While some big retail centres are experiencing a reduction in rentals, turn-over and profits in these tough economic times, resulting in a subsequent loss of tenants, growing vacancies and further reductions in profits, many community retail centres have not experienced the same.
Bruma Oriental City in Bruma, Johannesburg
Sean Paul, executive director of Spire Property Management, which oversees many retail centres across South Africa, explains why this is so.
Convenience and location for shoppers
“Neighbourhood retail centres, and specifically those that sit firmly in the residential nodes, are very attractive from a convenience point of view. Consumers living in the nearby suburbs will frequent their local centre on an almost daily basis to purchase household goods and groceries, to enjoy a meal at their local restaurant or socialise over a cup of coffee, and make use of other services offered, such as a laundromat or hairdresser.”
According to Paul, ease of access and more-often-than-not free parking are additional drawcards held by these smaller centres which see customers returning frequently.
Attractive to tenants
“These smaller centres often do not struggle with vacant space as the larger centres do. The rentals in a small centre are far more affordable and these centres often operate on a gross rental structure rather than a turnover-based structure. This is appealing to entrepreneurs and small business owners who can be daunted by the high costs associated with renting retail space in a large shopping centre, and also like the certainty of fixed rentals for budgeting purposes. Because of this, and also because shop sizes in general are smaller, these smaller retail centres hardly ever see vacancies, and tenant turnover is very small,” says Paul.
“Tenants within these centres are also usually from the surrounding community, meaning that they have an intrinsic understanding of what the market is wanting and needing.”
However, Paul does caution that the tenant mix in a community-based retail centre needs to be well planned in order for that centre to flourish. “Shops and services need to be matched to the affluence levels and the needs of the surrounding neighbourhoods.”
Good investment option
All of this sees neighbourhood retail centres being a great investment opportunity for property buyers looking to add to their commercial portfolio. “These centres are also far more affordable, comparatively speaking, than the large shopping malls, which means private investors can afford them more easily. Added to this is the fact that monthly operating expenses and overheads are smaller than large retail centres.”