Townships thrive: Post-apartheid South Africa has witnessed an increase in retail investment. And the country’s thirst for growth is mirrored in much of the continent. Noella Pio Kivlehan reports from Cape Town
The blacks; the whites; the coloureds: these are all words used in everyday language in South Africa in 2008. But to PC-sensitive British ears, such terms still cause embarrassment and mild alarm.
The first mention of “the coloureds” is met with a quick sweep of the room to observe the offended faces. Apart from the shocked UK brigade, there are none. The terminology may be the same as that used in the years of apartheid, but its use is different – more practical description than offensive language. Since the release from prison in 1990 of former African National Congress leader Nelson Mandela – later to become the country’s president, South Africa has seen rapid change.
It has moved on, and it wants the world – and in particular, investors and developers – to know it. The country of South Africa, and the continent of which it is a part, is now ready to put its mark on the world.
Township development
Sometimes a single, small, event can radically alter the perspective in which everything is viewed.
The small event in question occurred in the lavatories of the Khayelitsha mall in the heart of the sprawling Khayelitsha township on the edge of Cape Town.
Instead of the expected toilet paper, a box in the cubicle contained dozens of condoms.
The area is, says Ben Kodisang, CEO of the mall’s developer Old Mutual, the Aids capital of the Western Cape.
Condoms are just one of the ways in which the authorities are trying to control the disease. But, says Kodisang, it isn’t working.
And this is where the change in perception comes. What appears to European eyes a drab, featureless, shopping area – with no street furniture and no greenery – a bleak wind trap more in tune with something built in the UK in the 1970s, can lay claim to being both a centre for the township community, and, with its throng of shoppers, representative of the huge changes taking place in South Africa.
The development by Old Mutual was one of the first shopping areas to be built in a South African township.
Around 1m people are estimated (and estimates are the only measure available for such vast, unregulated, numbers) to live in the surrounding buildings that veer from Legoland-like houses to the familiar corrugated iron shacks planning consent is not yet as important as surviving in South Africa’s third largest township.
But so important have townships become to the country’s economy that Ian Watt, former CEO with Old Mutual and now running his own consultancy, Retail Xpressions, says: “There is going to be more development in townships. The market has started to get its mind around that.
“The problem before was getting critical mass in those markets. Now, it’s not just the local retailers, but national retailers – the Pick n Pays, the Woolworths going in there.”
What is also helping to drive the development is the increasing spending power of the township residents, and an emerging black middle class – the so called “black diamonds” (see below).
Among the most talked about completions of last year was the R450m (£32m) Maponya shopping centre in the Soweto Township, which is home to 3.5 million people on the edge of Johannesburg.
The 2.15m sq ft development, was the dream of businessman Richard Maponys for 26 years. Testament to its importance is the fact it was opened by Nelson Mandela.
It houses an eight-screen cinema and chic retailers more usually found in Johannesburg’s rich (and still predominantly white) suburbs.
It is not just the townships that are benefiting from shopping centre development.
Figures from consultancy Urban Studies show that 30 new shopping centres have been launched in the past seven years, including Cape Town’s Victoria and Alfred development, bringing the country’s total to 88.
In the past three years alone, 1.7m sq m of shopping centre space has been completed and, according to the Rodes Retail report, another 566,314 sq m is set to be built this year.
Half of retail spending happens in shopping centres. Development, says Gerhard Brümmer, director with Davis Langdon, Pretoria, “shows no sign of abating”.
But, as with the rest of the world’s economies, there are signs of slowing within the retail sector as the worldwide credit crunch bites.
“The development is bad news for owners of shopping centres in the light of slowing consumer spending,” says Brümmer. “This trend is expected to continue up to and beyond the 2010 football world cup to be hosted by South Africa.”
Spending may slow down, but the enthusiasm for change and growth will surely continue.
Time spent walking around the Khayelitsha mall and seeing its popularity has proved that – especially for the township residents – there is no going back.
