said although he was not certain how many retailers would try to keep costs down, "they would rather go into these warehouse parks than into a retail mall."

The real estate analysis company Green Street Advisors has predicted that 15% of US malls will fail or be converted to be suitable for other purposes over the next 10 years.

But Anas Madhi, a director at Meago asset managers, said he did not envisage similar carnage in South Africa.

Still, he had concerns that "certain shopping nodes in South Africa are overtraded" and he expected some shopping centres to come under pressure as the economy worsened.

Madhi said there were increasing signs of such pressure on some sectors, and it was increasingly evident that shopping centres would be affected in the medium term.

"Developers need to be circumspect and realistic in assessing viability for future shopping centre developments in South Africa," Madhi said.

South Africa had one of the highest densities of shopping malls globally — it has the sixth-highest number — "and with the limited growth in the economy, there is likely to be fallout within the sector at some point".

To avoid closures, shopping centres needed to continually assess the needs of the environments in which they operated .

"For example, we increasingly see mixed-use developments that include residential, nearby office space and a medical centre, which can provide sustainable support for community and regional shopping centres.

"Elsewhere, enhanced entertainment and social offerings may draw in consumers to regional or super-regional malls."

Madhi said consumers "will always frequent the mall that offers the best mix of convenience, entertainment and completeness of retail offering that suits their needs".

Dave Glass, MD at payments technology firm Electrum, said retailers were moving beyond the shopping experience by introducing online systems to their physical stores.

"All the brick-and-mortar retailers, including Woolworths, Pick n Pay, Massmart and Shoprite are going to have far-enhanced in-store financial services," he said.

"I wouldn't be surprised if you could apply for a home loan at some point in a retailer in a mall."

Mall owners in the US have taken to introducing entertainment hot zones in their properties to try to attract shoppers; likewise, local developer Attacq spent about R4.5-billion creating an entertainment experience for Mall of Africa.

One visitor to Mall of Africa, Mpumi Ntondini, said after browsing through the Zara store: "The mall is way too big, it's massive and I feel like I won't be able to find my car at the end of this. And the international presence is good, but not affordable."

She mostly shopped online.

"I'm completely addicted, so Spree, Superbalist and occasionally Zando. What I like about Spree and Superbalist is it's 30% off everything.

"The only reason I'm here today is that there is an office park around the corner and that's where I work, but I hardly come here," said Ntondini.

"It's not as busy as I thought it would be. Today is the last day of the month but it looks like it's mid-month."

Michael Clampett, head of retail asset and property management at Attacq, said: "Retailers are definitely more circumspect in selecting new sites.

"We are also seeing a review of current footprint, both in terms of location and actual size of stores in malls."

Clampett said occupancy rates were determined by a number of things, making it difficult to identify a trend.

"In general, retail assets are defensive in tougher economic periods. If your retail asset is high quality, or has a form of dominance — either geographically, or by its specific offering — it is shielded even more from increased vacancies due to the economic environment," he said.

As of December last year, Attacq had an average vacancy rate of 1.9% in its retail portfolio.

Suggestions that property developers should improve existing properties, rather than build new malls, were "unfair", Clampett said. "Retailers hungry to add footprint for growth reasons create a market for developers to act," he said.

"Should retailers prefer not to roll out new stores for growth it would be very difficult for a property developer to build a mall.

"We are already seeing retailers being more careful in selecting new sites, and thus it is my view that the construction of new malls will slow down," said Clampett.

Pareto Limited and Menlyn Maine Investment Holdings did not respond to a request for comment.

tshandup@sundaytimes.co.za