RETAIL TRENDS REPORT Q1 > June 2015
Key Research Findings
For the year ending March 2015, the IPD Shopping Centre sample recorded a year-on-year increase
of 6.3% in annualised trading density (sales per square meter). In real terms (inflation-adjusted) this
translates into an improved year on year growth of 2.3% on the back of dramatically lower inflation
figures for the first 3 months of the year.
Super Regional centres continue to outperform other segments and growing at a faster rate - suggesting
that large centres are gaining market share in a market where consumers are possibly lumping together
purchases in fewer, less frequent shopping trips.
RetailerÕs cost of occupancy, measured as gross rental as a % of sales, and continued its slowing
trend as rental growth comes under pressure. In fact, the gross rent to turnover ratio declined for the
year ending March - the first time it has done so since June 2008. Nevertheless, rising administered
prices remain a key concern for landlords especially in a tougher sales environment where tenants
have less of a buffer against cost recoveries.
The impact of rising tenant operating costs have been most pronounced in Community & Neighborhood
centres where gross rent to sales ratios in these segments are currently significantly higher than 2011
levels. Since 2011, Community & Neighborhood centres have seen its gross rent to sales ratios
increase from below 5 to above 6.5.
As at March 2015, vacancy levels were recorded at 3.2% in centres larger than 25,000sqm while that
of smaller centres came in at 8.6%. Centres smaller than 25,000sqm has seen vacancy rates double
since mid-2013 with Neighborhood centres (those between 5,000 & 12,000sqm) being particularly
hard hit.
As at March 2015, spend per head in malls greater than 25,000sqm increased by 3.2% year on year
in real terms. Since this figure is higher than the annualised increase in sales per square meter it can
be deduced that it was a lower footcount that drove spend per head higher.
As at quarter end, the average spend per head in Super Regional centres was R198.90 compared
to R163 in Regional centres and R136 in Small Regional centres - an indication of how basket sizes
tend to vary across retail segments.
There continues to be a divergence in the performance of the various merchandise categories.
Merchandise categories selling mainly non-durables continue to outperform on a year-on-year growth
basis while categories that have lagged include retailers selling durable goods and discretionary items.
However, the performance of the different merchandise categories also vary significantly across the
different retail segments - an indication of shoppers preferring larger malls for certain categories and
smaller, convenience centres for other goods.
The 5 largest merchandise categories in terms of sales contribute upwards of 70% to a typical centreÕs
sales and its performance largely determines the overall trend.
The merchandise categories that have managed to increase their share of centre spend the most
during the past 3 years has been primarily driven by active tenant mix management. The Apparel
category has grown its share of centre spend by virtue of a larger average store size while the Food
Services category has grown its market share despite a smaller average store. This highlights the
importance of landlords not only backing the winners but also keeping their tenant mix fresh by
introducing new tenants and right sizing where need be.
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RETAIL TRENDS REPORT Q1 > June 2015
Sales Performance
For the year ending March 2015, the IPD Shopping Centre
sample recorded a year-on-year increase of 6.3% in
annualised trading density (sales per square meter). In
real terms (inflation-adjusted) this translates into an
improved year on year growth of 2.3% on the back of
dramatically lower inflation figures for the first 3 months
of the year.
While short term trading performance is an important
indicator - it is useful to look at a slightly longer trend
given how the macroeconomic landscape has changed
since the top of the cycle in 2006/’07. Viewing trading
density in real terms reveal that the average retailer is
still selling 10% less than they did in 2007 - although
nominal sales per square meter is 51% higher.
Large tenants on longer leases that were signed before
the top of the cycle and currently expiring could require
some right sizing. This could present a downside risk to
landlord net income given potential increase in vacant
space & loss of income, reversions and anticipated letting
commissions/development expenditure.
In fact, the current real trading density is less than 1%
higher than it was in March 2004 - even though the
nominal trading density is more than 90% higher. In other
words, the average mall-based retailer is selling similar
volumes to what it did in 2004. Economic growth at that
stage hovered between 2% and 2.5% - much the same
as it is at present. What is unclear though is what the
catalyst for growth is going to be in the years ahead.
Real trading density down since top of the cycle
Real vs. nominal trading density growth (y/y & index)
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RETAIL TRENDS REPORT Q1 > June 2015
Super Regional centres continue to outperform other
segments and growing at a faster rate - suggesting that
large centres are gaining market share in a market where
consumers are possibly lumping together purchases in
fewer, less frequent shopping trips.
A less varied tenant mix across fewer merchandise
categories relative to Super Regional centres could be a
factor - thus offering consumers less scope for comparative
shopping in an environment where disposable incomes
are under pressure.
Larger shopping centres have outperformed over the past
10 years -aided by nodal dominance, a larger variety of
categories & tenants and a larger boost from seasonal
trade. Regional and Small Regional shopping centres, in
particular, have experienced a sharp slowdown in growth
since mid-2013.
Another potential reason could be that centres of this size
are often not nodally dominant in an urban market - which
could lead to a loss of market share in the current
competitive environment. Community centres recorded
the lowest real growth for the year ending March 2015
(+0.96%).
Super Regional centres gaining market share but cost of occupation up
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RETAIL TRENDS REPORT Q1 > June 2015
Retailer Cost of Occupancy
RetailerÕs cost of occupancy, measured as gross rental
as a % of sales, and continued its slowing trend as rental
growth comes under pressure. In fact, the gross rent to
turnover ratio declined for the year ending March - the
first time it has done so since June 2008.
