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Banking on change: Branch closures an opportunity for retail landlords

Vacancies arising from Standard Bank’s branch closures could see property companies turn sub-optimal renting space into better yielding space.

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.

Read: Standard Bank shuts even more branches than planned

“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.

Read: There’s value in listed property, but risks remain

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.”

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Rental business from a Bank is far more secure than smaller retailers.

A lot of retailers are closing business due to the economic downturn and with the Banks closing branches at the same time, it can only worsen the situation.

There seems to be some bias here, as most of the people interviewed are property companies and they wont want to admit that this will not be good for them.

Over time all the other banks will do the same and open up a lot more floor space. Some have also commented in the manner that tenants (with excellent credit are available – see other reply above) are lining up to take up this precious space. Maybe some analysis is needed here, however my impression without that and by visiting these shopping mall’s is that there is already excess space available and that due to further technological shopping advances space will be needed less.

Counted 14 empty shops in our Mall besides for the recent closure of Duncin donuts and Baskin-Robins. Most have been for more than 6 months.

With the economy reaching a New Down in the USD:ZAR, GDP and employment, it is sad that Standard Bank seems committed to fighting national productivity with double-digit growth in its queues and call centre waits.

Every second a customer, presumably better employed creating wealth, listens on the phone to the call centre bottleneck “your call is important to us” [sic], in-house adverts, bad muzak and other trivia or waits at their branches (where they have spent a fortune, on TV screens, coffee machines, padded chairs, queue ticketing technology, etc) helps bring the economy further to its knees.

What a ridiculous story.

Vacancy factors rise and there is less covenant.

All bad.

I see vacant shops everywhere! Not just the malls. The vacancy of strong moral leadership in the ANC and their “new down” (LOL v_3) will continue producing vacancies on every front. If the property companies are not concerned, they should be.

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