The disruption caused by the digital revolution has seen banks trim down their physical branch presence, providing an opportunity for property landlords to re-establish their retail footprint.
Just last week Standard Bank announced that it will be closing 104 branches across the country, not being discriminatory in the locations from upmarket urban precinct Melrose Arch to the shopping centre in the small town of Bochum in Limpopo. In its wake, the bank will be leaving 104 vacancies in shopping centres that will need to be filled.
Standard Bank’s Ross Linstrom says the move was precipitated by the shift in consumer behaviour, with customers using branches less frequently since technological developments have changed the way they consume, shop and pay for services.
“We have seen more than double-digit growth annually in the adoption of our digital platforms,” he points out.
Impact of bank closures on property portfolios
According to analysts, banks normally take up between 140m2 and 250m2 of space in shopping centres.
Nashil Chotoki, national asset manager for retail at Redefine Properties tells Moneyweb that Standard Bank branch closures will affect six of the centres in its portfolio – Wonderboom, Benmore, Matlosana, Hillcrest, Isipingo and East Rand Mall where it has 50% ownership.
These branches form part of the majority of the 104 that have already been closed, and Chotoki says this has released 2 974m2 of retail space back onto the market with Redefine already in talks with potential tenants to fill the space.
“The impact is minimal as this space represents only 0.2% of our retail footprint,” says Chotoki.
Vukile Property Fund, which holds the remaining 50% interest at East Rand Mall, says negotiations for Standard Bank’s space are taking place with stationery category tenants, which are underrepresented in the mall.
Standard Bank has also approached Vukile to negotiate the closure of two other branches in their portfolio.
Itumeleng Mothibeli, asset management director at Vukile, says Standard Bank’s contractual obligation will only be cancelled on terms that are acceptable to them. “We have approached the negotiations with the tenant to ensure that the integrity of our earnings is not compromised.”
Negative for sentiment, but no material concern
Nesi Chetty, senior fund manager for listed property at Stanlib, says that while the closures were negative for the sector and sentiment, they are not as “material a concern as it may appear from the headlines suggesting hundreds of Standard Bank branches will be closed”.
While banks pay above average rentals to be in shopping malls they don’t pay “material rentals”, meaning they do not make a list of the top 10 tenants by rental paid.
“You also have Discovery Bank, TymeBank and Capitec potentially, over time, looking at increasing their physical presence, with TymeBank currently the most digital of these banks,” says Chetty. “They may contribute to increased demand for space at a later stage.”
Moneyweb reported that the big banks have closed nearly 700 branches in the past 10 years, with Capitec the only one still adding to its footprint.
Good retail space
The space occupied by banks is considered “good retail space”, says Broll Property Group CEO Malcolm Horne. This means property developers won’t have that much difficulty reletting the space.
“These are nice pockets of space that would be easy to subdivide into three or two shops or find one user, hopefully, of that space,” says Horne, comparing the current situation to the folding of Stuttafords, which left boxes of about 2 000m2 vacant, which mad it a lot more difficult because of a more limited choice of tenants.
Property companies will use this as an opportunity to relet space at better rentals, particularly in the strong super-regional centres that have very few vacancies – sometimes under 1% to 2%, says Chetty.
Vukile says the downsizing of a number of FNB branches had worked in its favour because they often close out a higher rental on subdivided boxes.
“These centres will use this downsizing by banks of infrastructure as an opportunity to bring in better retailers,” says Chetty. “Some companies will have to introduce, possibly, food anchors to take up the bigger box sizes.”
However, the reconfiguration might not prove to be so simple. Competition in the country’s retail market is high, with more than 2 000 existing shopping centres boasting over 25 million square metres of formal retail space at present, and another three million square metres of formal retail space in the pipeline.
In its Evolution of Retail report released in April, Broll concluded that consumer needs and wants have changed partly due to technological advances. This has meant that “the short-term future for the retail market isn’t entirely positive as stores closures, consolidations and downsizing may become more prevalent.”