Property Portfolio
Portfolio performance
Retail
The retail portfolio under-performed in terms of portfolio property income, primarily due to the slower than expected improvement in consumer spending. The retention of existing tenants decreased to 70% (2009: 77%) resulting in higher vacancies of 10,4% (2009: 9,3%) and increased letting incentives. Tenants trading 90 days in arrears remained stable as is evident in the lower bad debt provision year on year. 57% of the retail portfolio consists of smaller retail centres where the food anchors are trading satisfactorily, however the smaller line shops, being less defensive in a difficult trading environment, remain under pressure. The period under review was typified by a re-basing of market rentals resulting, together with the impact of higher vacancies in the decrease in rental reversions (2,6%).
The fund has embarked on various redevelopment opportunities, partly contributing to the higher vacancies, which will favorably position these assets in the improving retail environment. The major refurbishment of Northpark Mall was completed in the year under review and Musgrave and Davenport Square Shopping Centres are currently underway with completion expected in the 3rd quarter of 2011. Cosmetic refurbishments of Midway Mews, Comaro Crossing and Stellenbosch Square were completed in 2010 and Somerset West Checkers is expected to be completed in the first quarter of 2011. Further redevelopment plans are being considered for the year ahead.
Industrial
The industrial sector’s solid rental income growth was underpinned by the take-up of vacant space and a 80,5% retention ratio of expiring leases, as well as the acquisition of a modern distribution warehouse in Yaldwyn Road, Jet Park. The vacancies as at the end of December 2010 of 2.93% are well below the sector average of 6%. We expect an overall take up of vacancies within the sector given increasing demand and minimal speculative development coming into the market. These factors should lead to a firming of rental levels, diluted somewhat by administered cost increases which look set to continue.
Offices & other
The office sector under performed during 2010 under-pinned by the continued upward trajectory
in office vacancies during 2010, with national vacancies averaging around 10%. Landlords face difficulties in the short term as supply remains relatively high and tenants are able to move with ease. We are of the view that we have seen the peak in office vacancies. A high proportion of the Fund’s office vacancies (46%) relate to space in retail centres. Musgrave Centre and Northpark Mall account for 30% of total office vacancies. Refurbishments at these centres should support future take-up.
