Property sector continues to show resilience in face of latest lockdown

By Nkuli Bogopa

COO Property Management, Broll Property Group

8 July 2021: A positive effect of the adjusted Level 4 lockdown recently imposed is that a lot more
private investors are seeking or enquiring about professional management services. As a leading real
estate services provider managing over 400 shopping centres at present, this is a good win for us.

Investors realise that what we do is not a walk in the park and that collecting rentals, keeping
tenants happy and adhering to all regulations for full compliance is best left to professionals like us.
This is also good for the industry as a whole as it means there are now new business opportunities.

On the other hand, there are now also a lot more properties up for sale. This includes industrial,
which is surprising as it has been performing better than other sectors. Numerous office buildings
are up for sale, but that has been going on for a while. The fact that a number of retail centres are
also on the market is evidence that listed funds are under pressure and offloading assets as a result.

However, this is part of a larger cyclical process. What it has done is create a new wave of investors
in a buyer’s market. Combined with favourable interest rates, it is generating quite some movement
in the sector, which means we are getting some new players in the game, and that is exciting.
From a retail perspective, obviously, our retailers are under tremendous pressure due to the latest
lockdown. We are seeing all over again the closure of smaller businesses from restaurants to gyms. It
is definitely going to impact our rental collections and the investor landscape in terms of income.

However, the fact that it is an adjusted Level 4 lockdown means we are still seeing activity in our
malls, and that the vibrancy is still there.
While retailers are largely in a hybrid model, with some open and others closed, the third wave
combined with the Level 4 lockdown remains a major cause for concern in the office sector, as
people are more concerned about their health than ever due to the more transmissible Delta
variant. Every person now either has a friend or a family member who has contracted Covid-19, or
who has lost a number of loved ones?

The concern is palpable, and offices are obviously not the place where people want to be right now. Employers are also having to be guided by the regulations, with the lockdown dictating that we keep people out of office spaces.

This is obviously going to affect rental income. However, I have not seen any major shift in terms of
the investor landscape. Many investors did the hard work last year in terms of rental adjustments
and discounts, which was done with a long-term view, so this is still in place to assist our tenants.
This was part of the lessons learnt from the initial hard lockdown.

However, no one has been prepared for the duration of the pandemic. We were all disrupted at the
outset and the resultant concern about the impact of Covid-19, but the current uncertainty has been
brought about by the fact that we do not really know when the pandemic is going to end. From
an operational point of view, we did very well in collaborating with our broader stakeholders last
year, including the government and the private sector.

Now we just need to keep this momentum going, especially in terms of increasing the speed of the
national vaccination rollout, which will assist in returning a sense of stability and hope. It is gratifying
to see that registration for the 50+ category has been officially launched. Hopefully, this means we
can get to the bulk of the workforce quicker, which is not in the 50-59 years old category. The
sooner we can bring this vaccine to the age group of those who are economically active, the better.

That can only really only happen if there is continuous close collaboration between the public and
private sector.
What does this mean for the everyday person?

The message from the President that we are to avoid
enclosed spaces, keep our masks on and follow all of the necessary regulations and protocols
remains paramount. In terms of the malls we manage, we are sanitising at a higher frequency than
usual. People have become used to the fact that every retail shop has protocols to be observed. We
are seeing a great deal of cooperation, and that should remain the norm.

Real estate service providers such as ourselves who are at the forefront of managing these
properties are keeping up to date with the latest developments such as clean-air sanitising
technology as an option to ensure our malls remain safe spaces. We are cognisant that this still does
not remove the fear factor. However, what is encouraging is that while people are keeping the time
they spend in malls to a minimum, the spending per visitor is greater. This means people are coming
out with a specific intention.

