For almost a decade, the V&A's growth was double that of the national economy, based on international tourism, events and business travel. The overnight loss of these drivers in the wake of the Covid-19 pandemic has therefore severely impacted the precinct and especially the restaurants, jewellers and curio shops which account for 41% of retail turnover under normal circumstances. Hotels have suffered significant losses, with occupancies reduced to approximately 30%, and the pandemic and resultant lockdowns have had a negative effect on other areas too.

As a result, revenue decreased by 28% and distributable income decreased by 40% from FY20. On a like-for-like basis, distributable income increased by 5.1% from FY20. However, vacancy levels in the precinct remained at approximately 3% in FY21, which was well below the industry average.

While the year was challenging, it also came with many highlights, including the resilience of tenants, low vacancies across all five categories of the business, very few business failures even in the small business space and our increasingly positive impacts on the environment and society.

We are particularly proud of our efforts to protect and retain our existing tenants, all of whom are invaluable to our ecosystem. For instance, when the government required our aquarium, arts and culture attractions to shut, we supported them at high cost and by doing so have sustained them. Actions like these have ensured that the Waterfront is ready not only to rebound when tourism returns, but to do so ahead of the general market.

Offices

This robust sector of the business continued to deliver a solid performance and vacancies remained low at approximately 3%. The advantageously high percentage of blue-chip tenants are retaining space and paying rentals, even though most have only returned about 20% of staff to their offices. This slow return to the office does, however, mean lower footfalls in the precinct during the week and this has knock-on effects for retail.

Co-working and flexible office spaces have recovered and are enjoying good demand, operating at capacity within the restriction guidelines.

The priority in this sector is managing the pressure on occupancy and rental levels and mitigating the impact of office space rationalisation. We are constantly talking to our office tenants about new ways of working and how we can help meet their needs.

Retail

Despite the absence of international visitors and the impact of that on 41% of our retail tenants, this sector has shown improvement in FY21. The domestic retail market has recovered as consumers and retailers adapted to the new circumstances and by May 2021, the precinct's retailers were again showing trading growth, albeit marginal, compared to 2020.

Protecting the tenant infrastructure was a key objective for FY21 and we have been agile in our management of this. We succeeded in avoiding the pitfalls of large liquidations in the market and keeping voids low. For example, the vacancies left by CNA and Musica were quickly re-let and careful consideration saw us replace Edgars with an extension of Zara and a desirable selection of premium beauty brands.

National retailers are no longer receiving relief, but we are still providing strong support, high levels of assistance and even working capital in a few cases to assist the 400-plus small and micro-businesses in the precinct to survive.

Unlike most property portfolio owners with assets in different locations, we do not sell non-core or under-performing assets. We are committed to holding all the properties in the precinct for the long term, regardless of market forces and lifecycle phases. However, we do repurpose or re-tenant buildings for best use and this year it was unfortunately necessary to provisionally mothball some restaurants that used to rely almost entirely on international guests. Restaurant fit-outs are specialised and costly and so it is of mutual benefit to both the V&A and the restaurateurs to preserve these businesses and enable a quick recovery when tourists return.

Given the current situation, it is highly unlikely we will add retail capacity to the precinct in this market. Our priority is to allocate the existing capacity to the retail categories that best serve customer demand. Luxury retail is one such segment that is showing strength, thanks to resident high-end consumers opting to spend locally instead of internationally as well as some African tourism. Online retailers that see advantage in a physical presence and those pursuing strategies like click-andcollect fulfilment are well suited to the V&A. The precinct is actively enabling these next-generation retailers with an on-site collection centre and other new and innovative supporting amenities.

Marine and industrial

Apart from its cruise line, boat and helicopter charter components, this business area consists of essential services and therefore remained resilient and virtually fully let in FY21. Opportunities to allocate some existing capacity to distribution and logistics clients such as Takealot, which has identified the Waterfront as the site of a sub-distribution centre, are also emerging.

Hospitality

There is no doubt that tourism will return, along with business travel, major sporting events and conferences, but it is unclear when, or how, this will occur. Globally, around 60% of the world's cruise ships are back on the water and although we hope to start welcoming them again from November 2021, we do not believe that tourism will make any meaningful return in the next 12 months. We foresee the substantial recovery of tourism to Cape Town only in the summer of 2022 and this means continued uncertainty for the hotel sector.

The oversupply of residential space to let in Cape Town, particularly at the high end of the market, is causing high rental variances and pushing down pricing, with the result that there are no residential developments planned for the precinct.

Development

While development within the V&A was greatly reduced in FY21, December 2020 did see the completion of Deloitte's new 9 350m² office. The building received a 6-Star Green Star design rating which signifies world-leading sustainability performance.

The Canal District is the current focal point of our development master plan, with the City of Cape Town having granted approval for approximately 105 000m² of our existing bulk rights to be developed to expand this 10.5ha district. The estimated R3.9bn pipeline of developments will include projects on both sides of Dock Road and around Battery Park with the first being the new Investec head office that is currently under construction. The Canal District is the first point of contact for visitors entering the V&A from the city and creates a seamless link from the CBD to Dock Road in the precinct. The Caltex service station relocation also forms part of the expansion plans.

