Canal Walk owner forgoes millions to keep tenants

By Londiwe Buthelezi for News24

Hyprop Investments says it had a negative reversion rate of 22.7% in the six months to 31 December 2020, reducing its monthly rental income by approximately R5 million.

The company’s retail vacancies increased to 3% while office vacancies stood at 16.2% at the end of December 2020.

Hyprop’s retail vacancies are lower than some of its peers, but its offices are much more empty.

The owner of Canal Walk and Rosebank Mall, Hyprop Investments, says it is receiving R5 million less in monthly rental income for leases that expired recently. This as vacancies rise, putting pressure on landlords to accept lesser rental rates than they did before Covid-19.

The property group – which also owns few office buildings, including those that are part of Hyde Park and Canal Walk shopping malls – said during the announcement of its financial results on Monday that it recorded an average negative reversion rate of 22.7% in the six months to 31 December 2020.

A reversion rate measures the extent to which landlords were able to increase rental rates for expiring leases that were renewed. A negative reversion rate shows lower rental rates than before.

In the six months to December, Hyprop renewed and signed new leases for 11.2% of its gross leasable retail space, or just shy of 75 000 square metres, and this is where the negative reversions were recorded.

“This equates to a reduction in monthly rental income of circa R5 million (equivalent to 2.4% of the average monthly rental). There has also been a noticeable increase in the number of tenants who are reluctant to commit to longer-term leases until economic conditions improve,” wrote Hyprop in the results announcement.

The company also noted that new leases were shorter by 4.1 years on average while those tenants who were renewing also shortened their lease terms by an average of 3.2 years. These tenants will also be paying lower rent in the future than what Hyprop is used to as the annual escalations decreased to 6.5% from 7.2% in the period ended in December 2019.

Hyprop, however, fared better than some of its peers when it comes to having empty malls. The company said vacancies in its SA retail portfolio increased to 3% in December 2020 from 2.4% in June. In comparison, Liberty2Degrees reported a vacancy rate of 4.7% in its retail portfolio at the end of December 2020 while Emira Property Fund’s retail vacancy rate stood 3.4%.

However, the same cannot be said for Hyprop’s office vacancies, which stood at 16.2% at the end of December – notably higher than the national average of 13.3% for the fourth quarter of 2020 that was reported by the South Africa Property Owners’ Association.

Hyprop’s office vacancies were also higher than those of all the other peers that recently reported their numbers, including Redefine (14.7%), Emira (14.9%), and Liberty Two Degrees (12.4%).

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