Heading for boom time
The overriding message from South Africans – and Africa as a whole – is that the continent is going to boom over the next 10 years. “And when Africa does boom, the West will miss out because it is not there now,” says Ian Watt, of Retail Xpressions.
True, it seems Chinese companies are making more forays into central and western Africa – they have been investing an estimated £200m a year since the establishment of the China-African Forum in 2000. But, in fairness to western investors, they have not been entirely oblivious to the potential riches that Africa has to offer.
“While development is still primarily being carried out by South African developers, foreigners are starting to look to develop here. We have seen the Irish come in, but the Arabs from Kuwait and Dubai are here as well, and to a certain degree the English,” says Mike Flax, director, Madison Property Fund managers, Roggebaal.
Over the past couple of years, South Africa has seen its investment grow significantly. Since the start of 2007, the percentage of property funds looking to invest in the country – historically it has been very low – has tripled, going from 2% to 6%.
Flax says: “South Africa is now being noticed because we have produced most of the best returns in the world over the past four to five years. Figures published in 2007 show that “regional shopping centres have posted an average return of 32.8% between 2004 and 2006, according to property investment data bank IPD.”
Flax also points out that the South African Rand, which historically had been very volatile, is now more stable. He says: “Politics has helped, but what’s also helped is having a 5-6% GDP growth year on year – which has been boosted by the mining industry.”
But the worldwide ecomonic slowdown inevitably brings an air of caution. Gerhard Brümmer of Davis Langdon in Pretoria, says that towards the end of 2007 regional shopping centre capitalisation rates in the Central Witwatersrand, Cape Town, Durban and Pretoria regions generally remained constant during the reporting quarter.
“On average, investors required a minimum income return – the capitalisation rate – of roughly 8% in these major metropolitan areas. The best and largest shopping centres could nevertheless command cap rates of around 7%. Community shopping centre capitalisation rates still hovered around the 9% mark, while for neighbourhoods they were closer to 10%.
“Although the country’s economy and the construction industry are still doing well, high interest rates imposed by the South African Reserve Bank to curb inflation will slow growth in the immediate future,” says Brümmer. He believes that against this background, “there are clear signs of cost pressures developing, given the shortage of skilled labour, high energy costs and rapid increases in the price of building materials.”
According to data from Statistics SA, retail sales have already lost some momentum in recent months. During the third quarter of 2007, real retail sales were up by 6% on the previous year. This compares with annual growth rates of 7% and 9% respectively in the second and first quarters.
The index of consumer confidence, compiled by the Bureau of Economic Research, declined in the second and third quarters of 2007 after reaching a historically high level in the first quarter.
Furthermore, a widening current account deficit means that a larger surplus on the capital account is now required to finance this widening deficit, according to the Rodes Retail Report 4th Quarter 2007.
So, a shortage of the portfolio inflows needed to cover the current account deficit could mean a drop in the value of the rand.
“The above scenario paints a bleak picture for retail trading densities, the demand for shop space and ultimately market rentals,” says Brümmer. Nevertheless, South Africa still wants the foreign money.
Diamond life among the new middle class
They are called the black diamonds, or the buppies – black up-and-coming professionals. And they are the growing middle class that is helping to fuel South Africa’s economic comeback.
In short, they are the face of “black economic empowerment” and they are not a sector to be ignored.
An article published in The Economist last year quoted The University of Cape Town’s Unilever Institute of Strategic Marketing as stating that there are now 2.6m “black diamonds” – a 30% increase in less than two years.
Included in this definition are working professionals: owners of items including cars, homes or microwave ovens university students and those who simply have the potential to enter these categories.
“Their combined spending power,” says Dr Gerhard Brümmer, a director with Davis Langdon in Pretoria, has grown tremendously – from an estimated R130bn per year at the end of 2005 to R180bn at the start of 2007.
This compares with white South Africans’ annual collective buying power, which increased from R230bn a year to R235bn between 2005 and 2007, and with that of black South Africans collectively, which rose from R300bn per year to R335bn over the same period.
