Second-quarter commercial property data from FNB shows perceived high levels of financial pressure amid the ongoing Covid-19 pandemic, which has ravaged South Africa’s economy.
FNB surveyed a sample of commercial property brokers in the six major metros of South Africa – ie, the City of Joburg and Ekurhuleni (Greater Johannesburg), Tshwane, Ethekwini, City of Cape Town and Nelson Mandela Bay.
The financial services company asked respondents for their perception of the major drivers of “movement and sales activity” in the owner-serviced property segment.
Focusing on the key drivers of movement and sales activity in owner-serviced properties, FNB’s Commercial Property Broker Survey results show financial pressure to still be by far the biggest single driver.
However, the latest quarterly reading declined from the previous quarter, possibly an early sign that financial pressure is alleviating as the economy gradually recovers from last year’s deep lockdown-related recession, FNB said.
While not an exact science, the survey’s results provide a broad picture of the state of South Africa’s commercial property industry, and what comes out of it yet again is that by far the highest percentage (55.37%) of owner-occupiers are still perceived to be selling or relocating influenced by financial constraints/pressures.
While noticeably down from the previous 65.2%, it is still 12.3 percentage points higher than the 43.1% recorded in the second quarter of 2020, the pre-lockdown quarter.
Low levels of upgrade-related selling
In another sales motive also possibly reflecting financial constraints, sales and relocation for “bigger and better premises” remain very low at 11.1%, FNB said. This is still significantly down on the 18.4% reading from the pre-lockdown first quarter of 2020. However, it too has shown some mild improvement from the previous quarter’s 9.3%, the lender said.
This percentage has been significantly lower since the start of hard lockdowns in the second quarter of 2020.
“It had admittedly already declined in prominence as economic and financial times toughened before Covid-19 lockdown, but then declined far more noticeably in Q2 of 2020 as lockdown caused the recession to go far deeper.
“The most recent percentage of 11.1% thus continues to reflect the combination of tough economic and financial times since the onset of lockdown, combined with a cautious approach to property in a time when business confidence is mediocre at best,” FNB said.
Relocating to be better positioned relative to the market
A further key reason for selling, which may reflect both current financial pressures on businesses as well as risk aversion due to uncertainty regarding the economic future, is the estimated percentage of sellers selling to move closer to their market.
This percentage, FNB noted, declined further to 20.5% of total sellers in the latest survey, the lowest percentage since the survey started, down from 21.6% in the prior quarter and 36.3% at the beginning of 2019.
“This suggests a wait and see approach by an increased portion of aspirant sellers. While it may often make sense to incur the cost of relocation closer to one’s market, in such weak economic times less relocating and more “staying put” for the time being is the likely outcome.”
Coastal metros “outperform”
Examining where, by region, the greatest level of financial pressure-related selling or relocation is perceived to be, FNB pointed out that Gauteng has the highest (worst) readings. Tshwane was the highest in the second quarter 2021 survey at 85.3% of sellers, but Greater Johannesburg has seen some perceived decline, recording 54.7% in this most recent survey.
Of the three coastal metros, the highest (worst) percentage was recorded by Cape Town (48.6%), Ethekwini (46.4%), and Nelson Mandela Bay with the lowest percentage of 29.1%.
Looking ahead, FNB said that some improvement should be expected, in lagged response to the partial economic rebound following the worst GDP performance during the hard-lockdown period of the second quarter of 2020.
“In economic data, we had also witnessed elevated financial pressure through much of 2020, notably in a surge in the number of business liquidations as per StatsSA data,” FNB said.
For the six months to March 2021, total liquidations were 39.64% up year-on-year. However, this growth rate, too, was slightly down to 33.42% year-on-year for the six months to April. “Hopefully this too is hinting at a peak in the liquidations growth rate possibly having been reached for the time being,” the lender said.
Liquidations data also shows that, while the recent growth rate was significant, it was far lower than the 45.7% year-on-year growth at a stage of the Global Financial Crisis Recession back in 2009.
“We believe that sharp interest rate cutting this time around has cushioned the blow for businesses, whereas the 2009 recession was preceded by significant interest rate hiking.
“Financial pressure-related selling of owner-serviced properties could have thus been far worse in this 2020 deep recession should interest rates not have been cut significantly to cushion the blow.”
FNB said that while it expects interest rates to start rising in 2022, a forecast of two 25 basis point rate hikes during next year would be a very mild interest rate hiking move by the South African Reserve Bank.