Nearly half of commercial sales in Q3 due to affordability issues
Relocation closer to their target market is the second biggest reason for people to sell, says FNB’s latest Property Insights report for Q3, which surveys a sample of commercial property brokers in the country’s six major metros.
“Focusing on the key drivers of movement and sales activity in owner-serviced properties, the survey results show financial pressure to be the biggest single driver, and this factor has become even more prominent in the Q3 2019 survey,” says the bank’s commercial property analyst John Loos.
“We don’t have a significant history yet to see what a ‘good’ level of financial pressure-related selling is and what a ‘bad’ level is, but the recent level appears significant.”
He says financial pressure-related selling and relocation due to affordability has increased from 39.5% in the second quarter to 46.8% in the July to September period, a “further indication of deterioration in the financial situation of business as a whole in this stagnating economy”.
Many bigger portfolio investors – R15 million to R50m – are liquidating their capital to invest offshore, according to Walter Katzeff, commercial broker for Rawson Properties Cape Metropole Blaauwberg.
“It allows freedom of movement in an uncertain trading economy and they will be able to move funds quickly, if necessary, so that they don’t lose their money,” he says. However, it is not easy to find buyers for these properties as only investors, who are cautious in times of political and economic uncertainty, have this type of capital.
Katzeff says large warehousing with office components are most commonly being sold. Demand for commercial property “remains under pressure” across the city, largely due to the weak economic climate, says Peter Rowell, commercial property specialist with Seeff Blouberg. “There is a definite decline in commercial property activity on all fronts, largely due to a very weak economy and a drastic lack of confidence experienced by the investing community.”
There are also more sellers and a higher number of commercial vacancies on all fronts – offices, retail and industrial. It is a challenge to find buyers and tenants due to the “pervasive lack of confidence”.
“The buyers and tenants right now would probably be those who have a successful existing business and want to move to a new location or bigger premises.”
Rowell says demand will typically be for prime properties that are seen to be safe and easily accessible. In the current climate, industrial sales seem to be the “most solid” as basic commodities are always in high demand, says Chad Shapiro of Lew Geffen Sotheby’s International Realty on the Atlantic seaboard and city bowl.
He says the main reasons for selling are:
The weak economy
The need to free up capital
The fact that sizeable bank finance is harder to secure in this market. Retail is also becoming less stable as online sales have had a major impact on the need for retail space, Shapiro says.
Many retailers are now downscaling. Still, commercial buyers are “quite regular” by nature. “Most of the established buyers buy regularly. Each have their own particular requirements and modus operandi. Understanding their particular interests is key to working with commercial buyers in the long term.”
Frances Gray-Mnukwana, commercial property specialist with Seeff False Bay, says: “I am working on twice as many deals to earn half what I did 18 months ago, as we are dealing with requests for smaller spaces. You can’t wait for that big sale or lease as they are not there anymore. You really have to proactively look for tenants and buyers of the large spaces.” Although the commercial market is “still moving nicely”, there are challenges.
“There are high vacancy rates for office space over 200m². Business owners are downsizing their office space dramatically, either by reducing staff and looking for smaller office space, or trying to work from home.
“Retail space is also slow in being rented. Some large shopping centres are experimenting with ‘pop-up shops’… The larger listed property companies are accepting reduced rentals, just to fill their vacancies.”
Gray-Mnukwana notes, though, demand for commercial rentals starts to decrease towards the end of the year, as companies close down for the holidays.
“So if a lease hasn’t been concluded and occupied by December 1, there will be very little signed up until the end of January 2020.”