Shift in working trends as South Africans seek economic prosperity

The first half of 2022 has seen mixed fortunes for the South African property market. This is according to a new report by professional services firm JLL, which specialises in real estate and investment management.

The Q2 report covers Cape Town, Durban and Johannesburg, and shows that within Cape Town’s office sector, semigration, better governance, and associated lifestyle factors continued to drive performance, albeit performing only marginally better than alternative regions in Gauteng or KwaZulu-Natal.

The metropole is markedly smaller than Johannesburg or Pretoria, and therefore the influx of affluent and skilled migrants has the potential to bolster economic recovery for the city. Notwithstanding, the local economy still lacks the stimulus provided by the tourism sector that is yet to re-emerge in any meaningful form.

Businesses are also not migrating to the same extent as individuals, meaning local purchasing power may be ticking up, but office demand not necessarily so, said the advisory group.

According to the report, office development is currently at lower than conventional levels, with primarily occupier-driven development occurring. A feature that differentiates Cape Town’s office market from that of Johannesburg is that speculative development has historically been relatively low.

This placed the city in a better position to handle the economic shock that was introduced by the Covid-19 pandemic and decimated office demand fundamentals, said JLL.

Moreover, the traditional central business district (CBD) in Cape Town has avoided the urban degradation associated with the likes of Johannesburg, Durban and Pretoria, for example.

eThekwini’s commercial market, in turn, shifted out of the traditional CBD toward Umhlanga and La Lucia’s commercial districts a few years ago and has gone from strength to strength since, barring the impact of the pandemic.

Greater land availability and the degradation of the historic CBD led to this shift, and hence this node now offers the bulk of quality, contemporary stock, which is where the greatest demand is concentrated. The past six months have seen considerable take-up of vacant office space in the Umhlanga commercial node, noted JLL.

Mieke Purnell, research manager at JLL, said: “Most demand has originated from the business process outsourcing (BPO) sector, resulting in few fit-for-purpose premises remaining. Demand in eThekwini is almost solely directed toward these nodes, and the Durban CBD is thus experiencing historically high vacancies.

“P-grade vacancies have declined by 45% in H1 2022, and B-grade vacancies have risen by 28%. Approximately 25 000 m² of quality premises have been let to BPOs over the past six months, an exceptional uptake considering the inactivity within the commercial property market over the past two years.”

Residential

The residential market in Cape Town has favoured buyers for several years now, with excess stock available for sale, and prices decreasing, JLL pointed out. Conditions worsened through the pandemic when buying activity moderated, particularly from the foreign market that supports some of the higher value bands.

As the pandemic progressed, there was increased interest in the local housing market stemming from semigrants to the city.

In 2021, Cape Town’s residential market was valued at R1.229 trillion (CAHF, 2022). Per the Centre for Affordable Housing Finance’s Cape Town Housing Market Report 2021, 43% of all stock is categorised as luxury – valued at over R1 200 000. The entry-level (R300,000) segment accounts for 16% of the market, and affordable housing (R300,000 – R600,000) comprises a further 18%.

Residential sales activity in Cape Town slowed in the first half of 2022, although to a lesser extent than the moderation recorded in Johannesburg and Durban, said JLL.

“In Johannesburg, the recent uptick in semigration out of Gauteng to coastal regions in the Western Cape has been very topical in the context of Johannesburg’s residential market. While this is believed to have softened the market over the past couple of years and remains a risk factor overall, the impact is limited mainly to the higher value bands of the market, as Gauteng’s net migration rate remains positive,” said the advisory firm.

Noteworthy residential developments underway in Johannesburg include the Orlando Towers Estates development that was recently announced, the Barlow Park mixed-use estate, and the Riverwoods Office Park redevelopment. The former comprises a lifestyle estate near the iconic Orlando Towers in Soweto.

Orlando Towers Estates will aim to deliver 2,800 residential units over the five-year development timeline, arranged among complementary amenities, including educational and recreational amenities.

“From a sales perspective, a rising middle class, coupled with a lower interest rate environment, has created an influx of interest in homeownership across the lower and middle housing value bands, bolstered by the pandemic-induced changes in housing needs,” said Purnell.

“For obvious reasons, sales activity within Johannesburg’s residential market moderated during the pandemic. Low interest rates resulted in a decent recovery in 2021 with respect to the number of transactions recorded, and the average sales price also improved, despite asking prices falling somewhat.

“The first half of 2022 has seen a further weakening of achieved prices and activity levels, with the stagnation attributed to lending rates rising once more, weak consumer confidence, and the rising cost of living. This trend benefits the rental market, as purchase decisions are postponed.”

Read: More South Africans are semigrating, and taking their businesses to Cape Town