The fall of the retail sector is leading to industrial expansion

Since the beginning of the millennium, shopping malls in South Africa were springing up throughout various metropolitan cities. Regional and super-regional malls began emerging as lucrative commodities as developers and investors capitalised on market conditions. This gave rise to renowned malls such as Gateway Theatre of Shopping in Durban, Sandton City in Johannesburg and Canal Walk in Cape Town.

Today, the country has the 6th highest number of shopping malls in the world, employing close to one million people and contributing almost 15% of the total Gross Domestic Product. 

With such a positive narrative behind the retail sector, it may come as a surprise that from 2015, the sector’s influence among consumers, and subsequent developer and investor confidence, has plummeted. 

Dubbed by analysts as the Global Retail Armageddon, regional and supermalls in the country (and around the world) are experiencing high vacancy levels.

For example, a walk through the newly refurbished Rosebank Mall will reveal vacant shop fronts where massive retail outlets such as Stuttafords once stood and many outlets that remain are reducing their floor space to cut-down on rental costs. Compounding the situation, international brands such as Mango and Nine West have left South Africa. 

Many factors have led to the downfall of the sector, which have coincided to create the perfect storm. Firstly, the high costs of living have stripped consumers of their disposable income resulting in the inability to buy non-essential goods. Secondly, the internet has paved the way for informed shoppers who first research online to decide what they want and then go directly to that specific store to buy the item, thus eliminating the possibility of browsing through shops 

These factors are causing the retail development pipeline to decline and developers and investors are turning their attention to stronger sectors.

According to latest trends, the industrial sector is emerging as a lucrative investment class as it is experiencing low vacancy levels and demand for industrial property is at an all-time high. 

Placing a spotlight on the Gauteng industrial market indicates that it will receive the biggest percentage of the development pipeline. In fact, Johannesburg is expecting 884,000sqm in new developments, which is mostly concentrated in the northern and eastern parts of the city. 

Driving the industrial rental market is high-end modern facilities, including A-, P- and B-grade accommodation. These facilities are also contributing to positive developer and investor sentiments. Vacancy levels in the province remain relatively low – hovering around 3.5%. And if the province is able to provide more modern facilities, it will drop even further.

Certain nodes in Gauteng are rapidly gaining popularity. Linbro Park (Sandton), Midrand and the East Rand are firm favourites in the market. The reason for this is that these regions are able to provide newer and more efficient buildings that tenants are demanding. 

For example, the majority of warehouse space in Linbro Park is A-grade and boast 24-hour security and electric fencing, excellent truck access, ample parking, manicured gardens, and office features.

Furthermore, upgrades and the construction of new developments are currently underway here. These include an upgrade to the K113 route where road entrances are being established and warehousing opportunities, predominantly for rental tenants, are under construction in the northern section of Linbro Park and around the Gautrain railway line.

As South Africa witnesses the fall of regional and super regional malls, new capital will be pumped into strong areas of the economy such as the industrial sector. Low vacancy levels, a growing stock of modern warehouses and a promising development pipeline will see the sector expand further and generate lucrative returns on investments.