New trends for shopping malls and offices in South Africa

South Africa’s commercial real estate sector has been on a steady journey to recovery, with new projected trends to shape the coming year, says John Jack, the CEO of Galetti Corporate Real Estate.

Over 2022, the industry breathed a collective sigh of relief when most lockdown restrictions were lifted mid-way through the year, allowing many employees to return to in-person work. However, it faced additional challenges in the wake of the six successive interest rate hikes in 2022, bringing the current rate to 10.5% as of December 2022.

“Despite the pressures brought on by interest rate hikes, we are confident that the recovery reflected in the commercial real estate sector in 2022 will continue into the new year,” said Jack.

“The growth indicators are strong, and the latest increase rate is still far off from all-time highs. The commercial sector is less affected than residential because many investors have wisely stored capital rather than paying dividends.”

Looking ahead, Jack predicted the following trends for the commercial real estate market, specifically dealing with retail and workplaces:

Space as a service

According to Jack, the continued high levels of vacant offices in the country have made it necessary for landlords to change how they do business with a shift away from traditional office spaces.

“Today there is a lot of talk around ‘space as a service, and this is set to gain further momentum in 2023.”

Historically, offices were viewed as merely ‘four walls’ to work in. However, today landlords are breathing new life into their buildings, said Jack. “Spaces are being repositioned and reinvigorated as a service.”

“Landlords are attracting and retaining tenants by elevating their space through exciting amenities such as on-site coffee baristas, relaxation areas, canteens and break-away areas.”

Demand for B-grade office spaces

There may be an increase in demand for offices that are generally smaller, older and with fewer amenities.

“There is a massive opportunity in B-grade space and for investors to revamp vacant buildings and bring them to market. Most A-grade spaces standing empty have failed to attract tenants despite already catering to their wants and needs.

In contrast, many B-grade buildings have unrealised potential, and savvy landlords are breathing new life into these neglected spaces,” said Jack.

The retail sector expected to return to pre-pandemic levels

The retail property sector, through which shopping malls do business, is expected to continue its recovery in 2023, predicted Jack.

Growthpoint Properties, a leading real estate investment firm, reported a 5.8% retail vacancy rate and an 82.7% renewal success rate in its latest Shareholder Update. This recovery is especially stark in comparison to Growthpoint’s office vacancy rate (21.4%) and renewal success rate (61.2%)

Data from the company states that it expects continued improvement in key retail metrics, reporting that turnovers at most of its shopping centres are at pre-pandemic levels, as are consumer footfalls.

Jack said that Galetti has seen this recovery trend reflected in smaller ‘strip malls’ and the township retail sector.

“An estimated R150 billion in cash is spent at spaza shops in the informal economy every year, and we expect to see more retail landlords realising the opportunities available in the informal sector by funding smaller retail developments in these areas,” he added.

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