Reserve Bank rate hikes coming home to roost
As heavily indebted South Africans continue to feel the pinch from the South African Reserve Bank’s heavy rate hike cycle, the rising numbers are also feeding through to commercial operators.
The latest FNB Commercial Property Broker Survey shows that commercial property dealers in South Africa are taking pain, with the prevailing economy cutting demand and a 4.75 percentage point hike in interest rates starting to filter through, adding mounting pressure.
The FNB Commercial Property Broker Survey surveys a sample of commercial property brokers in and around the six major metros of South Africa, namely, the City of Joburg and Ekurhuleni (Greater Johannesburg), the City of Tshwane, eThekwini, the City of Cape Town and Nelson Mandela Bay.
According to the survey findings, brokers in the commercial sector are overwhelmingly negative about business conditions in South Africa, with only 33% feeling satisfied in any measure.
Put another way; confidence levels have dropped to rates seen during the worst of Covid-19 and the national lockdowns.
FNB strategist, John Loos, noted that market activity has followed this sentiment, tracking lower across all commercial sectors – office, industrial and warehousing, retail – showing a declining trend, breaking the more positive environment seen since the end of 2021.
Brokers remain most optimistic about the industrial and warehousing property market, but this is also declining. The office property market remains squarely on the back foot, with retail also taking a hit.
“Economic slowdown and significant interest rate hiking from late 2021 has slowed the market,” Loos said.
“This slowdown has been expected. Economic growth has slowed in recent quarters, and this is likely to have had a partial cooling impact on the commercial property market of late. The commercial property market is influenced by economic growth to a significant degree.”
“First quarter GDP data by major sectors suggests that the slower commercial property market in the near term could stretch across all three major commercial property sectors,” he said.
“Not only is demand for all three of these property classes directly affected by recent interest rate hikes, given the market’s credit-dependent nature, but the economic growth weakness is broad-based too.”
The SARB has delivered ten back-to-back rate hikes since November 2021, serving up 475 basis points worth of hikes to the market.
“The FNB expectation is that interest rate hiking in the current cycle is likely over and that interest rates will move sideways for the rest of 2023 and into 2024,” Loos said.
This is based on a moderation in CPI, as well as a moderation in fuel prices, which play a key role in pricing.
However, the pain for the commercial property sector is not over, he said, with the baseline expectation the conditions will likely slow further in coming quarters as the staggered rate hikes come to bear and economic growth continues to falter.
“(SARB data) suggests near-term economic growth weakness still to come. That, along with some lagged impact from ‘elevated’ interest rates, in turn, could realistically be expected to constrain demand for commercial property in the latter half of 2023,” Loos said.
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