Redefine Properties' retail portfolio thrives amid improving conditions

Source: Supplied. Blue Route Mall.

With positive trends in retail sales, rental renewal rates and visitor foot count, the momentum in the sector bodes well for South Africa’s future
growth.

Source: Supplied. Nashil Chotoki, retail national asset manager at Redefine.

In August 2024, retail sales in South Africa increased year-on-year by 3.2%.

This marked the sixth consecutive month of growth in retail activity and at a robust pace.

Additionally, foot traffic in major shopping centres rose by 8.3% year-on-year during the second quarter of 2024, a positive trend that has continued since December 2021.

The rent-to-turnover ratio, a measure of retailer’s cost of occupancy, is now at its best level in more than 10 years.

Nashil Chotoki, retail national asset manager at Redefine, attributed the growth in retail activity to non-discretionary spending, with food and value-focused retailers serving as the main industry drivers.

“Within the Redefine portfolio, grocers contribute 64% of turnover growth. Therefore, a tenant mix of essential services and retailers aligned with value offerings that are relevant to the demographics of the catchment areas will be a key success factor for shopping centres.

"It is why Redefine will increase its exposure to this category to 40% of its GLA in the next financial year,” Chotoki explained.

Lower interest rates and improved consumer confidence will further drive growth in retail sales, particularly in some discretionary retail categories. Ensuring that the tenant mix of a shopping centre aligns with this trend will help create sustainable growth.

These trends come on the heels of the release of Redefine’s annual results for the 2024 financial year (FY24). The REIT’s retail portfolio accounts for 45% of its South African property asset platform, with a carrying value of R28.3bn (up from R24.6bn in FY23).

Redefine owns 59 retail properties nationwide, occupied by 2,807 tenants with an annual trading density of R34,700 per sqm. The portfolio's rent-to-turnover ratio of 7.7% reflects sustainable revenue growth prospects across its retail formats.

Strong occupancy growth

Redefine also enjoys an active occupancy rate of 95%, which it expects to increase in FY25 due to healthy letting demand. Furthermore, with the help of tenant support programmes and data-driven insights, Redefine ensures tenants are placed in optimal macro-locations to enhance their trading performance.

Source: Supplied. Centurion Mall.

"This has enabled Redefine to improve its rent reversion rate on renewal to 0.2% and achieve a renewal success rate of 88%. Our analysis goes way beyond shopper data and combines a variety of data to drive insights to make decisions that inform our strategy at an asset level.

“We have also found that upgrades to stores, particularly grocers, drive improvements in turnover through attracting new customers to shopping centres. That is why Redefine is working closely with national retailers to support this, culminating in 8,500m² worth of upgrades scheduled to commence in February 2025,” Chotoki added.

To further diversify income streams, Redefine has pursued alternative revenue opportunities through in-mall and exterior billboards, and electric-vehicle charging infrastructure installed at eight sites.

Sustainability remains a top priority, with solar photovoltaic plants generating 18% of the portfolio’s energy needs thanks to an installed capacity of 34,587 kWp. Expansion plans will add another 12,351 kWp in capacity.

“There are still challenges in our path, but what is certain is the resilience and promise that South Africa’s retail industry poses from both a consumer and business perspective.

"Through strategic planning and implementation, and by prioritising the needs of consumers and our tenants, we are fully tapping into the power of retail spaces as social and economic enablers,” Chotoki concluded.