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Commercial property market may be heading for tougher times

Commercial property market may be heading for tougher times

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The number of commercial property owners and occupiers selling or relocating premises in the third quarter due to financial constraints has picked up slightly, an indication of the end of the post Covid-19 economic recovery, a survey of property brokers views in the six major metros showed.

FNB Commercial Property Finance property strategist John Loos said in a statement yesterday that this driver of the commercial property market, financial pressure, had previously been diminishing in significance, but in the third quarter survey, a “stalling” in that declining trend had been detected when it reached a level of 32.45%, which could point to an approaching increase in financial pressure in the market.

Respondents were polled on their perception of the major drivers of “movement and sales activity” in the owner-serviced property segment.

The third quarter’s percentage was marginally higher than the previous 31.7%, ending a prior downward trend from the post-hard lockdown peak of 65.3%, reached in the final quarter of 2020.

An additional potential indicator of easing or tightening financial pressures was the percentage of selling to relocate to “bigger and better premises”.

In the survey, this percentage continued its upward trend to 22.9%, from the previous quarter’s 22.1%, and it exceeded the pre-lockdown levels recorded through 2019.

This percentage had dropped to a low level of 8.2% at the start of hard lockdown in 2020, thereafter recovering slowly as the economy recovered.

Loos said the most recent percentage of 22.9% resembled a seemingly “fully recovered” level if 2019 was “normal”, and did not indicate that financial pressure in the owner-serviced market had increased noticeably yet.

A further key reason for selling, which may reflect financial constraints on businesses as well as risk aversion levels, is the estimated percentage of sellers selling to move closer to their market.

This percentage rose slightly to 23.4%, from the previous quarter’s 22% – a low level when compared to the 36.3% recorded at the beginning of 2019.

“While it has increased, this motive remains well off its pre-lockdown highs and lacking in strong direction. It is likely constrained by recent negative economic factors sustaining a ‘wait and see’ approach by some aspirant sellers,” Loos said.

The end of lockdowns had promised a more “business as usual” attitude among owner-occupiers. But the petrol and food price shocks, surging inflation, higher interest rates and an economic slowdown may continue to constrain confidence, he said.

“It may often make sense to incur the cost of relocation closer to one’s market, but in a weak economy, less relocating and more staying put for the time being is the likely outcome,” he added.

By region, Gauteng reflected the greatest level of financial pressure-related selling or relocation, which was due more to Tshwane region. Tshwane had the highest reading in the third quarter at 57.1% of sellers, while Greater Johannesburg was a much lower 36%.

Of the three coastal metros, the highest percentage was recorded by Nelson Mandela Bay, 26.5%, followed by eThekwini with 21.2%, and Cape Town with 14.9%.

“We would expect some indication of tightening financial pressure to emerge in the owner-serviced market, given we have already had 200 basis points’ worth of interest rate hiking, and more hikes are expected in the near term. In addition, economic growth has weakened significantly recently,” he said.

edward.west@inl.co.za

BUSINESS REPORT

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