According to John Loos (FNB Commercial Property Finance specialist in the property sector), entertainment and dining out will be the primary beneficiaries. Smaller centers are likely to outperform giant malls.
“The retail property market is much more stable than it was in the past, but still faces challenges.” “Some stability returned as curfews have been lifted and lockdowns regulations loosened,” Loos stated during a webinar Wednesday.
As the vaccine rollout continues, “The 2022 economy will return to 2019 levels real GDP growth. This will positively affect physical retail, particularly the entertainment and dining out sectors. This is expected to give rise to the enjoyment aspect of retail.
“However, consumers constraints are expected to continue to be significant.”
It is better to be smaller than you think.
Loos states that smaller retail centers focusing on high-frequency necessities are likely to continue outperforming more giant regional malls. However, the performance gap may narrow in 2022.
He predicts that retail property will be between the two other commercial property classes: the strong-performing industrial and the weak-performing office markets. This is due to the increase in work-from-home during the pandemic.
Loos believes that the office and hotel sectors will be the market’s underperformers in commercial property. Loos believes that only industrial property values will see positive real growth this year.
According to recorded history standards, retail property is now a very costly property class. It has experienced robust capital growth, rental inflation, and operating cost inflation since the mid-1990s. We believe that a further gradual accurate correction would be possible to align with weak long-term domestic economic fundamentals. Loos said that it is only a matter of how the sentence turns out. It is also difficult to grow online retail.
Loos predicts that the trend towards a rising retail vacancy rate will peak in 2019, based on the improvement in GDP since 2020. However, the gain may not be enough to relieve the pressure on fundamental rental properties.
“The retail sector’s tenants are battling and will continue their battle. However, we expect some improvement in tenant performance in 2022 as the 2020 recession effects fade and positive property income growth can be achieved. This would significantly improve over the -10.3% expected in 2020 and -4% in 2021. Loos stated that this, in turn, means that there is a low expectation for positive capital growth.
He also pointed out a decline in retail building activity due to the oversupply.
“The best thing about retail property is that it is expected to have a better year this year when values stabilize. We must be realistic when it comes to the retail property. Historical values are still high, and I don’t think they have fully recovered. Loos stated that online retail has a strong incentive to grow faster because a retail property is more expensive than it used to be over the years. However, we anticipate a much more stable year for retail properties, but it won’t be lighting the lamps.”
Malusi Mthuli from FNB’s commercial finance division in KwaZulu–Natal stated that there was still a market for retail property buyers in the province during the webinar.
He said, “There are many willing sellers on one side, but those with capital want some of these opportunities.”
He also noticed another retail trend in the province: consumer trade moved from damaged shopping centers in June 2021 to other centers that did not suffer the same fate.