Retail property continues delivering strong performance. Retailers across our portfolio are showing top-line growth of 5.3% in trade, which is genuinely healthy in an economy that has managed on average just 0.7% GDP growth annually over the past ten years. In effect, even with no economic growth retail sales categories continue to grow at or above inflation, particularly non-discretionary categories. That is the measure of how robust this segment is.
It has done so against real pressure: a volatile market including, most recently, the impacts of the war in the Middle East and an interest rate cycle that resumed increases from February 2026, cutting short the brief reprieve of falling rates for an already overburdened consumer.
The value grocery engine
Trading has been strong across all categories in Vukile’s portfolio of township, rural, commuter and urban shopping centres, but the standout of the past 12 months has been value grocery — in trade, in growth and in innovation.
Grocery anchors make up 32% of Vukile’s rental base and have grown ahead of inflation, with trade in the category up 6.1%. In a pressured market, that is phenomenal.
Much of this is genuine outperformance rather than input pricing. Grocery anchors fight food inflation hard, so most of the growth is coming from more baskets, new stores and better layouts and trade, and not necessarily higher prices.
The competition in the value grocery category is intense, with new entrants, new formats and new footprints. Spar is reintroducing SaveMor. Pick n Pay’s Boxer continues to grow quickly in smaller footprints. Massmart is reinvigorating Game by pivoting towards groceries. Market leader Shoprite keeps growing and innovating on store format.
The common thread is that retailers want to get closer to their consumer. They want to meet people where they live and how they move on a daily basis. The operators that are nimble in doing so will gain market share.
Pharmacy and fashion
The pharmacy space has been equally interesting, with sales growing just short of 5% in our portfolio. Clicks has been on a growth trajectory and does very well in our markets. Dis-Chem is expanding into these markets, which it hasn’t historically operated in, and Spar is helping independent pharmacies build a product that can compete for share.
The big chains have also expanded their health and beauty offering. This seems to have weighed on standalone health and beauty stores, the one area that has underperformed over the past year, though not national operators in this pace. Pricing, which small operators find difficult to compete on, may well be the cause.
Despite reports of fashion retailers looking to trim store exposure, we have seen very limited closures, with a retention rate of 90% on expiring leases. In our conversations with national retailers, there is no significant concern around fashion trading, particularly in the township and rural space.
Importantly, what we are seeing is consolidation. Fashion retailers are showing a preference for concentrating their presence in proven, strong-performing malls in response to weaker trade in secondary shopping centres.
Divergence and the brownfield opportunity
That points to the defining trend in South African retail property: a clear divergence between strong and secondary malls. Well-located, well-tenanted, well-managed centres are becoming stronger. Those that are not are facing real challenges.
The opportunity lies in repositioning: buying a well-located but undermanaged mall and investing to make it an A-grade asset, as we did with the Mall of Mthatha, which is now fully let and performing strongly.
The next frontier for South African retail is in brownfields. It is redeveloping existing centres to meet consumers’ needs and getting their category mix right, so most tenancies sit in performing categories. Increasingly, we are seeing redevelopment and enhancement of malls in both urban and township markets.
By contrast, the case for big greenfield development has weakened considerably. Building cost inflation since Covid has been dramatic, there are also increasing bulk service contributions developers must now fund to bring electricity to site, to soaring steel prices. Making a new scheme viable against your cost of capital means charging tenants significantly higher rentals than they pay at existing sites.
Retailers are understandably reluctant to pay a premium for an unproven trading space when they can expand brands in malls where performance is certain. With a lack of economic growth, retailers have also become extremely sensitive to the risk of cannibalisation. Banks, too, should be cautious about funding new supply into a pie that isn’t growing.
South Africa’s retail space per capita tells us we have enough retail in this country. The exception is deep rural areas that remain underserviced. Here, smaller, customer-centric neighbourhood and community centres can still be justified to bring retail to customers, saving shoppers steep transport costs by serving these customers where they live.
Where the performance is coming from
The fundamentals support the retail real estate story. Vukile’s basic rentals have grown close to 30% over five years. Rental is the big number for top-line growth, but it is far from the only contributor. Renewable energy now adds close to 5% of Vukile’s gross income, and alternative income streams such as static and digital billboards and fibre-to-business are approaching 1%, with more upside. Cost savings also contribute, from water and energy to cost recoveries.
Township and rural centres remain the most resilient across cycles, delivering the sustained growth in base rentals and trading densities, the lowest rent-to-sales ratios and the highest tenant retention.
Commuter mall performance is a product of job absorption. It improves when the macros do. They were performing strongly on the back of the best macro fundamentals in two decades before the war intervened.
In the urban retail segment, we anticipate sharp divergence ahead. Dominant, accessible centres will perform, while secondary assets will come under pressure, and must reimagine themselves or face rising vacancies.
Footfall, experience and the beacon effect
Footfall, which dropped dramatically during the pandemic and was slow to return, has started growing again. The response from landlords over the past 12 to 18 months has been to increase promotional activity.
Promotions that speak directly to consumers and reduce their costs are bringing people back. But it is about more than price. Promotions create social connection and experience, and when people interact in the mall, they spend. With food and beverage still a significantly lower share of South African malls than in Europe — although it has grown strongly over five years — we think it has potential to grow in our markets and expect experiential in-centre drawcards to be the driver of footfall from here.
Malls have also become beacons of hope in communities facing challenges with basic services. Our shopping centres are finding solutions for water, electricity and continuous trade when everything around them is under strain.
The next frontier is to leverage that infrastructure for the communities around us: if a school needs water or Wi-Fi, how can a mall share what it has in a way that benefits both? The thinking is in its infancy, but it is exciting. It builds the kind of loyalty and innovation that underpins sustainability for both communities and property owners.
Retail property has proved it can grow and deliver value for its stakeholders without the economy’s help. Imagine what it can do with it.