Slow going for building growth

A recent report by FNB points to the prospect of slowdown in building growth, with fresh data from StatsSA supporting its insights.

This scenario may adversely impact developers if no improvement is experienced in the foreseeable future. But those in the know claim that reasons for optimism exist.

What’s putting the brakes on building?

According to analysts at FNB Property Finance, the rate of commercial property construction has not fully recovered to pre-2020 figures, with data from StatsSA’s latest release pointing to early signs of a building slowdown.

A summary of the findings, posted on propertywheel.co.za last month, notes that building completions recorded a year-on-year decline of -26.52% in February. Stagnant growth in plans passed is a major contributor to the slowing down of building activity, and an expected delay of completions throughout 2022.

‘Office space planning and completions remain the weakest of commercial property building levels, declining by -58.96% year-on-year in February off a very low base,’ says PropertyWheel. This is no surprise, given the national office vacancy rate at 18.2% according to MSCI.

While square meterage of retail space planned and passed for the same period was down 20.4%, industrial building activity remains the strongest sector and most affordable property class of the three.

A boost in online retailing necessitated an increased focus on logistics and warehousing, but macro fundamentals in this sector remain weak, key contributors being mediocre manufacturing production and low inventory levels after years of economic stagnation.

Upsides amid uncertainty

An article on khplant.co.za provides a comprehensive overview of expectations for the South African construction industry during 2022/23.

‘The outlook for SA’s economy includes a good deal of uncertainty. Nonetheless, businesses are gradually recovering from pandemic impacts. The construction industry is expected to rebound during 2022, with forecast expansion of 9.1%.’

The article draws on the report ‘Construction in South Africa: Key Trends and Opportunities’ to substantiate an anticipated stabilisation of the industry at an annual average growth of 3.1% (2023-2025).

Survey reveals positive sentiments

The 2022 Construction Industry Outlook survey suggests that members of the building fraternity are largely positive about the year, with 68% of respondents expecting an increase in project revenue, and 17% of those predicting that hike at 15% or more.

‘Just over half of those surveyed said they anticipated project margins to be relatively healthy,’ says KH Plant.

Guidance for developers

‘Businesses are keenly aware of supply chain risks and likely to prioritise steps for mitigating these. However, inconsistency and procurement delays are still major challenges,’ says GVK-Siya Zama chairman Dumisani Madi.

He predicts that global and national economic pressures will continue to affect the construction industry, and that its output won’t return to pre-pandemic levels before 2025.

‘Worldwide, increasing adoption of automation, modular construction techniques and other new technologies shape the future of construction. But with uncertainty surrounding markets, other trends may be less positive.’

Some of these listed by Madi include low mark-ups, skills shortages, and the continued impact of Covid-19. But amid these challenges, developers should take note of top strategic initiatives that survey respondents said they would be focusing on in 2022: digital transformation, implementation of Lean Construction principles, and the expansion of business offerings and geographic reach.

Madi recommends a mix of temporary belt tightening, greater initiative in finding new work, and diversification. ‘With competition from large multinational firms thinning out, there may even be increased opportunities for mid-sized South African construction businesses,’ he concludes.

Engineering the future

Infrastructure Consulting Engineers founder Flip Joubert is positive that the slowdown of specifically office space construction will be remedied in the near future.

‘In time, people will realise again the value of shared office space and the benefit of direct [contact] with colleagues when complicated issues need tackling. The trend of cramming your work force into minute cubicles has done nothing for productivity, and I foresee a return to more comfortable, spacious work spaces as our economy continues to recover.’

Joubert is a veteran in the planning, design and construction of stormwater systems and roads, infrastructure and urban development projects since establishing ICE in 1979. But what excites him today is the big business of redeveloping traditional filling stations to facilitate electric vehicle conversions.

‘Along with the fact that our current regime is proactively working to root out corruption, committing billions to the upgrade of infrastructure, and promoting lucrative public private partnerships, there is much reason for developers to be optimistic,’ he says.