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So, 2021 one has come and gone, but the trends that have affected the commercial property sector last year will no doubt trickle through 2022 as well. We are, after all, still in the throes of the Covid-19 pandemic, although it has recently produced what many feel is a weaker variant.
Here we look at some key themes based on First National Bank’s (FNB’s) property insights and how its set to play out in the commercial property space.
Western Cape recovery
The commercial property sector is likely to continue to benefit from the well managed Western Cape. It’s this good management, feels FNB, that will continue to make it a destination of choice for semi-grants.
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‘Now you may ask what this has to do with commercial property? Semigrants buy residential properties mostly. Well, for over two decades, the flow of semigrants has brought to the Western Cape a skill set to drive economic growth outperformance, along with wealth that translates into consumer purchasing power for that region.
‘In addition, some have taken their businesses with them too, businesses that look for a place to exist. The region is likely also increasingly popular for new business start-ups, given that that’s where an increasing number of skilled and entrepreneurial) people want to be.
And superior economic performance, in part driven by semigrants, likely means stronger demand for commercial property of various types as the economy expands and consumers as group spend with greater purchasing power,’ points out John Loos, property sector strategist at FNB Commercial.
That’s not to say that the Western Cape is completely out of the woods. ‘It remains highly integrated in the South African economy, and this broader economy has a long list of structural constraints that restrict it from growing significantly. We are saying that relative to the other 8 provinces, the Western Cape has a competitive advantage that can conceivably see it outperform the others in the foreseeable future,’ adds Loos.
Cape Town vs. Gauteng
There’s always been healthy competition between Cape Town and Gauteng, but currently there are other coastal metros that are muscling in on the commercial property scene.
FNB’s survey found that Cape Town is not yet a clear outperformer, compared with the other two competing coastal metros but it is perceived to be the fastest improver. Meanwhile, it’s Gauteng’s metros that are underperforming.
Loos says: ‘In the Office Markets, while all metros returned weak activity ratings through 2021, Cape Town’s 4.51 reading was the highest of the 5 regions.
‘At the other end of the spectrum, Greater Johannesburg has the lowest reading, i.e., 2.99. Johannesburg’s reading is hardly surprising. High vacancy rates in its northern nodes probably aren’t encouraging to investors at the moment.
‘Interestingly, the retail property brokers returned the highest average 2021 activity rating in Nelson Mandela Bay, with Cape Town in 2nd place with 5.73. The two lowest readings were from the two Gauteng regions, Tshwane with 3.51 and Greater Joburg on 3.99.
‘In the area of Industrial Property, eThekwini Metro region continued to return the strongest readings with a 2021 average of 6.45, followed by Nelson Mandala Bay’s 6.34 and Cape Town’s 6.16. Significantly lower were the two Gauteng regions, Tshwane on 4.75 and Greater Joburg at 4.97.’
2022 – Cape Town’s year?
While Cape Town is seeing some healthy competition from other coastal metros it’s still set to outperform in 2022. According to FNB, it features strongly in the activity ratings and is the top-rated region in the office market.
Loos adds: ‘When we view how brokers perceive the direction of the market, there was a clearly stronger perception of the City of Cape Town region being on a strengthening sales activity path in all three major commercial property markets in 2021. By comparison, City of Joburg’s brokers, on average, returned a perception of weakening in Office and Retail last year, and only mild strengthening in Industrial Property.
‘I expect Cape Town region to be the commercial property outperformer in 2022, although in the area of Industrial Property the two other coastal metros, Mandela Bay and eThekwini, may challenge. General sentiment towards the Western Cape does seem to be relatively high at the moment.’
