Summit Television Interview

This was part of an interview conducted with Dirk regarding township development.

1. The Property Charter has called for more investments in townships. The question is whether retail and commercial properties in these areas are viable investments?

The first large retail development in township areas started in 1994 with the development of the Daveyton and Dobsonville centres. Since 1994 not a lot of retail centres were built until approximately 2002/3. Since then it has become a very active sub-sector of the retail market. Most township areas have been identified for retail development, ranging from small convenience centres to large regional centres of 60 000m². Retail has remained one of the best property investment categories over the last few years and therefore the popularity of development in the township areas.

As far as commercial and especially office development is concerned, the trend for decentralised office space worldwide is to focus on the more affluent suburbs. This is also the case in South Africa with the northern sectors of Johannesburg, southern suburbs of Cape Town, the new northern sectors in Cape Town, north of Durban and the south-eastern sectors of Pretoria. It is therefore expected that commercial and office growth in the township areas will be limited to local demand, especially from doctors, estate agents and local community facilities.

2. There is a general shortage of retail stock in the traditional investment areas. Would investors have been looking at these areas even if the Charter hadn’t called for it?

The development of shopping centres in the township areas is not a new phenomena and the main drive had already started in 2000/2002. A number of these new centres have already opened and have proved to be highly successful. Over the last two years a number of centres have been identified and were completed. The most important are:

  • Mamelodi Crossing
  •  Umlazi Mega City Centre
  •  Palmgrove Centre in Orange Farm
  •  a number of centres in Soweto, especially the Protea North Centre
  •  a number of centres are currently under construction including the shopping centre in Atteridgeville, two major centres in Soweto as well as smaller centres in Soweto.

Most of the larger township areas are currently being investigated for retail development. This includes areas such as Sebokeng, Vosloorus, Katlehong, Tokoza, Tembisa and Seshego. Some of the most successful centres in the township areas were built prior to 1990. These centres, especially Central City in Soshanguve/Mobopane has become very attractive with a very strong tenant mix and high support levels.

3. There is comparatively little stock in these areas which means acquisitions are going to be difficult to come by. Do you see investors/ developing starting from scratch so to speak?

The most important is the fact that there is very well located land available for development. It is up to the owners to form joint ventures with developers and to take it further.

4. What kind of questions should investors be asking when considering township developments?

The critical question remains whether there are sufficient people to support a particular retail centre and whether the disposable income would warrant a retail centre in a particular location. It is also important to understand what type of retail facility should be provided, whether it is a smaller convenience centre or a larger community type regional centre. The most important as far as the retail in township areas is concerned is the fact that there has been very little supply of quality retail space and therefore the major outflow to most of the central city areas and the CBDs.

5. What sort of township development has proved successful so far?

A number of the centres recently completed range between 15 000m² and 20 000m², making it a strong community type centre which proves to be highly successful. The tenant mix on offer is mainly focusing on food (mainly groceries), clothing, services and also furniture.

6. A lot of large centres are emerging out of Soweto. What lessons can we learn from developments there?

It is very important to understand the geographical layout of Soweto. Both the new proposed regional centres will cater for very specific catchment areas of the total Soweto market. The new Jabulani Mall will mainly cater for the western suburbs while the Maponya Triangle is probably more central as well as the eastern suburbs of Soweto. It is very important to understand that a large proportion of the regular shoppers of these centres will walk to the centre and therefore fulfil the needs of a localised catchment area. These centres will offer a very wide range of tenants. Each of these centres will probably service ±100 000 households which clearly indicate the size of the market. It is, however, of utmost importance to ensure that these centres focus on the basic needs of these households namely groceries, food, services and furniture stores. Those retailers that cater for the upper end of the market should not be incorporated into these centres. The focus of these centres will be mainly on the LSM 4 – 7 markets where the average household income is ±R3 000 – R5 000 per month. This is the most critical aspect regarding the retail development in metropolitan township areas. The situation in the rural towns is different with a high level of urbanisation during the last few years mainly because of farming conditions. These households have an incomes of between R800 and R1 500 per month. All this relates to the poorest sectors of the market.

7. Do investors and developers need to be careful not to overestimate the size of the black middle class at the moment?

The one positive aspect about the South African economy is that the expenditure and disposable income cake is getting bigger mainly because of the increase in the size of the middle market. The middle market is also the one that is moving into the former white suburbs and supporting traditional centres such as Sandton, Eastgate and Westgate. This outflow will continue. It is however expected that this market will continue growing which will be positive for retail development in the township areas as well as a refocus of existing shopping centres in the suburbs.

8. Historically residents have spent their money outside the township. How long will it take to get people to shop in these areas?

It is important to note that currently approximately 80% of the disposable income earned by households in Soweto is still spent outside Soweto. With the new malls this will change. It is expected that the rate will decrease from 80% to 40% – 50%, but one will always see an outflow from the township areas to the retail in the CBDs as well as other shopping centres. The main reason for this is that a very wide variety is on offer outside the township areas. The majority of the residents work outside the township areas and a substantial proportion of money is spent at retail facilities while at work and there is also a factor where people socialise outside the township area. This will create good competition between the different shopping centres. The best example is where Central City in Soshanguve/Mabopane is very well establish with a good tenant mix, but an outflow of between 20% and 30% to Pretoria.

9. We’ve seen a fund devoted to the rural commercial and retail property market. Do you see investors eyeing the township areas around some of these smaller towns?

The smaller towns mainly service the rural areas, the farms and the adjacent township areas. It is therefore foreseen that most of the retail development will take place in the town centre to cater for the broader market. Most of these developments will however remain very small, focusing on convenience products and clothing. As mentioned before these are very poor markets, but numbers wise offering good potential.

10. What are your main concerns regarding retail development in the townships?

The one concern is that people are duplicating what is working in the affluent suburbs of Johannesburg and Cape Town. The needs in the different areas are different and therefore the focus in the township areas must be very specific, catering for their immediate needs and to provide attractive shopping facilities within walking distance. Although salaries have increased, the disposable income in these areas remains low and this must be the driving force for future retail development.