Mall profits under pressure

Johannesburg - Investors are no longer making big bucks on shopping centres, with total returns for retail property down to a level last seen in 2002.

This is according to the SAPOA/IPD SA Property Index released on Tuesday.

Retail property delivered a total return of 11.1% in 2008, sharply down from 26% in 2007. Given last year's inflation rate of 11.5%, shopping centre returns slumped into negative territory in real terms for the first time since IPD introduced its SA index in 1995.

IPD is a UK-based property research group which measures the annual performance of direct commercial property markets in more than 20 countries.

The IPD index for SA is based on a R141.3bn sample of 1 666 retail, office and industrial properties owned by major institutions and listed funds.

Offices and industrials outperformed shopping centres in 2008, delivering total returns of 14% and 18.1% respectively. That brought the total return for all sectors of the SA commercial property market to 13% for 2008 (27.5% in 2007).

It is the second year running that offices managed to pip shopping centres to the post. The latter has traditionally been the SA property market's biggest money-spinner. However, retail property has slowly but surely lost ground since 2005, when it posted a record return of 33%.

Retail's relatively weak performance in 2008 was not completely unexpected, given SA's rapidly deflating consumer spending boom and the rate at which new shopping centres continue to mushroom on suburban street corners.

SA best of bad bunch

Stan Garrun, MD of IPD South Africa, says although returns for all sectors of the SA commercial real estate market in 2008 were noticeably down on the previous year, SA still outperformed all other countries published by IPD to date.

SA is so far the only country that has delivered double-digit growth in 2008. In the UK and Ireland for instance, total returns dropped by 22.1% and 34.2% respectively last year.

In continental Europe, real estate returns varied between a high of 5.1% in Finland to a low of -4.7% in Norway. In Asia Pacific, South Korea came in at 4%, while Australia recorded 1.8%.

Says Garrun: "The relative resilience of the SA commercial property market can in part be ascribed to economic effects lagging the international cycle and less turbulent financial markets.

"We have not witnessed the rapid re-pricing of real estate assets being experienced elsewhere, certainly not on the same scale."

SA commercial property also delivered better returns to investors in 2008 than most other asset classes. Direct property's total return of 13% in 2008 compares to the JSE all-share index's -23.2%, while the JSE property loan stock and property unit trust indices returned 2.3% and -9.7% respectively over the same time.

However, investors who stashed their cash in bonds would have made the best returns last year, with the all-bond index up 17% in 2008.

- Fin24.com