Communities support for neighbourhood convenience centres

Moderate sales growth aside, South Africa’s retail sector remains attractive to property investors, including individual buyers seeking niche opportunities such as neighbourhood convenience centres, says Elton Holland, director of Ikon Property Group.

An aerial view of Gordon’s Bay, where the Mountain View Shopping Centre was recently sold for R27.75 million.

“The success of neighbourhood centres is primarily driven by ease of access for consumers living or working in the vicinity, as long as the tenant mix and product offering is geared to suit their needs.”

He says a case in point is Mountain View Shopping Centre in Gordon’s Bay which was bought from a property fund by a local investor for R27.75 million through Mike Dicky, Ikon’s senior investment broker.

“The location of the centre at the entrance to the town from Sir Lowry’s Pass ideally serves local residents. Initially a 7/11 store with a few small shops, then revamped in late 2012 and now best described as a neighbourhood convenience centre, Mountain View has a gross lettable area of 3 208 square meters. It is anchored by an 860 square meters Woolworths store which has plans for expansion in the centre. Other tenants include a gym that occupies 534 square meters, a bottle store, a pet shop, a Crazy store, biltong and clothing shops, a laundromat and a popular local pub as well as two ATMs,” says Holland.

The owner of the centre has subsequently acquired an adjacent 4 600 square meters vacant site with the intention of developing a second major retail anchor for Mountain View, which would also entail reconfiguration of the centre for optimal consumer appeal.

Says Holland: “The buyer has made a sound investment – small neighbourhood centres are sought after – particularly in a comparatively affluent area such as Gordon’s Bay. I believe the Pick n Pay franchise store down the road has the highest trading density in the Western Cape, so there is serious buying power in this node. Set against the Hottentots Holland Mountains, picturesque Gordon’s Bay is just 10 minutes from Strand and Somerset West and 45 minutes from Cape Town.

“Neighbourhood centres anchored by Woolworths Food, Shoprite and Pick n Pay Family are the better performing centres with initial net yields of 9 to 9.5 percent, whereas centres with superette anchors would need to show a net yield of at least 10 percent to attract investor interest, unless there is a possibility to substitute the cafe store for a national retailer.”

Dicky says it’s important to carry out due diligence tests on the line shops in neighbourhood centres as these are often small traders who may easily fall into arrears, unless they offer the neighbourhood community an essential service or commodity.

“Essentially neighbourhood centres are not passive investments and investors would often need to remix the tenancy to ensure the ongoing success of centres and their tenants. As a result, a suitable tenant mix would include, for example, a hair salon, a pool shop, a pet shop, a niche coffee shop or restaurant, an estate agency and so on, to complement the food anchor.”

He says in the current economy, the increases in rates, taxes, electricity and security continues to affect tenancy occupancy costs with gross rental increases overtaking sales growth, and reducing traders’ profits. In protecting capital appreciation of their assets, landlords must likewise bear some of the increased costs rather than passing them all on to the tenants.

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