Tenants negotiate rentals down as recession bites - experts. Retail property investors look for a large investment with a diverse set of tenants thereby spreading tenant risk. The retail sector has largely outperformed other sectors over a long time.
But, as the economic slowdown eats into every industry, retail property is also under pressure and it might take a while for things to return to normal, say property experts.
Some say it is not only small retailers who are feeling the pinch; some bigger retailers are taking a knock too.
According to Stats SA, the June Retail sales fell 6.7% year-on year.
Vuyani Bekwa from Investec Property says retail sales are likely to continue falling throughout 2009, which is obviously disappointing news for shopping centre landlords that include turnover in rental deals.
Bekwa reckons that there is a considerable performance discrepancy between types of shopping centres: larger and more dominant centres are showing growth of between 6% and 8% and the smaller centres may be showing flat to negative income growth.
Therefore, there is reasonable demand for large assets, though banks are less keen to finance deals. There is, meanwhile, less demand for smaller centres thanks to their deteriorating performance and the likelihood of poorer performance over the next 12 months.
Food retailers have largely survived the downturn and possibly thrived on the higher inflation numbers of 2008.
Bekwa says retailers having a difficult time are negotiating more favourable rentals with their landlords.
Francois Viruly, property economist and professor in property studies at the University of Witwatersrand, says the retail sector is currently under strain but generally does not have oversupply of stock as seen in residential property.
Hilton Dukes, retail director at Broll, agrees that both small and large retailers are caught up in the economic slowdown. He expects the retail sector will improve only towards the end of 2010.
Recently Marriot Asset Managers' CEO Simon Pearse said he was not particularly enthusiastic about retail property because there is far too much stock. Property income streams are now more uncertain than ever as the recession takes its toll on just about every industry.