Huge work-from-home changes for businesses in South Africa
The office market is seeing major changes, with companies having to downsize their operations due to the rise in work-from-home.
The latest FNB Commercial Property Broker Survey asked respondents to provide their expectations of sales activity levels in the next six months.
The third-quarter survey showed a significant increase in optimism over the future direction of sales activity levels in all three major commercial property classes (retail, office, and industrial) compared to the previous quarter’s survey.
There has been a significant shift in the main themes influencing broker expectations in all three property classes.
Perceptions over a “Weak Economy and Political Uncertainty” have subsided significantly, while perceptions of positive business sentiment have increased noticeably compared with the previous quarter’s survey.
Notably, “stock issues” have become the most prominent theme in all three property classes.
“Any improved perceptions regarding the economy are arguably based on fragile assumptions, but there are some signs of “green shoots,” said FNB.
“Real economic growth in Q2 2024 did improve compared to the prior quarter’s data, but at 0.4% quarter-on-quarter, it remained weak. The 3rd quarter RMB-BER Business Confidence Index did rise, but at 38, it remains very weak.”
“Significantly though, electricity supply performance has improved markedly this year, compared to 2023, with load shedding having been absent for a large part of 2024.”
“In addition, the May 2024 general election outcome, and the subsequent formation of the Government of National Unity (GNU) was seen as a highly business and investor-friendly outcome.”
FNB believes that the election result has been more significant in improving sentiment than the mediocre economic data.
The widespread expectation that the South African Reserve Bank will commence interest rate cuts, with the first cut in September, may have also boosted broker expectations.
The Industrial Property Market’s optimistic reading of +24, up from +4.55, is the weakest expectations index reading of the three property classes.
The retail property market reading was also positive at +30, up from 0 in the prior quarter.
Notably, the Office Property market’s reading was also strongly positive, at +31, far higher than the previous quarter’s +5.56.
Office market
Participants in the FNB survey were asked follow-up questions to examine the factors that influence their thinking about future market directions.
When citing factors on broker expectations in the office market, the weak state of the economy and political uncertainty have receded noticeably in prominence, with “stock issues” coming to the fore.
In Q3 2024, 29% of respondents cited reasons related to “economic and Political uncertainty” as factors that influence the markets’ future direction—far less than the 47.9% in Q2.
18% of respondents cited factors influencing expectations that fall into the “Changing Trading Conditions” category.
FNB said that this reflects the noticeable influence of remote work, along with “hot desking” and “hoteling” office space, which has led to certain companies downscaling office space requirements.
The challenges facing the Office sector have been exacerbated since COVID-19, which showed that many companies are still able to run efficiently while employees work from home.
The latest Talent Trends report for 2024 from Michael Page showed that half of respondents (53%) will be actively job-seeking in the next six months.
Although salaries were the most critical factor in deciding to change work, nearly 30% said that hybrid/flexible working arrangements and flexible working hours were core recruitment requirements.
Chaim Bronstein, head of the commercial department at Firzt Realty, also said that companies in South Africa have started to realise that they must make significant changes, such as moving to a new location or offering lifestyle benefits if they want employees to return to the office.
Returning to the FNB survey, “Stock Issues” have become the most prominent category, cited by 35% of respondents.
There is a notable shift in the category, with 22% of respondents pointing to some shortage of stock to sell, while 13% point to oversupply/ample stock.
“We suspect that stock shortages are more about specific types and locations of office space because elsewhere in the survey, the brokers as a group still point to the office market being heavily oversupplied relative to demand,” said FNB.
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