While still in the early stages, plans for the development of Granger Bay are also underway. In the past, the V&A has opportunistically acquired parcels of adjacent land and remains open to similar value-adding acquisitions. Opportunities also exist to develop lifestyle elements not yet represented at the Waterfront and we are exploring these.

In the current circumstances, however, our existing tenants and the buildings that already make up the precinct are our priorities, and our focus is on keeping occupancies high, managing our debtors' book carefully and handling development appropriately so as not to contribute to oversupply.

Covid-19

The V&A strives to be one of the safest destinations for tourists and locals alike. As such, it has put much effort into becoming the first destination in Africa to obtain the World Travel and Tourism Council's (WTTC) Safe Travels stamp – the first-ever global safety and hygiene stamp for Travel and Tourism, designed to address Covid-19 and similar outbreaks. We have installed 80 digitally monitored sanitiser dispensers at the Waterfront, appointed dedicated Covid-19 safety marshals and provided other meticulous protection measures.

During the pandemic, the V&A spent R1.3m on food security initiatives, ensuring that many communities across the peninsula received meals. By partnering with four restaurants, 40 small scale farmers, Ladles of Love and the Oranjezicht Farm Market, the Waterfront was able to equip 12 kitchens which, together with our own restaurant kitchens, prepared 130 000 meals throughout the winter of 2020. By adding commercial use through restaurants and markets, these initiatives have continued, and the Waterfront has pioneered and prototyped urban farm-to-kitchen sustainability.

Makers Landing, a 3 300m² food emporium which includes a kitchen incubator that supports early-stage businesses and food entrepreneurs, was opened in December 2020 with R20m in funding received from the Jobs Fund and has created 106 jobs to date. The vision is similar to that of the Watershed incubator for art, craft and design in that it is closing the gap between entrepreneurial food concepts and retailers and consumers and we hope it will ultimately incubate the growth of these businesses into future tenants.

Environmental and social impact

We celebrate heritage and diversity, champion art and design, support entrepreneurship and innovation and drive positive social, economic and environmental change.

This year, our focus was mainly on supporting small business sustainability, providing food to alleviate hunger, sheltering the homeless and preserving the ocean economy, as well as greening initiatives such as energy efficiency, water savings and waste recycling. The Waterfront now has 17 Green Star-rated buildings, making it the greenest precinct in Africa.

With the advantage of its 123ha site, the V&A can offer central, large-scale environmental solutions and leverage them for tenant businesses. For example, a proposed new 3.2Ml desalination plant will support water security for all in the precinct, take it off-grid and power it with green energy.

The V&A is committed to applying best practice in environmental management and has set out several clear objectives and goals.

• Energy: carbon neutral by 2025
  Growing solar power-generation capacity, which currently stands at 4MW. The latest project includes re-roofing the Victoria Wharf to support a solar PV installation
• Water: off the grid
  Besides desalination, a central black water treatment plant is planned to produce irrigation water for the precinct
• Waste: 80% waste recycling
  A combination of different measures will achieve this, from pyrolysis, where heat is used to incinerate waste and, in turn, generate electricity, to taking organic food waste to a fly farm
• Biodiversity: preserve the ocean economy
  The Waterfront is at the interface of marine life and man. We work with scientists on a marine wildlife programme to manage conflict between man and marine wildlife. Being on the Cape of Storms drives our commitment tocoastal protection.

By consistently addressing environmental and social concerns in the built environment and society, the V&A has built a reputation as a leader in these areas. It attracts like-minded people and organisations and is regularly invited to collaborate and work on innovative pilot and prototype projects. Moreover, environmentally and socially sensitive employees are asking their employers to operate from our sustainable base.

Our efforts to address social issues are primarily put into action through initiatives and small businesses that facilitate job creation because we believe that by providing and creating jobs, we make the most positive social, community and economic impacts. While unemployment increased nationwide during 2020, independent research shows that the number of direct jobs at the V&A grew by 4.2%.

The V&A also extends its good work to previously disadvantaged areas, where 80% of its workforce lives and because homelessness is a big issue in the city, we support The Haven Night Shelter for adults and The Homestead for street children.

In addition, the V&A is committed to addressing historic imbalances through inclusive and sustainable development and has made good progress in applying the 23 measures it uses to track its B-BBEE journey.

Outlook for FY22

The V&A's five property areas have different operational risk levels, with offices proving to be the most resilient and hospitality the least. We are carefully managing the precinct through this period and will continue to optimise our strengths and improve on areas of weakness to ensure we are in an excellent and agile position to recover rapidly.

The V&A has always been unique, and this has remained the case during the pandemic. For years its positive performance contradicted the country's weakening economy, and while this has been reversed during the pandemic by the cessation of international tourism, events and business travel, the situation is not permanent. The temporary disruption to some areas of business has continued longer than we initially expected and it remains unclear when the foreign cohort of visitors will be able to return. However, we are confident that they will return.

Until then, the V&A's core markets remain strong with growth potential and we have all the fundamentals in place to resume our pre-pandemic position.

Top 10 tenants by gross monthly rental (100%) as at 30 June 2021