research RetailTrends Report Report compiled by IPD
Q4 2013: key findings For the year ending December 2013, the centres in the IPD Retail sample recorded an increase of 5.2% in annualised trading density (sales per square meter). In inflation-adjusted terms, this translates into marginally negative growth as consumer price inflation averaged 5.7% for the year. Retail vacancy rates remain low but has increased across all centres types, when compared to December 2012. Centres smaller than 25,000sqm has seen the largest increase. Gross rentals continue to grow faster than sales which has seen retailers cost of occupancy increase. Cost of occupancy is currently the highest in the 10 year history of the series and is almost exclusively driven by higher administered costs. Footcounts recorded during the month of December were slightly down compared to a year before, symptomatic of the currently tough trading environment. In conjunction with a higher nominal trading density, this results in a significantly higher spend per head. Annualised trading density growth year on year % 2
Retail trading performance of different centre types SALES PERFORMANCE For the year ending December 2013, the centres in the IPD Retail sample recorded an increase of 5.2% in annualised trading density (sales per square meter). In real terms (inflation-adjusted) this translates into marginally negative growth as consumer price inflation averaged 5.7% for the year. Annualised trading density sales/m 2 /month However, there was continued divergence in performance between the different centre types. Super Regional and Community centres drove performance while Small Regional and Neighbourhood centres underperformed. Super Regional centres has a history of stable trading performance through the cycle aided by nodal dominance, a larger variety of categories & tenants and a larger boost from December s peak trade. The performance of Community centres (12,000-25,000sqm) could perhaps be attributed to the currently tough economic environment. A combination of high fuel prices and less disposable income could mean that consumers are choosing to shop closer to home. An additional advantage of Community centres in the current environment is that,in most cases, parking is free of charge. Annualised trading density year on year growth The underperformance of Neighbourhood centres is more than likely a function of their less varied tenant mix relative to Community centres. The Grocery/Supermarket anchor in an average Neighbourhood centres occupies 32% of gross lettable area. In Community centres, this ratio is closer to 15% - leaving more room to accommodate a diverse mix of tenants across more merchandise categories. 3
Retailer cost of occupancy Retailer s cost of occupancy, measured as gross rental as a % of sales, continued to increase over the past year and at December stood at 7.6%. At the height of the 09 recession, this ratio was recorded at 7.2% which emphasises the impact of rising administered prices. The pace at which administered prices have been increasing is underlined by the difference in growth rate between base and gross rental. The impact of rising tenant operating costs have been most pronounced in Community & Neighbourhood centres where gross rent to sales ratios in these segments are currently significantly higher than 2009 levels. retailer cost of occupancy gross rental as a % of sales gross rental growth vs sales growth All Retail; Year on year % basic vs. gross rental growth All Retail; Year on year % 4
Footcount & spend per head Footcounts recorded during the month of December were slightly down compared to a year before, symptomatic of the currently tough trading environment. In conjunction with a higher nominal trading density, this results in a higher spend per head compared to a year before. The increased spend per head could be attributed to shoppers visiting centres less often but lumping purchases together in order to save on travel costs. footcount shoppers per square meter per month All centres larger than 25,000sqm has experienced a rebound in foot traffic since the recession of 2009. However, current levels of foot traffic per sqm is still significantly off the highs of 2004 when real economic growth was above 4%. Spend per head for all centres larger than 25,000sqm currently averages R160/visit. Super Regional centres average R225/visit while Regionals and Small Regionals average R172 and R136/visit respectively. spend per head sales / shopper / month spend per head growth average all retail; year on year; % 5
Merchandise category trends Over the last 5years, cost of occupancy has increased significantly driven largely by increases in administered costs such as electricity and rates & taxes. Over the past 3 years, the picture has been more mixed with Super Regional centres being the only centre type that has seen a reduction in occupancy costs. However, it s worth investigating whether this was the trend across all merchandise categories within Super Regional centres. The graphic below summarises IPD s primary merchandise categories in terms of 3 year trading density growth and gross rental growth. There is quite a divergence between categories with around half of the categories by GLA growing their sales per square meter at a faster rate than their gross rental. The other half saw rentals grow at a faster rate than sales which would ve seen their cost of occupation come under pressure. This illustrates the importance of analysing retail performance on a category level rather than just looking at the overall performance of a centre. Long term performance of categories in Super Regional centres Sales growth vs. Gross Rental Growth; % pa (2010-2013) 6
Impact of seasonal trade on different centre types Larger centres have proved more defensive over the last 10 years combining a constant growth in trading density with low vacancy rates. Part of the reason for this is that tenants in larger centres have relied on a larger boost from December trade (see graphic below). Over the last 10 years, the average December trade in a Super Regional centres has been 24% higher than the trade throughout the year. Regionals and Small Regionals are not that far behind, however there is a noticeable drop to Community & Neighbourhood centres. December trading premium relative to Rest of Year 2003-2013 shopping centre type definitions year on year, % Super Regional Shopping Centre Regional Shopping Centre Small Regional Shopping Centre Community Shopping Centre Neighborhood Shopping Centre > 100,000 m 2 in total rentable area 50,000-100,000 m 2 total rentable area 25,000-50,000 m 2 total rentable area 12,000-25,000 m 2 total rentable area 5,000-12,000 m 2 total rentable area 7