Nevertheless, rising administered prices remain a key
concern for landlords especially in a tougher sales
environment where tenants have less of a buffer against
cost recoveries. Tellingly, cost of occupancy is still 100bps
higher than it was at the height of the recession when
consumer spending was arguably under more pressure
than is currently the case.
Cost of Occupation high & increasing - but at a slower rate
Gross Rent to Sales ratio & year-on-year basis point increase
The impact of rising tenant operating costs have been most pronounced in Community & Neighborhood centres
where gross rent to sales ratios in these segments are currently significantly higher than 2011 levels. Since 2011,
Community & Neighborhood centres have seen its gross rent to sales ratios increase from below 5 to above 6.5.
Super Regional Centres is the only segment which currently has a similar gross rent to sales ratio compared to
the highs of 2010/11, underlining its defensiveness in the current consumer environment.
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RETAIL TRENDS REPORT Q1 > June 2015
Gross Rental growth overtook Trading density growth in 2008
2004=100
Retail Vacancy Rates
As at March 2015, vacancy levels were recorded at 3.2%
in centres larger than 25,000sqm while that of smaller
centres came in at 8.6%. Centres smaller than 25,000sqm
has seen vacancy rates double since mid-2013 with
Neighborhood centres (those between 5,000 &
12,000sqm) being particularly hard hit. The vacancy rate
in centres of this size ended the current quarter at 9.8%
after trending as low as 3.2% in 2012.
This highlights the importance of nodal dominance especially during times of constrained consumer
expenditure growth.
The fact that larger centres tend to have a higher proportion
of national retailers - who are able to absorb lower margins
better than independent retailers - could be one of the
reasons behind the relatively more stable vacancy rate
of these centres.
All retail segments larger than 25,000sqm currently report
vacancy rates well off the lows of 2006/07 but at below
4% remain low in relative terms. Regional and small
regional centre ended the quarter with vacancy rates of
3.3% and 3.5% respectively.
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RETAIL TRENDS REPORT Q1 > June 2015
Vacancy rate driven higher by centres < 25,000sqm
Vacancy rate (%) - 2004-2014
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RETAIL TRENDS REPORT Q1 > June 2015
Footcount and Spend per Head
As at March 2015, spend per head in malls greater than
25,000sqm increased by 3.2% year on year in real terms.
Since this figure is higher than the annualised increase
in sales per square meter it can be deduced that it was
a lower footcount that drove spend per head higher.
As at quarter end, the average spend per head in Super
Regional centres was R198.90 compared to R163 in
Regional centres and R136 in Small Regional centres an indication of how basket sizes tend to vary across
retail segments.
Centres > 25k sqm - Spend/head growth diluted by pickup in footcount
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RETAIL TRENDS REPORT Q1 > June 2015
Merchandise Category Trends
There continues to be a divergence in the performance
of the various merchandise categories. Merchandise
categories selling mainly non-durables continue to
outperform on a year-on-year growth basis while categories
that have lagged include retailers selling durable goods
and discretionary items. However, the performance of the
different merchandise categories also vary significantly
across the different retail segments - an indication of
shoppers preferring larger malls for certain categories
and smaller, convenience centres for other goods. For
example, categories that lend themselves to comparative
shopping (like Eyewear, Electronics, Home furnishings)
performed well in larger malls.
Convenience orientated categories such as Food Service
performed better in centres below 25,000sqm.
All of the top 5 largest merchandise categories recorded
positive real growth for the year ending March 2015.
Department stores and Grocers/Supermarkets, the 2
largest categories in terms of overall sales reported virtually
flat sales growth in real terms. Food service, apparel and
electronics all recorded real growths of 3%+. Together,
these 5 categories contribute 73-88% of a typical centreÕs
sales and its performance largely determines the overall
trend.
5 Largest Categories - current growth vs. Recession
Real trading density growth (y/y %) - March 2008 vs. March 2015
The past 3 years have seen significant shifts in shopping
centre composition as the macroeconomic landscape
continues to change. Landlords have had to balance the
growth ambitions of national tenants with their centresÕ
overall tenant mix while remaining relevant within their
catchment area in an increasingly competitive environment.
The merchandise categories that have managed to
increase their share of centre spend the most during the
past 3 years has been primarily driven by active tenant
mix management.
The Apparel category has grown its share of centre spend
by virtue of a larger average store size while the Food
Services category has grown its market share despite a
smaller average store. This highlights the importance of
landlords not only backing the winners but also keeping
their tenant mix fresh by introducing new tenants and
right sizing where need be.
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RETAIL TRENDS REPORT Q1 > June 2015
Merchandise category shifts per retail segment over last 36 months
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RETAIL TRENDS REPORT Q1 > June 2015
Last 3 years - category gains in market share driven by right sized stores
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RETAIL TRENDS REPORT Q1 > June 2015
About the Sample
The IPD Retail sample consists of around 100 shopping centres across all geographies & centre types
owned by listed real estate investment trusts, life & pension funds as well as private property funds.
The full quarterly results from 2003 onwards are available for 24 merchandise categories. To subscribe to
this quarterly publication please contact [email protected]
SHOPPING CENTRE TYPE DEFINITIONS
Total rentable area
2
Super regional shopping centre
> 100,000 m
Regional shopping centre
50,000 - 100,000 m
Small regional shopping centre
25,000 - 50,000 m
2
Community shopping centre
12,000 25,000 m
2
Neighborhood shopping centre
5,000 - 12,000 m
2
2
11