Next year will provide greater clarity on the country’s remote working trend and just how much of an impact it will continue to have on commercial property vacancy rates.
These rates were rising even prior to the current ‘Zoom boom’ taking place as a result of Covid-19, says FNB commercial property economist John Loos, but if remote working becomes increasingly widespread then office space will undoubtedly undergo an even-greater shake-up.
Already the All Property Vacancy Rate – which includes office, retail, industrial, and residential, is forecasted to increase from this year’s average of 8% to 11% in 2021 and 13% in 2022.
Speaking at a virtual FNB commercial property finance outlook webinar on Thursday, Loos said: While there is much talk around remote work having a far bigger future, the question is how much and how fast.”
In the short-term, he says social distancing implies lower office space capacity, which may slow the reduction in corporate space demand. However, following a resolution to the Covid-19 crisis, the magnitude and speed of downscaling on office needs is a “major question”.
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Even if the remote working does continue growing, it may take time to play out fully in the office space arena.
“For the time being a lot of leases are still in place and a number of companies own their premises so it may take time to have a major impact. We could see more of a gradual correction play out over the next couple of years.”
Still, FNB’s latest property broker survey reveals that 50% of brokers indicate that companies are re-evaluating their space.
Also addressing the webinar, Preggie Pillay, chief executive of FNB commercial property finance said “a lot of” office space was being repurposed into residential accommodation.
“There is definitely a market for these conversions to happen.”
In addition to conversion for the residential market, he says commercial property owners are looking towards using their space for co-working, which is a “big need”.
“We are seeing lots more co-working taking place. We are seeing people working from home more and many companies are looking for reliable WiFi and amenities that come with these managed spaces.”
Apart from rising vacancy rates, commercial property owners should also prepare to face a further decline in their properties’ values in 2021, Loos says.
“We had pencilled in an average All Property value/m 2 decline of 7% in 2020, and project a further 9% decline in 2021, thus expecting a cumulative value decline for 2020 and 2021 near to 15% in total.”
While all three major commercial property sectors, namely retail, office, and industrial, are expected to remain under pressure next year, the “more affordable” industrial sector will be the best performer.
“We see retail and office property being under significantly greater pressure than industrial property, with retail having to not only deal with the emerging online retail trend but, more importantly, a consumer that is weak on finance and weak on confidence.
“And we expect the remote work trend and weak services sector employment to lead to some downscaling in office demand.”