Empty shopping malls: crisis or opportunity?

In an environment in which retail is under pressure, and there’s already an oversupply of shopping centres, mall owners are being forced to rethink how they use their space.

Retail takes strain

As retailers and mall owners across the world came to grips with the global crisis, Craig Johnson, CEO of US consulting firm Customer Growth Partners, was heard to say: ‘It’s essential for mall owners to continuously renew (and) reinvent themselves to maintain excitement and newness for customers, and to reflect how consumers like to shop today and what their needs are.’

That was back in 2008.

Now, in 2020, there’s a new crisis, but Johnson’s advice still rings true. Shopping malls – in South Africa as in other countries – are empty, stores are closing, and the need for reinvention is as great as it’s ever been.

In September, PwC’s Q3 2020 business confidence report noted that South African retail confidence had improved from a ‘dismal’ score of 11 to 36 in the third quarter … but with 50 being a neutral score, that’s still deep in negative territory. ‘By September, Google data shows that visits to retail and recreation spaces (e.g. restaurants, cafés, shopping centres, theme parks, museums, libraries and cinemas) were still 7% below a benchmark period of January 3 to February 6,’ lamented authors Lullu Krugel, Chief Economist for PwC Strategy Africa, and Dr Christie Viljoen, PwC Strategy & Economist.

Too many malls?

The bleak outlook for shopping malls makes for especially depressing reading in a South African context, given that in 2016 South Africa ranked as the sixth-largest country in the world in terms of shopping centres (not far behind developed economies such as the USA, Japan, Canada, the UK and China). By 2018, a study conducted by MSCI on behalf of the South African Council of Shopping Centres found 23.4 million square metres of gross lettable area across an astounding 1,959 individual shopping centres. That same SACSC report found that South African malls represented 88% of the available space in the entire sub-Saharan Africa region.

So the shopping mall market was saturated even before the Coronapocalypse struck, with the wobbling economy only adding to the shuttered shops and TO LET signs. The COVID-19 lockdown was, then, the nuclear warhead that broke the proverbial camel’s back.

‘Other than if it were to blow up, the worst thing that could happen to a shopping centre is a forced closure,’ the SACSC said in a statement at the start of the Level 5 lockdown. ‘This is made even more terrifying when you aren’t sure for how long your automated sliding doors might stay closed.’

Opportunities for developers

So what’s next for South Africa’s shopping malls? In September, Hyprop, which owns centres like Canal Walk, Rosebank Mall, Hyde Park Corner, Clearwater and Somerset Mall, reported a R4 billion (13.9%) reduction in the value of its South African portfolio, but retail vacancies were fairly low, at just 2.4%.

‘As the stringent COVID-19 lockdown levels are relaxed, we are seeing an increase in foot counts at our malls, and more activity and enquiries from potential new tenants,’ said Hyprop Investments CEO Morné Wilken. ‘After months of lockdown, we are reaffirming that we are social beings who like to interact and experience life, justifying our strategy of creating safe environments and opportunities for people to connect and have authentic and meaningful experiences.’

If malls are to survive during the current – and coming – retail crunch, those ‘authentic and meaningful experiences’ may have to be related to something other than shopping.

Think Mall of Africa’s monthly Antiques Fair, or its recent hosting of South African Fashion Week. Think studio gyms, filling the space vacated by stores that have closed. Or think housing developments. In the UK, plans were recently proposed for a GBP410-million project that would convert Romford’s Rom Valley Retail Park into more than 1,000 homes.

Given South Africa’s existing oversupply of shopping malls – an issue only compounded by the current state of retail – it’s perfectly reasonable to start asking questions about similar redevelopment projects here.

It might be time for property developers to start hunting around our malls for possible bargains.