We have adjusted our reporting period to calendar quarters in order to remain aligned with other reporting bodies. The comments below are from our agents experience in the market during the reporting period. All rates quoted are actual figures achieved and not “asking” rates. If we have not had any change or have not had any transactions in the areas noted, we have left the figures unchanged.
The second quarter of 2023 has highlighted how the commercial property market has started to show clear signs of the economic “wear and tear” that has been patent in other sectors of the South African economy. With the prime lending rate at 11.25% in May of this year and load shedding as at 10 May 2023 being 11 970 GWH, surpassing the entire 2022 load shedding amount of 11 759 GWH, we could be forgiven having a real sense of foreboding and a more negative outlook for the balance of the year.
Our agents are, bar some areas of the Highveld, experiencing lower interest in purchases, almost no greenfield development activity and substantially reduced rental enquiries. While we have experienced two years of exuberant trading conditions throughout our area of operation, we are certainly experiencing the flipside of that coin. It is obvious that small to medium size business are experiencing real trading pressure. This means less new business demand and less expansion in existing businesses that would otherwise be growing out of their premises and securing larger, more advanced sites. This has now filtered through the majority of industries except the logistics sector, which seems to be experiencing an element of growth due to demand for goods as well as technological advances in the sector.
To add to the overall concern, a number of developers we work with have shelved development plans in most areas of the country except for the Western Cape, which continues to show resilience. The primary concern is, interestingly enough, little faith in municipalities ability to deliver continuity of services. With investment timelines being extended to 15 and 20 years, mainly due to the ever increasing cost of developing and tenants resistance to similarly priced rental escalations, developers do not believe that many municipalities outside of the Western Cape will be able to provide services for the development investment timeline. Whether that is accurate or not, the fact remains that the Western Cape is the “princess of the ball” at the moment. Even with the additional service pressure on the municipalities of the Western Cape to supply the new projects and residents flocking in, it remains the area of choice for new projects.
The Reserve Banks hawkish stance on inflation and its commitment to raising interest rates to curb inflation, or at least contain it in the acceptable band, leads us to think we will remain in a high interest rate cycle for at least another 6-12 months before seeing any stability and subsequent rate reductions. While this impacts sales, we may see an uptick in rental demand due to the lack of new stock and the market becoming accustomed to the high interest rate trading conditions.
The fact remains that load shedding plays a massive factor in economic stability and growth and thereby commercial property growth, combined with the high interest rate environment, we predict subdued activity in the sector until at least late in this financial year, and believe this would only happen if load shedding is somehow curtailed to a large degree.
I hope that our next quarters commercial property trend report will have some positive news to share.
which includes our industrial and office market rental achieved/sqm
Sincerely
Craig McFadyen
Principal.