Both our super-regional and strip malls rely heavily on anchor tenants and the restaurant trade,
which has now been shuttered again by the lockdown. Retailers will opt to remain open if not
compelled to do otherwise. We are noticing a higher rate of Covid-19 infections among retail staff.
Restauranteurs are reporting that takeaway or home delivery is not a viable option in terms of cost,
so are rather opting to do with less staff. It is unsure how the current scenario will play out in the
broader retail and clothing sector.

I have always maintained that in order to ensure a sustainable lifeline for these businesses, they
require both an online and an offline presence. A good balance between these two is essential. The
half-year results of some listed funds point to the encouraging fact that, in South Africa, the rural
and township retail sector has shown the greatest resilience, and even better performance when
benchmarked against similar countries like Spain, where the latest study there revealed that
consumers there prefer to come in-store rather than purchase online.

My message to tenants is that the collaborative spirit kindled at the beginning of this pandemic must
prevail. Landlords and managing agents continue to evince extraordinary empathy for the economic
hardship that has ensued, while professional organisations like the South African Property Owners’
Association (SAPOA) continue to lobby for municipal rates and taxes to be contained so that these
additional costs do not have to be passed onto tenants. Collaboration between the government and
private sector is vital. The government has to meet private investors halfway because ultimately our
tenants are going to be the hardest hit. In this regard, it is sincerely hoped that the government will
also consider relief measures for those sectors most affected by the latest lockdown measures,
especially as this will have a knock-on effect on the entire economy.

Q&A with Elaine Wilson, Divisional Director, Property Intel, Broll Property Group

What do the statistics reveal about foot traffic in shopping malls since the move to an adjusted
Level 4 lockdown?

As can be seen from the June figures, there has been a definite decline. However, this can be
expected with the closure of food and beverage outlets and gyms. Looking at year-on-year for June,
only regional centres show an increase from last year.

Has this changed significantly from the first hard lockdown?

Compared to April 2020, foot traffic increased in community centres by 51.2%, 68.2% in small
regional centres and 111.7% in regional centres. This can be expected, as only essential services
were open during the hard lockdown.

How has buying behaviour changed as a result of lockdown restrictions over the past year-and-a-
half?

Basket spend has increased, but this can be attributed due to rising prices. Food prices continue to
skyrocket. Sunflower cooking oil now costs customers 30.3% more than a year ago, while white
sugar has increased by 11.5%. Global food prices have also recorded their fastest growth rate in
more than a decade.

The Food and Agricultural Organisation of the United Nations reported a 4.8% increase in May 2021,
its highest value since September 2011. Impacted by the rise in fuel and electricity tariffs, these costs
are set to continue to rise, impacting the entire economy and placing further downward pressure on
consumer spending.

Online retail in South Africa has more than doubled over the last two years. It increased by 66% in
2020 at a value of R30.2 billion, compared to R14.1 billion in 2018. Currently, online retail represents
2.8% of total retail sales, up from 1.4% in 2018.

How is Level 4 expected to impact consumer confidence?

During the hard lockdown, consumer confidence dropped. However, we have seen an increase in Q2
2021 to a six-year high. The new restrictions may lead to a similar drop in consumer confidence as
last year, albeit not to the same extent.

Consumers remain under pressure and will remain so due to the UIF-Covid19 TERS relief
programme coming to an end, rising fuel and electricity prices, food inflation and below-inflation
adjustments to social grants. This will continue to put household finances of not only low-income
consumers but consumers in general under significant pressure.

What are the latest statistics on trading densities?

Overall, trading densities decreased by around -6.4% after the outbreak of the pandemic. The
highest drop in trading density is in entertainment (-56.1%), followed by services (-30.6%), with only
homeware, furniture and interior showing positive growth (7.0%). Looking at the secondary retail
categories, pharmacies and personal care increased by 4.8% and groceries/supermarkets by 5.1%.
Hobby stores and tattoo parlours showed the biggest rise in trading density at 10.0% and 28.5%
respectively. It is interesting to note the rise in not only essential services but also in ‘home
entertainment and in drive-throughs (6.0%).