Sideways move for street fronts
Rodes Retail reports that street-front shop rentals continued to move sideways during the third quarter of 2007. The only exceptions were in Pretoria and Port Elizabeth central business district, where street-front shop rentals grew by 6.5% and 6% respectively, says Corrie Pienaar, national research manager with Davis Langdon in Pretoria.
Pienaar believes that “the generally poor performance of street-front shops seems to be the result of the decaying inner cities”.
She adds: “In the case of Port Elizabeth, the better performance could be ascribed to the ongoing upgrade of Govan Mbeki Avenue. Pretoria’s CBD, left, is also known to be doing relatively well in the wake of strong government support in the form of state departments staying in the CBD, and the consequent growing spending power there.”
Retail development in the rest of Africa
Starting from a low base, there is really only one way that the African continent can go – upwards.
Knight Frank’s Africa Report, 2007 puts it succinctly: “Retail markets are developing across the continent.”
The report goes on to add that though much retail activity continues to be focused on traditional street trading and markets “there are new modern shopping centres being developed in many countries, catering to the needs of the growing middle classes”.
As Mike Flax, executive director, Madison Property Fund managers, Roggebaai, South Africa, points out: “Two of our major developments are in Angola, where we have a 500 acre fully mixed-use development with shopping, residential and industrial, and in Windhoek, Namibia, we are planning another 1m sq ft mixed-use development.”
Problems with corruption and other shortcomings such as lack of infrastructure in roads, sewerage and power, and even lack of hotel rooms, especially in West Africa, also need to be addressed. But Africa’s growth cannot be ignored, especially with GDPs as high as 20% in Angola.
Africa-wide investment
“Africa is an untapped market for retail.” This simple statement from Mike Flax, director, Madison Property Fund managers, Roggebaal, sums up the general feeling about the continent. There are two distinct markets – the Sahara, and Sub-Sahara. The Sahara is Arabic and hence seen as a different culture.
Sub-Sahara is home to around 800m people and is crying out for investment. However, as Ian Watt of Retail Xpressions points out: “West Africa (Nigeria, Ghana, Angola) appears more ready than East Africa, which is not as wealthy.”
Watt believes the continent “is still a good few years behind where India is now. But Africa is being led by the retailers. South African retailers who are making the push include the likes of Shoprite, which has 100 stores, and Woolworths, which will provide the department-style stores. These are leading the charge in to the rest of Africa, giving other retailers the confidence to go out and open.”
Retail development sub-Saharan countries
Angola (population 12.1m): Growing demand has resulted in shopping centre build, with more planned
Cameroon (population 17.3m): Yaounde has a lot of street trading and local markets, with a growing niche sector
Democratic Republic of the Congo (population 62.7m): Retail sector is the most underdeveloped of all the property markets, with no shopping centres and limited retail space. But political changes has seen investor confidence rise
Ghana (population 22.4m): First shopping centre just opened, anchored by Game of Africa and Shoprite
Kenya (population 34.7m): Nairobi has seen a substantial increase in decentralised malls since 2004
Mozambique (population 20.9m): Maputo has several shopping centres with the Maputo Shopping Centre recently opened
Namibia (population 2m): The retail sector has seen sustained growth over the past few years with new malls opening
Nigeria (population 135m): Street hawkers have started to give way to shopping centre development
South Africa (population 44m): The strength of the retail sector in the major cities has seen vacancy rates falling
Sudan (population 39.4m): The retail sector is still underdeveloped with Justone Shopping Centre opening in 2004.
Tanzania (population 37.4m): The market is highly underdeveloped, with 80% of retail transactions happening in informal street trading
Uganda (population 28.1m): Steady performances have seen Kampala’s third shopping mall due to complete this year
Zimbabwe (population 12.3m): High quality retail space is fully let, with no major developments in the pipeline
Source: Knight Frank Africa Report 2007
