PROPERTY MARKET OPTIMISM GROWS SAYS FNB
There was a noticeable upswing in sales expectations across all three commercial property classes at the beginning of this year, according to the latest Property Insights – FNB Commercial Property Broker Survey.
Covering the first quarter of 2022, the researchers interviewed a wide sample of commercial property brokers in and around the six major metros of South Africa (greater Johannesburg), Tshwane, eThekwini, Cape Town and Nelson Mandela Bay). Respondents were asked about their expectations of sales activity levels in the six months ahead of the survey.
John Loos, Property Sector Strategist at FNB Commercial Property Finance, reported a noticeable increase in optimism over future strengthening in sales activity levels in all three property classes at the end of the first quarter of 2022 with respondents most optimistic about the industrial property market’s direction in the near term.
“It is interesting that the optimism level in all three property classes has improved significantly from the prior quarter. This happened despite the onset of interest rate hiking late last year. We sense from the responses that this surge in confidence has much to do with a general feeling that the Covid-19 pandemic risk is receding as vaccines are rolled out, lockdown regulations have eased further and that 2022 is likely the year in which economic activity and human interaction normalize, whatever the “new normal” might mean.”
The survey results revealed more positivity in the expected direction of the office property market but, while the overall feeling was encouraging, the brokers surveyed remained least optimistic about the retail market by a small margin.
Loos did note, however, that despite a more upbeat outlook, there remained a significant amount of negativity regarding the overall state of the economy.
OFFICE MARKET: DOWNSCALING AS WORK FROM HOME TREND CONTINUES
During the 1st quarter 2021 survey, 61.29% of respondents cited Covid-19 as a major driver of activity expectations.
However, according to Loos, it is becoming increasingly difficult to link unfolding economic and policy events with Covid-19. “For example, interest rate hiking has been, to a significant degree, an indirect consequence of Covid-19 via its inflationary impact caused by supply chain disruptions across the globe. But, as time goes by and economies recover and other inflation drivers such as the Ukraine conflict emerge, the link between Covid-19 and interest rate hiking diminishes,” he suggested.
He said that looking at the sub-components of this key factor did provide important insights.
A still-very significant 32.26% of brokers perceived companies to be re-evaluating their office space needs and, in many instances, downscaling on office space. However, while this remains a near term negative for the office market, it would boost sales activity should the demand to purchase, often for repurposing, exist.
While the work from home trend was a major feature in the survey, Loos noted that job losses in the finance, real estate and business services sectors may have also played a significant role.
“Within the broader Covid-19 effects response category, we can see increased positivity emerging, with 14.52% of brokers expecting confidence to re-emerge in the near term as the country comes out of the pandemic.”
He also pointed out that another noticeable factor cited was changing trading conditions with the majority of brokers surveyed pointing to the possibility of renewed growth within the smaller business segment.
INDUSTRIAL AND WAREHOUSE MARKET: AFFORDABILITY AND ADAPTABILITY WIN OUT
In the relatively strong industrial and warehouse property market, stock issues were the major factor, with the overwhelming majority indicating stock shortages.
Loos said a large portion of respondents pointed out that industrial property was the most affordable property class, claiming that investors were still finding value here. Again, this property class appealed to small businesses, a segment that they perceived to be growing.
“A further significant factor cited under this category is the emergence of a greater level of online retail, although this factor is surprisingly cited by a very small percentage of brokers, driving increased logistics and warehousing demand,” Loos said.
He noted that Covid-19-related issues remained significant, being cited by 21.54% of brokers. But he also pointed out that many brokers had become more positive regarding the pandemic, with most of them expecting a recovery in confidence and in manufacturing activity as the country emerged from Covid-19.
Loos also cautioned that 13.85% of respondents had cited economic and political uncertainty as a key potential negative influence on future sales activity.
RETAIL MARKET: WEAK ECONOMY A MAJOR FACTOR
“The respondents in the retail property sector have become markedly more optimistic in the most recent survey, but are still the least optimistic of the three property classes, with many brokers citing the poor state of the economy as a key issue,” Loos pointed out.
He said that the retail property sector had been most directly impacted by the Covid-19 lockdown with many retail outlets losing all or a major part of their revenues during the harder lockdowns of 2020. This sector’s tenant population also appeared to have been experiencing the most difficulty in recovering financially, if one views their weak rental payment performance according to TPN data.
“Not all brokers are pessimistic about the economy though, with 13.21% citing positive business sentiment as a factor. Within the 16.98% of brokers pointing to Covid-19-related issues, 7.55% are optimistic of rising confidence levels as economic activity normalizes. Therefore, while the general state of the economy still bothers brokers, Covid-19 is seen as a diminishing issue.”
The survey also saw 11.32% of brokers pointing to a resurgence in the opening of small retail businesses. When it came to stock issues, slightly more brokers reported a lack of supply rather than an oversupply. However, when it came to buying properties, brokers suggested that there was a hesitance to buy and a greater desire to rent.
11.32% of brokers said that pricing was an issue with many citing “unrealistic expectations” amongst sellers within this category as problematic.
Loos concluded that, across three sectors, economic and political uncertainty continued to be a significant negative factor for sales activity, despite improved optimism.
“It would seem that brokers are more optimistic based on an implicit assumption of an improved, albeit still weak, economy largely on the back of a normalization of activity as lockdowns are rolled back and Covid-19 risk appears to recede,” he said.