A collection of Futuregrowth thought leadership pieces, media articles and interviews.

Risky business? Investing in township/rural centres vs urban malls

27 Nov 2020



This article was originally published in March 2018, but has been updated since. 

In the early 1990s, no banks would provide funding to property companies for developing shopping centres in townships or rural areas.

The risks were perceived to be insurmountable, and lenders had no awareness of the types of tenants that would make these property investments a success. Coming out of the apartheid era, these areas suffered exceptional poverty and unemployment – and a lack of almost any kind of useful service.

Futuregrowth recognised an opportunity – and a dire need – at this time for infrastructure development in townships and rural areas, and, in 1995, the Community Property Fund (CPF) was born. By establishing shopping centres in these areas, local municipalities would receive a boost in rates, which would enable them to deliver much-needed bulk services to the community. Futuregrowth also jumped at the chance to assist in alleviating poverty, by creating local employment during the construction phases and, where possible, on a permanent basis once the shopping centres were complete.

Listen to Smital Rambhai talk on the investment case for township malls.

Today, there are over 10 805 staff employed across the shopping centres owned by the Fund. These centres have also brought many essential goods and services into the community, and expedited the establishment of efficient commuter nodes and improvements to the local transport infrastructure.

False impressions

The lack of investment in township and rural shopping centres has historically been due to many misperceptions, which we would like to counter with the following facts relating to our Fund.

Futuregrowth Community Property Fund

There is a common belief that urban malls serve a much higher LSM bracket than township and rural centres and as such would deliver better profits for retailers, better rentals for landlords and better performance for investors. However, this is not necessarily the case:

  1. Township and rural shopping centres are defensive in nature and perform well throughout economic cycles, due to their focus on essential goods and services. Consumers tend to cut back on discretionary spending during tough economic times. Higher-end retailers (usually represented in urban malls) tend to struggle at such times and have a more cyclical business model.
  2. Township and rural shopping centres have mainly cash-based consumers and the demand for formal retail in these areas will continue to be supported.
  3. Online retail has and will continue to impact urban malls, and many retailers have made a concerted effort to upgrade their online shopping platforms, while considering trimming their physical stores. Online retail has not yet impacted the township and rural shopping centres, where the average spend per day per consumer is currently between R30 and R100, depending on the area. We do however envisage that, with a growing middle income market in these areas, where home delivery would be more challenging, online retail will become increasingly important. We have therefore started investigating setting up online retail drop-off points, whereby ordered goods can be couriered to the Fund’s shopping centres and collected from the centre management offices.
  4. Oversupply of retail shopping centres is currently mainly occurring in urban areas. Moreover, regional shopping centres (50 000 to 100 000 m2) and super regional shopping centres (greater than 100 000 m2) are expanding, which further cannibalises the market.
  5. The barriers to entry in township and rural markets are high due to the lack of readily available land for development, poor infrastructure, and municipalities that are not well equipped to assist. Here, it can take up to seven years to start the construction of a new shopping centre, as opposed to about three years in urban areas. This reduces the likelihood of oversupply in township and rural areas as this time horizon tends to deter many investors.
  6. Increased growth in population, social grants and emerging middle-income consumers will continue to drive growth in the township and rural markets.

Returns justify investment into township and rural shopping centres

As a tangible example of what can be achieved with rural and township investments, the Futuregrowth Community Property Fund has won the MSCI award for best performing specialist property fund (with  the highest 3-year annualised total return) for three years in a row (2017 to 2019). With intensive, professional centre management and rigorous attention to building customer loyalty and community support, the Fund has demonstrated that perceived risks can be effectively mitigated and overcome – and that investments in townships and rural areas can out-perform investments in urban centres.

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