Big turnout at Mall of Africa grand opening

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Huge crowds queued at the newly opened Mall of Africa during the first weekend of the mall’s opening on April 30, 2016. Huge crowds queued at the newly opened Mall of Africa during the first weekend of the mall’s opening on April 30, 2016.

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Johannesburg — The $345 million Mall of Africa set in middle-class suburbia between Johannesburg and Pretoria, opened its doors to the public, sporting more than 80 000 shoppers on its first day of trading.

The Mall was officially opened during a select breakfast opening ceremony by the Premier of Gauteng province, Mr David Makhura.

It will add 131,000m² of retail space, the largest first-phase mall development in southern Africa, according to JSE-listed Attacq Limited, which owns 80% of the property asset.

Its location near the residential areas of Midrand, access to the Gautrain and links to the popular Allandale Road exit off the N1 Highway, positions the mall for future success.

The centre will house over 300 shops, including global brands such as Inditex's Zara, Hennes & Mauritz (H&M), Cotton On and Starbucks. They want to attract the rising number of young consumers in Africa's most developed economy, which has thrived on demand for commodities.

Traffic queued for kilometres on roads surrounding the mall as it fielded a total of 124 000 visitors on its opening day.

But the opening comes as the outlook for the economy worsens with rising interest rates and prices putting a squeeze on spending while demand for exports such as gold and other metals is depressed. Political uncertainty has also unsettled the rand currency, making imports more expensive and investors nervous.

However, retail sales have stayed robust in the country, comfortably beating expectations in February and retailers at the mall were in an optimistic mood. Retail sales grew by 4.1 percent year-on-year in February, but are expected to slow.

Mall of Africa is expected to boost Attacq’s NAV and rental income strongly over the next few years. Attacq CEO Morne Wilken says the mall should lure 15m shoppers a year and generate sales turnover of about R4bn/year. Attacq will earn rental income of R78m in the first year of the mall’s operation.

More importantly, he says, the mall will be a catalyst for the development of the rest of the 323ha Waterfall precinct over the next 10-15 years.

Attacq’s portfolio includes Garden Route Mall in George, MooiRivier Mall in Potchefstroom and Eikestad Mall in Stellenbosch.

The counter has a R6.5bn offshore portfolio including stakes in seven malls in Serbia, two in Cyprus as well as properties in Ghana, Zambia and Nigeria. Attacq also owns a 48% stake in rand hedge counter MAS Real Estate.

SA’s oversupply of shopping centre space

Despite talk of a looming oversupply of shopping malls, property investors continue to pour billions into South Africa's retail property sector, which threatens to topple the best returns among SA’s Real Estate Investment Trusts (Reits).

The Mall of Africa’s opening also takes South Africa closer to 2,000 malls countrywide. Currently there are approximately 1,785 malls.

The roll-out of new malls and an acceleration in consumer spending is defying the slowest expansion in gross domestic product since the 2009 recession, the highest interest rates in six years and an unemployment rate of about 25 percent. It cannot last, and rising inflation and the deteriorating economy will eventually take its toll, said Zandile Makhoba, an analyst at real estate services firm Jones Lang LaSalle in Johannesburg.

The country has more than 23-million square metres in shopping centre space, placing it sixth globally and ahead of all the countries in continental Europe, with another 2-million square metres under construction or planned, according to Urban Studies, a Johannesburg-based property market research firm.

The oversupply of retail properties will probably result in slowing growth or a decline in foot traffic as new malls open before the centres experience an increase in vacancies, Ms Makhoba said. The South African Property Owners Association estimates vacancies of less than 3% in the country’s malls.

Mall of Africa will compete with Sandton City shopping centre, Fourways Mall and Boulders Shopping Centre within its proximity.

"There might be a general oversupply in the country, but in specific areas — like Waterfall, where the mall is located — there is still a huge need," said Louis van der Watt, CEO of Atterbury Property Holdings, the company that spun out Attacq in 2013 and owns 20% of the centre.

A massive expansion project by JSE-listed REIT Accelerate Property Fund to make Fourways Mall the second largest mall in the country – and the largest in Gauteng province – is currently underway. The project will see the expansion of the mall to cover 175,000m² under one roof.

However, Gateway Shopping Centre in Durban, still commands the top spot as the biggest mall in South Africa – and Africa – at 220,000 square metres.

“The good malls will do well but there is a risk that there has been a little bit of over building in South Africa. There is a lot of property retail space in South Africa. Is there really another mall that size required in South Africa? I am not sure,” says Reuben Beelders, Portfolio manager at Gryphon Asset Management.

But with more mature markets slowing, retailers are on the hunt for anywhere offering a faster return.

Zara opened its first store in South Africa in 2011, followed by Australian no-frills chain Cotton On, Britain's Top Shop and Forever 21 and more recently H&M.

Cotton On said on Thursday South Africa was the group's fastest growing market globally and aims to double its business in the country over the next three years to 350 stores.

“Our South African operations have reported double-digit growth every month since opening our first store here in 2011. The region a key contributor to reaching our overall growth target of 20 percent year on year,” said Cotton On Group South Africa Country Manager Johan van Wyk.

Retail Cannibalization

Marius Muller, CEO of Pareto, has warned Retailers to guard against cannibalization, citing bigger centres taking away spend from the weaker centres.

He said developers, investors and funders would not “push the button” on new schemes without a high level of retailer commitment. “Developers regularly put their projects out to the market but there is no real way to make them work financially without retailers signing up.

Muller shared his views on the controversial issue at a retail research conference held in Sandton recently.

Cannibalisation refers to a situation where a retailer opens a new store location close to an existing store. When this happens, the existing store loses customers to the new store. Retailers are usually willing to take the risk of cannibalisation if they believe the new store will also attract new customers that do not currently shop at the retailer, boosting combined sales. However, this isn’t always the result.

Mall culture

SA has a mall culture where most people living in suburbs shop, dine and go out for the night, mainly because of security concerns. A growing middle class in the continent’s second-largest economy combines with the world’s highest inequality rating, making it one of the most dangerous countries outside a war zone for incidences of crime such as car hijackings and armed robberies.

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