The gap over the last five years between base rental growth rates at South African shopping centres and CPI is closing, according to the Clur Shopping Centre Index for the third quarter of 2024.
Belinda Clur, managing director of Clur International. Image supplied
The index is part of the broader Clur Collective asset management support platform which helps listed and unlisted property funds to understand asset health and optimise returns at more than 4.1 million sqm of prime retail space and 140 merchandising categories across SA and Namibia. This coverage will soon be increasing to over 5.4 million square metres.
“Rental growth rates at September for the Clur All Centres Index were at 3.7%, only 0.1% below relative CPI of 3.8%,“ says Belinda Clur, managing director of Clur International which produces the index.
“Rental growth rates have consistently under-performed CPI since July 2020, during the Covid-19 pandemic. They have also consistently under-performed annualised trading density growth rates from April 2021 through to March 2024.
“Q2 2024 suggested an inversion in this dynamic, with Q3 2024 confirming the shift, and rental growth outperforming annualised trading density growth throughout.
“This overall position has been driven by a continued retreat in domestic inflation, a solidification in rental growth at above 3% over 2024 and a further contraction in annualised trading density growth in Q3 ‘24.”
Clur says that at September 2024, the All Centres trading density index closed at R41,539 per sqm and 2.9% y/y growth.
“The All Centres base rent per square metre index closed at R234.59 and 3.7% year on year growth. Q3 showed a softer contraction in trading density growth of -0.5% relative to Q2 than the -1.7% against Q4 ’23.”
She says an expected inverse relationship between trading density growth and growth in the rent to sales ratio is apparent.
“The annualised rent to sales ratio closed at 6.6% in Sept 24, with a flat y/y% growth rate. 2024 to date shows the lowest overall rent to sales ratio levels relative to the last five years, having peaked at 8.4% in January 2021. As a rule of thumb, the lower the rent to sales ratio, the lower the rental risk.”
The third quarter also saw the continuation of the Western Cape being the top performer of the three key provinces, with a trading density of R46,248/ sqm and 5% y/y% growth ahead of Gauteng and KwaZulu Natal. It also shows the highest rental and growth rate of the three at R252.22 /sqm and 4.8% y/y% growth.
Clur says there are initial signs of a shift in the dynamic between larger centres and smaller centres.
“Larger centres have grown faster than smaller centres since September 2021, but this trend reversed in September 2024, with the pack of super regionals and regionals slightly under-performing the pack of small regional and smaller centres by -0.1%.
“Small regionals closed Q3’24 with the highest trading density growth rate of 3.7% y/y, followed by super regionals at 2.9% y/y. Super regionals have held the top growth performer position since August 2021, but since July 2024 small regionals have taken the top spot.
“Super regional centres, however, achieved the highest market rental rate of R307.97/sqm at September 2024, with small regionals achieving the highest y/y% growth rate in rentals of 6%.
“Moreover, small regionals trading density growth expanded by 0.1% against Q2 and by 0.5% against Q4’23. The largest growth contraction of -1% against Q2 and -3.3% against Q4’23 was seen by super regionals.
“Q3 shows the continuing trend of the highest trading densities being achieved by the very large and very small centres. Super-regionals closed at R49,443 per sqm, while community and smaller centres closed at R42,918 per sqm.”
Clur says the shift in dynamic between large and small centres reinforces signals around social impact retail and community importance.
“Social impact retail effectively takes retail to where it needs to be, to better service communities and to boost economic opportunities within their localities. Expectations are that consumers will continue to focus on necessity shopping as opposed to discretionary shopping.
“That’s in line with the change in the widespread global focus on balance and wellness. The view of wellness has grown from personal wellness to community wellness and now also includes financial wellness, after the shock of the last few years.
“This outlook poses questions about festive season trading. Will we see a repeat of 2023 trading when December put Black Friday sales in the shade, or will we see a return to a two-month extended festive season?”
