Cape Town shopping centre shooting the lights out

Cape Town’s V&A Waterfront is seeing strong growth, with quarterly earnings growing 20% compared to the same period in 2023.

This was revealed in Growthpoint’s investor update for the three months ended 30 September 2024, where the company outlined the performance of its key property segments.

The V&A Waterfront is a 123-hectare mixed-use property development along the historic Victoria and Alfred basin, forming Cape Town’s original harbour.

Growthpoint Properties acquired a 50% stake in the V&A in 2011, with the Public Investment Corporation owning the other 50% on behalf of the Government Employees Pension Fund.

Since then, the V&A has grown tremendously, with the precinct expanding into offices, residential areas, and hotels. 

In the past three months, Investec has completed its new offices at the V&A, the Helistop, and the Timeout Market. 

Two previously leased hotels, the Commodore and Portswood Hotels, were converted into V&A-operated hotels, and management was outsourced to Legacy under a management agreement. 

The two new V&A-operated hotels increased the share of operational hotel income to total hotel income to approximately 40% as of 30 September 2024.

This performance was due to strong demand for office space and near-zero vacancies within the precinct. Demand for office space outpaces available space, partly driven by semigration and demand in the renewable energy sector.

The growth was also driven by the continued rise in retail sales, which in turn boosted retail turnover rental. 

For the calendar year to August 2024, international air passengers arriving at Cape Town International Airport increased by 11%, while domestic tourism increased by 7%. 

Retail sales and visitor numbers grew by 4% and 11%, respectively, over a rolling twelve-month period compared to the same period ending 30 September 2023.

Hotels experienced sustained high demand, with average daily rates rising by 35% compared to last year. Revenue per room rates across the precinct averaged R5,846 per night.

The marine and industrial component saw strong growth in casual moorings and a solid increase in income from charter boats.

The V&A is also set to grow in the coming years, with various new developments being announced in the three-month period. 

This includes the new Union Castle Building, with its phased opening beginning this month and will be fully opened by the end of the year. 

The first desalination plant has also just been completed to provide the V&A with water and is in the process of being commissioned. 

Retail is not being neglected, with the Luxury Mall being redeveloped, and final lease negotiations are currently in progress. 

The 5 Dock Road apartment development has also almost been completely sold out, with around 60 of 99 apartments being sold to date. 

The development pipeline is funded through a combination of shareholder and third-party funding. 

At the end of the quarter, the V&A had R2 billion in committed third-party facilities, of which R1.75 billion were green loans. At the end of September 2024, R150 million was undrawn.

In the last full financial year, the V&A Waterfront was a standout performer for Growthpoint due to the positive impact of increased tourism, with distributable income jumping by 12.6% to R775 million. 

Growthpoint’s overall performance was also strong in the most recent quarter, with vacancies improving to 8.2% from 8.7% in FY24 in June, driven by strong leasing activity. 

A total of 339,204m² of space was let, including 209,374m² of renewals and 129,830m² of new lets. Renewal rental growth rates also showed noteworthy improvement across all sectors, with renewal rates improving from -6.0% at FY24 to -0.4%, approaching positive territory. 

However, our lease renewal success rate reduced from 76.3% in FY24 to 72.8%.  The average lease term for renewals was consistent at 3.7 years. Rental escalations for renewals increased slightly from 6.9% in FY24 to 7.0%.

“Our strategy to optimise our South African portfolio focuses on improving its quality through targeted investments and disposals,” Growthpoint said.  

In line with this strategic intent, it is targeting around R2.8 billion of asset disposals for the year ending 30 June 2025 (FY25). 

This is to decrease its exposure to the office sector, disposing of older industrial assets and selling non-core retail assets in deteriorating CBDs. 

In FY25, Growthpoint will invest R2.2bn in our core portfolio, excluding Growthpoint Investment Partners (GIP), to protect and enhance its value through active asset management initiatives. 

This includes developing new high-quality assets, particularly modern logistics warehouses for the logistics and industrial portfolio and enhancing sustainability initiatives across all three property sectors as we advance on our pathway to carbon neutrality by 2050.