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The second quarter of the 2022 FNB Commercial Property Broker survey has been published and a key highlight reveals that two out of three major commercial property sectors – office and retail – are showing declines of market sales activity levels.
So, what has caused this reduction in activity, what can the industry expect and are there any winners in the commercial property space?
Confidence is down
The property insights survey has shown that confidence in the commercial property sector has gone down slightly. It revealed that 46% of brokers felt the business conditions were satisfactory. This is down from 47% that previously felt conditions were satisfactory.
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The FNB Survey said this reflected the economy which is battling to fully recover from the 2020 recession and rising interest rates.
South Africa’s central bank raised the repurchase rate by 50 basis points to 4.75% in May this year, which was the biggest hike in rates since January 2016. The SARB has hiked rates by 75 basis points in total prior to the second quarter survey and its 50-basis point increase is likely to influence the third quarter broker survey.
FNB said there were several reasons behind the hike in interest rates, including the war in Ukraine, global supply chain disruptions and inflation.
Industrial sector performance
Respondents of the survey were only upbeat when it came to the industrial property market which saw activity rise from 6.2 in the previous quarter to 6.35 in this quarter. The industrial property market sales activity rating has recorded its highest activity reading since the start of FNB’s survey in early 2019.
John Loos property sector strategist at FNB Commercial Property Finance said: “While this property class is not seeing strong economic performance in the related manufacturing sector, we believe it is benefiting from being the most affordable and adaptable property class in tough financial times, as well as from an increasing need for logistics and warehousing due to greater levels of online retail emerging.”
There are several reasons why the industrial property sector is seeing a boost. Geopolitical risk, supply chain shortages, the boom in online retail sales and the ramping up of the industrial and logistics market are the main drivers behind the need for industrial warehousing space. This has not only been identified in South Africa, but globally too.
Retail and office market problems
But not all commercial property sectors are enjoying an increase in activity, and this may well influence where developers in this space concentrate their efforts over the next few months and years.
Certainly, the office and retail sectors current and future problems looming. According to FNB the retail sector is struggling because of the “financially pressured consumer” while the office market is being challenged by weak levels of service sector employment and remote working which has been on the rise since Covid-19 restrictions eased.
But according to some, South Africans’ love of shopping malls is hardly about to slow despite the pressures on their wallets. According to a report on swissinfo.ch some leading developers are doubling down expansion plans to the tune of R1 trillion in the retail market.
According to property consultants Rode & Associates, more than 300,000 square metres of new leasable retail space will be completed across the country this year, compared with the 367,000 square meters that were completed over the last two years combined.
New malls include Oceans Mall in Durban, KwaBhaca Mall in the Eastern Cape and Mamelodi Square in Pretoria.
Commercial property highs and lows
While confidence, particularly in retail and office, is on a slow downward trajectory among brokers this wasn’t the case earlier in the year, demonstrating how swiftly things can change.
According to the survey, broker business confidence had been improving until early 2022 probably because the threat of Covid-19 was receding, and restrictions were lifting.
But not long after, these had been thwarted by economic head winds which include inflation and the Russia Ukraine conflict.
So, is this optimism likely to return any time soon? Not according to FNB. While there had been some positivity around the industrial property market, this is unlikely to last well into 2022. What’s more, FNB expects decline in sales activity across all three classes of property in the second half of the year.
Only time will tell if the experts and brokers surveyed are right.
