Delay in upswing for retail centres

Prospects for the retail sector, and by implication also shopping centres, are likely to remain subdued in the first half of this year because consumers remain under financial pressure. However, the South African Council of Shopping Centres (SACSC) said yesterday a gradual return to positive real retail sales growth was expected by the middle of this year.

These were two of the key findings of an economic overview for this year compiled by Ecoquant for SACSC, which have implications for the financial performance of the listed property sector, the owners of a large percentage of shopping centres countrywide.

Paul Duncan, an analyst at Catalyst Property Asset Managers, said yesterday that the retail sector was under pressure. He said good retail centres performed better than all the property asset classes, with dominant regional shopping centres performing the best of all. He said bad retail performed the worst of the lot.

Duncan said the good retail centres also got their rental escalation and retained occupancies at reasonable levels, but admitted many other retail centres, such as neighbour convenience centres, were battling.

The average consensus distributions growth forecast by analysts for the listed property sector for this year is between 7 percent and 8 percent.

But Duncan said Resilient, which was a pure retail fund, had last week issued unaudited guidance of about 10 percent growth this year, while Hyprop's growth would also be above the sector average.

"If things were falling off a cliff, growth would be going backwards and it is not. Growth varies between flat and 16 percent," he said.

The SACSC report says expectations for this year remain mixed, with household consumption spending continuing to be a drag on the overall economic growth rate.

It says job losses last year, which will probably persist during the first few months of this year, and the still high debt burden of households carry most of the blame for the sub-par performance of household expenditure.

The report says that private sector capital formation will also remain under pressure, resulting in government current and capital expenditure being responsible for most of the economic growth this year.

However, it says exports should recover, but the degree of recovery will depend largely on the performance of the exchange rate and commodity prices. The sectors that should deliver the best growth performance this year include mining, telecoms, media and technology and construction, according to the report.

"The positive effects of the resumption of an uptrend in the business cycle will gradually be felt on the retail sector in 2010 and a resumption of positive real retail sales growth is likely to occur by the middle of the year," it says.

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