Mall landlords forced to cut rents by 14% as major retailers play hardball

One of the country’s biggest tenants, TFG, is paying rents last seen pre-Covid …
TFG is the fourth-largest tenant of property counter Attacq, which owns Mall of Africa. Image: Supplied

The Foschini Group, or TFG Limited, has managed to extract an average cut in rental costs on its lease renewals over the past year of 14%.

It is the only major retailer to disclose specifics regarding the reductions it has achieved in rentals. It achieved this considerable reduction in average rent across 662 renewals across TFG Africa, which equates to more than a fifth of its 3 000-plus store footprint.

Remarkably, on average, it is paying 17.4% less than the rents it paid per square metre in 2019 (pre-Covid). This would be a combination of far lower rents as well as more aggressive management of space (reductions of unprofitable store estate).

TFG is among the country’s five largest retail tenants, so this reduction in rent will drag on the earnings of property funds and real estate investment trusts.

Among the two largest landlords in South Africa – Growthpoint and Redefine – TFG accounts for between 4% and 6% of total lettable space in their malls.

TFG GLA (m2 ’000s) Total retail GLA (m2 ’000s) % of total GLA
Growthpoint 78 449 1 224 705 6%
Redefine 51 981 1 239 802 4%

* GLA: Gross lettable area

The problem for landlords is that TFG, like all clothing retailers, pays significantly higher rent per square metre than many other large tenants. Supermarkets will generally pay a fraction of the rent per square metre that a clothing chain does.

So, while with Redefine, TFG accounts for 4.2% of space, it pays 6% of monthly rent. Woolworths, by comparison, has 5.5% of space but pays 2.9% of rent.

At far smaller Attacq, which owns the Mall of Africa, TFG accounts for 2.4% of space across the portfolio (it is the fourth-largest tenant), but is the single-biggest retail tenant when it comes to the rent bill (at 3.1%).


Woolworths is Attacq’s largest retail tenant by space (3.7%), but pays only 1.9% of total rent.

The second largest (as a percentage of gross rent) for Attacq is Mr Price Group. This retailer is the fifth largest, by space, for Growthpoint and seventh biggest for Redefine.

It disclosed limited detail earlier this month, but highlighted that its 371 lease renewals were achieved with “further base rental reversions and escalations in line with CPI” (consumer price index).

TFG’s average renewals are at 6%. Mr Price Group says returns on new stores “continue to be highly attractive” with an “average payback period of 12 to 18 months”.

In effect, TFG is now paying lower rents at stores that have had leases renewed than it was pre-Covid. Consecutive annual rent increases of 8% or 10% were simply unsustainable.

The impact of Covid-19 lockdowns ensured that this base was reset, but it remains to be seen just how much rent tenants are willing to bear.

Tenants have the upper hand in many instances, as retail vacancies remain elevated.

Remember, to achieve an average reversion of 14%, there are an awful lot of leases that are being renegotiated at a 20% (or higher) reduction in rent in underperforming malls. Others will have a reduction of, say, 5%.

Read: How property stocks have rebounded from lockdown lows

The average cuts in retail rental that Growthpoint has agreed is 14.5% so far for its financial year (from 1 July). It describes this as its “weighted average renewal growth rate”. This continues to improve from the above 15% cuts in rental it agreed in recent years.

That one of its largest tenants, TFG, has achieved a reduction of 14% means there are tenants – likely both stickier space (huge supermarkets, gyms, cinemas and so on) as well as smaller independent line shops – that have secured rent reductions in excess of 14%.

Along with this downward trend on rents, the average length of those renewed leases has reduced drastically.

-Landlords are also struggling with the number of leases they are able to renew – these have generally been somewhere between 60% and 80%. Five years ago, Growthpoint’s weighted average renewal lease period was 4.3 years. It is now 3.5 years.

In other words, retailers will sign renewals but for far shorter periods of time than the five years that was once standard.

Listen to Nzinga Qunta’s interview with Jon-Jon Emary of NielsenIQ (or read the transcript here):


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This is why you see articles (more like advertorial) from the retail property owning REITS, like L2D, desperatly telling us that footfalls are back to pre covid levels, but in fact they don’t reveal the trading densities and most tenants do do the research.

End of comments.



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