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- The impact of Covid-19 and related lockdowns on the economy is seen as the biggest culprit impacting SA's commercial property sector.
- Its negative impact is reflected in a decline in activity levels perceived by brokers in all three major segments, namely retail, industrial and office property.
- Brokers polled in a recent survey perceive the industrial property market as the strongest and the offices segment by far the weakest.
A mini-recovery in the commercial property sector, prompted by the end of the hard lockdown in mid-2020, seems to be running out of steam - and offices are the hardest hit as working from home continues to dampen demand.
This is according to the latest FNB Commercial Property Broker Survey, based on the third quarter.
The negative impact of Covid-19 lockdowns on the economy is seen as the biggest culprit. Only 25% of brokers surveyed perceive business conditions to be satisfactory - down from 27% in the second quarter.
Activity levels in all three major commercial property segments - industrial, office and retail - seemed slightly lower in the third quarter than in the last few prior quarters. Furthermore, none of the three major commercial property segments have seen activity ratings return to pre-lockdown levels recorded in the first quarter of 2020. Industrial property is the only segment that has come close to that. The warehousing part of industrial property, for example, sees its performance and demand driven by inventory requirements.
The brokers surveyed perceive the industrial property market as the strongest of the three major commercial property segments and offices as by far the weakest. This is also the case for activity expectations over the next six months.
"Apart from a sluggish economic recovery out of the second quarter of 2020 'hard' lockdown, we believe that a lack of further interest rate cutting stimulus since early-2020, along with increased expectation that the next interest rate move by the SARB will be up, has begun to work against the commercial property market," states the survey report.
"Had interest rates not been cut by three percentage points in the first half of 2020, the commercial property market conditions and business confidence among brokers would likely have been far worse."
Work from home still dampening office demand
The office segment is still negatively impacted by companies downscaling and the increased work-from-home trend, according to the report. Businesses are also simply trying to save themselves from the economic fallout by reorganising themselves and this also dampens office demand. A concern about the impact of an interest rate hiking cycle maybe approaching also plays a part.
While overall there is an over-supply of office space, this applies less to smaller office premises.
Apart from brokers citing the economic impact of the Covid-19 pandemic and related lockdowns, which are leading to distressed selling, respondents also cited political uncertainty as a factor influencing the industrial and warehouse segment.
Industrial property is the most affordable property category of the three major property classes - its key advantage over the other property classes.
Respondents report that they are seeing smaller businesses entering the industrial market, as well as a trend of companies looking for more storage space for stock due to the increase in online retail.
The impact of online retail on the retail property sector is seen as far less significant than the work-from-home impact on the office market, the survey shows.
The brokers surveyed still see general economic performance and its impact on consumer purchasing power as the key issue for retailers and their landlords.
About 19.57% of brokers cited the recent unrest and looting as a key factor influencing their expectations on market activity.
