NON-RESIDENTIAL BUILDING STATS NOT AT PRE LOCKDOWN LEVELS
2021 was a positive growth year in new building planning, but levels of building activity have not “fully” recovered to pre-lockdown levels, according to John Loos, Property Sector Strategist at FNB Commercial Property Finance.
He says that, according to non-residential building statistics, there was positive growth for 2021 as a whole in square metres of building plans passed, hinting at possible positive growth in completions in 2022. But, the levels have not fully recovered to those of pre-2020 lockdown times.
“The Stats SA December 2021 release of non-residential building plans pointed to a still-weak picture for the Commercial Property Building Sector in the run up to 2022, despite some growth in new planning activity. The square metreage of total industrial, retail and office space building plans passed rose by +67,62% year-on-year in December 2021, following on a -41.22% year-on-year decline in November,” he pointed out.
He warned that because non-residential building stats can be notoriously volatile from month to month, it was important to also view the broader trend on a 12-month moving total basis.
Here, there was a +26.19% increase in the 12- month moving total to December 2021, up from +13.6% for the 12 months to November.
The +26.19% growth rate for 2021 as a whole was a significant improvement on the -33.47% decline in plans passed for the 2020 lockdown year.
“However, the post-lockdown levels of plans passed have remained well-below pre-COVID-19 levels. For the entire 2021, square metres of plans passed were still -16.0% below the year 2019 and -30% below the total for 2018,” Loos said.
Building completions, lagging plans passed considerably, declined sharply by -44.65% year-on-year in December 2021, an accelerated decline on the -3.14% for November. On a smoothed 12- month moving total basis, square metres completed were very slightly down by -6.21% year-on-year for the 12 months to December, compared with a -1.74% decline for the 12 months to November.
For 2021 in total, square metres completed were still weak by pre-Covid-19 standards, being -38.15% down on 2019 and -22.2% down on 2018 levels.
While total square metreage of commercial buildings completed declined for 2021 as a whole, positive growth in plans passed suggests that there may be some positive growth still to come in completions in 2022.
BUILDING TRENDS BY MAJOR PROEPRTY CLASS
Loos noted that, not surprisingly, office space planning and completions were the key drag on overall non-residential building levels, remaining low compared to pre-lockdown levels.
“Office plans passed declined by -66% year-on-year in December 2021, but we don’t place much emphasis on this, because this small sector’s monthly moves are highly volatile. More insightful is that for the 12 months to December 2021, square metreage of office space plans passed grew positively year-on-year by +20.13%. While seemingly impressive, this positive growth does not nearly compensate for the -46.09% year-on-year decline for the 12 months to December 2020, the lockdown year,” he said.
Therefore, 2021 levels of office square metres’ plans passed were still -35.2% down on the 2019 total and -56.6% lower than 2018. The low level of new office space development is not surprising, with office vacancies nationally at around record levels. Employment numbers in the office bound economic sectors have declined since lockdowns started in 2020, greater levels of remote work are the future, and more efficient use of office space through the “hoteling” of desk space is a key factor too, according to Loos.
For the 12 months to December 2021, square metreage of retail space plans passed were -22.98% year-on-year down. While this is a weaker growth outcome for 2021 than in the case of office space, retail had less of a decline in 2020 than office space planning, and is thus a lesser -27.8% down on 2018 and -35.8% down on 2018 than the declines on those years in the Office Sector.
“But, while not necessarily as weak as office space planning, retail building is still weak and does have significant challenges. Besides a constrained consumer, due to a severe 2020 recession, increased levels of online retail also challenge the Retail Sector,” he noted.
Industrial building activity was the “least weak” of the three segments. “Besides being the most affordable property class of the three majors, it receives something of a boost from greater online retail levels requiring an increased focus on logistics and warehousing. But, its macro fundamentals remain weak, manufacturing production remaining mediocre and economy-wide inventory levels being low due to years of economic stagnation,” he added.
For the 12 months to December 2021, square metreage of industrial space plans passed were +52.27% up year-on-year. This was a significantly better recovery from the 2020 lockdown dip compared to office and retail, leaving this sector’s new space planning at only -7.6% down on 2019 and -20% down on 2018.
“In short, non-residential building had a better year in 2021 than in 2020, with positive growth in square metreage of plans passed looking set to deliver some positive growth in completions in the near term. However, the sector was not fully recovered back to pre-Covid19 2019 or 2018 levels.
“We would expect some tapering off in building plans passed growth in 2022, due to the recent onset of interest rate hiking. After two 25 basis point interest rate hikes recently, FNB forecasts another three 25 basis point hikes in 2022,” said Loos.
He said that, despite its positive growth in plans passed in 2021, toe Office segment remained the major longer run drag on overall building activity, being the sector still the most significantly down on 2018/2019 levels, challenged by a very high vacancy rate on a national average basis.
“Given the key structural changes in office work, including a shift to greater remote work and the hoteling of office space, the office segment is likely to be an area of long-term building activity underperformance, with its share of total building activity likely to decline further in the longer term.
“Industrial space building activity is at the strongest end of the spectrum, although still not recovered to pre-lockdown levels either. Industrial property has important structural changes in its favour, with greater levels of online retail requiring it to gear up in the area of warehousing and logistics. However, the manufacturing sector remains mediocre and economy-wide inventory levels are low due to a longer term economic growth stagnation, so while Industrial building activity has been better than Retail and Office, it isn’t setting the world alight just yet,” he concluded.