Despite a series of tumultuous years, property is still a good investment in South Africa, with expected returns of between 10% and 15% for 2023, says Broll Property Group.<\/p>\n
Roger Long, the head of valuations at Broll Property Group, said that property is a long-term investment and the sector will bounce back from some troubled times – however, he warned that the market still has a hard climb to reach pre-pandemic levels.<\/p>\n
At the same time, the market has to contend with significant shifts in South Africa itself – including added stresses on landlords because of load shedding, sweeping changes to how people and companies work, and growing concerns around civil unrest, necessitating a change in where businesses invest their resources.<\/p>\n
Broll said the property sector faces another interest rate hike this week, and it remains a tough environment to operate in. However, opportunities for investors and landlords are still present in the market – especially in the commercial real estate sector.<\/p>\n
Sean Berowsky, the head of capital markets at Broll Property Group, said following the national lockdowns of 2020\/21, the commercial market – made up of commercial\/office, industrial, retail and logistic space – was in a state of semi-paralysis.<\/p>\n
A year on from the pandemic, some spaces are still struggling, but others are making a strong comeback.<\/p>\n
Sector performance<\/strong><\/p>\n According to Berowsky, there are still worries around the office sector<\/strong>, which has been affected by a shift to remote and hybrid working – a trend which picked up quickly during Covid.<\/p>\n Although office occupancy has not fully recovered to pre-pandemic levels, there have been some changes in certain areas, he said. One significant change is that high-quality office spaces were the first to be rented, albeit at lower prices than before the pandemic.<\/p>\n Cape Town has seen a significant amount of space being taken up by call centres, and rentals have already reached pre-pandemic levels.Johannesburg and Tshwane have not had the same success, however.<\/p>\n \u201cThe absorption of office space will take some time to resolve. It is not always possible to transform every office building into a residential (or other) space. That said, these options will be investigated, and if there is a case for them, they will be taken up,” Berowsky said.<\/p>\n There will probably not be any major speculative development for a while, he said. There may, however, be some development in particular nodes.<\/p>\n The retail market<\/strong> is currently where most developments will land up, particularly when it comes to pricing, said Broll.<\/p>\n Convenience and lower-LSM centres have been holding their values well, with investor appetite still intact and positive rental growth.<\/p>\n The logistics space<\/strong> has also performed significantly better than others, it said.<\/p>\n Berowsky said there is still demand for logistics space, although it is now beginning to slow as many available deals have already been placed.<\/p>\n He added that there has also been an uptick in fit-for-purpose industrial space<\/strong>.<\/p>\n Valuations<\/strong><\/p>\n Long said that from a valuations perspective, the office market has been hit hardest, especially since employees are not fully back in the office or working in a hybrid system.<\/p>\n \u201cIn the retail sector, we are witnessing relatively flat rentals, although rental reversions in the more popular regional centres are showing signs of increasing.”<\/p>\n “Activity is picking up in the industrial sector, and there is a flattening in demand for logistics buildings. What we are also noticing is greater demand for alternative investments, including data centres, hospitals and student accommodation,\u201d said Long.<\/p>\n He said that rising municipal rates and high-interest rates are dampening actors.<\/p>\n Landlords<\/strong><\/p>\n Rising rates and taxes have made it increasingly more expensive to be a landlord, especially with the need for alternative power supplies and increased security measures.<\/p>\n Surine Griffin, the head of property management at Broll Property, said that the commercial property space has experienced a notable shift over the past three years.<\/p>\n She said that the energy crisis has compelled property owners to ensure uninterrupted service to their tenants and the public.<\/p>\n The pandemic has essentially been replaced by the energy crisis, said Griffin.<\/p>\n “In addition, the threat of civil unrest has seen increased investment in security measures for properties, especially malls, distribution centres and logistics premises.”<\/p>\n \u201cMalls had to become safer for people who prefer visiting shopping centres as opposed to buying goods online.”<\/p>\n “Greater security measures such as roller shutters and reinforced fencing have been implemented; stricter service level agreements have been put into place with security companies; and many clients have made sure their premises can be fully locked down in the event of an emergency,\u201d added Griffin.<\/p>\n
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