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Property Focus: SA Firms Trawl Rest Of Africa For Mall Opportunities

Property Focus: SA Firms Trawl Rest Of Africa For Mall Opportunities

South African real estate firms are looking for opportunities to build malls in other African countries as the shopping center construction market back home slows down in tandem with a struggling economy that has barely managed to maintain a positive growth in recent years in the face of tough challenges.

The Africa’s second largest economy has the highest concentration of malls on the continent and is ranked among the ten top countries in the world with the most number of shopping malls as well as total floor space.

According to research from Urban Studies, which conducts feasibility studies for shopping centers, South Africa ranks sixth in the world when it comes to number of shopping centers. When it comes to floor space South Africa ranks 7th highest globally, with 23-million square meters.

As at October 2014, there were 1 785 in South Africa, with 44 percent of the shopping centre space being in Gauteng.

Property companies from the country are now waking up to the realization that the local market could be approaching saturation and are attempting to establish a strong foothold in cities across sub-Sahara Africa where little or no formal retail exists.

Resilient Africa, a company created through a joint venture with Resilient Properties – a leading South African REIT, Shoprite and Standard Bank, said this week it plans to invest $271 million in developing shopping malls in second tier cities in Nigeria.

According to Estate Intel, Resilient Africa had for a long time concentrated its investment in South Eastern cities of Nigeria  like, where the new shopping centers would be 13,000 square meters and cost $50 million on average.

Real estate firms are not alone in this push to find high growth markets in Africa.

Multinational companies operating in South Africa, such as Shoprite, Distell, Diageo, SABMiller and MTN Group, are also juggling cost-cutting and aggressive marketing pushes there, while plotting to boost their business in smaller but promising African countries like Angola, Ethiopia and Kenya, Wall Street Journal reported in April.

A Malls History

The growth in shopping centers in South Africa surged upward since 1994 when the first democratic elections took place by a population of about 40 million people. With about half of these population urbanized, the total shopping centre floor area was just about four-million square meters.

Since then, the population has grown to 55-million and 64 percent of the population is urbanized.

The shopping centre industry in the country now employs more than 600,000 direct jobs, and another 500 000 jobs are indirectly involved with the industry, according to a June 2015 publication from Urban Studies.

According to a report by the World Bank, an increase in townships on the outskirts of almost every city and town in the country also contributed to the mushrooming of malls.

With about 2,200 townships and incomes rising after the Black Empowerment program was introduced, building shopping centers was a very lucrative business for property developers as they were always certain of a handsome return.

Slow Down

While South Africa’s mall development frenzy show little signs of slowing down, the consumer side is showing signs of straining under the slowing economic growth, hurt by power outages, slowing tourism sector and lethargic labor strife in the mining sector.

In the last three month through June, consumer confidence in the country has dropped to the lowest level in 14 years as power outages occasioned by an ageing electric grid controlled by state-owned utility firm, Eskom, and increasing fuel prices.

According to FirstRand, a unit of First National Bank (FNB), consumer confidence index — a measure of sentiment on the economy’s prospects — slumped to minus 15 in the second quarter of this year from minus four in the first three months of the year.

“A confluence of adverse economic developments is expected to put renewed downward pressure on the spending power of households from the second half of 2015,” Bloomberg quoted Sizwe Nxedlana, chief economist of FNB, saying in a statement.

While this slow down might not be affecting ongoing mall construction plans in South Africa, future decision on where and how big to make the malls might be affected if existing malls start registering vacating tenants and fewer shoppers.

“Many of these projects have been planned over several years,” James Ehlers, managing director of Johannesburg-based Atterbury Property Developments, said on the sidelines of the South African Property Owners Association conference in June 2014.

“Developers will keep on building them as long as malls keep performing,” he  added.

Expanding to other African cities is a good hedging bet for these companies, but it is not “an overnight play” as Corneleo Keevy of Ashburton Investments, an arm of Johannesburg-based banking group FirstRand, puts it.