Investors and banks are treading cautiously following the country's economic downgrade. Bonny Fourie reports
South Africa’s downgrading to junk status and the economic downturn is slowly starting to impact the commercial property market, with anxiety growing among investors and banks being more cautious about lending.
But experts say the true impact will be more heavily felt in the months to come, particularly in the retail sector.
In Kwazulu-Natal, Frank Reardon, Broll KZN’s divisional director for broking, says the impact is being felt across the commercial property sector, from slower office uptake to muted industrial growth, and negativity from retailers.
“The investment market is also seeing more properties for sale, with buyers pricing more risk into acquisitions.”
Reardon says it is hard to gauge the effects of the downgrade versus those of prolonged economic stagnation over the past few years, but says there appears to be greater anxiety around economic and political events within the commercial property sector.
Banks also appear more cautious about lending and the phrase “holding pattern” is increasingly being applied to deferred decisions around commercial property investments and developments, he says.
Investors adopt ‘wait-and-see’ approach
“It is anticipated the next few months will continue to be characterised by uncertainty and inaction. The extent to which astute investors will see the current uncertainty as an opportunity to acquire quality property assets remains to be seen,” Reardon says.
What is certain is all sub-sectors of the market are feeling the impact.
“The retail sector was the last to feel the pinch with surprising resilience in comparison to offices and industrial over the past few years,” he says.
“In Durban, well-located and priced industrial property is probably the best performer because of slower-than-anticipated developments coming on-stream.”
Poor economic growth in the office sector also translates into weak demand and many companies focusing on cost, says Estienne de Klerk, MD at Growthpoint Properties.
“This leads to staff reductions and consolidation of office facilities.”
In terms of the country’s retail sector, De Klerk says consumers are under pressure and, due to significant retail development, to
which retailers are committed, the trading densities in retail shopping centres are similarly affected.
Yianni Pavlou, company principal at Portfolio Property Investments, notes that for now, major retailers are struggling with increased competition, reduced customer spending and tighter operation margins.
This, in turn, may impact retail properties in the short term.
He says there has also been a “noticeable cooling of interest” from investors in property as they adopt “wait-and-see” approaches to how the downgrades and politics will play out.
“The impact of any negative geo-political and economic factors could also
be watered down with positive news, so it is important for all stakeholders to continue to focus on making positive improvements, creating jobs and investing in sustainable property developments throughout KZN.
“Time will tell how severely the market will be impacted by the struggling economy as the effects filter through it over the coming months,” Pavlou says.
“Invariably, interest rates are expected to increase as the cost of borrowing increases due to the downgrades, so I see this cautious approach continuing for the rest of the year with spikes of interest and activity as some good news filters through.
“Seasoned investors will use this period of uncertainty to grow their portfolios while others take a back-seat approach,” Pavlou says.
However, he emphasises there will be opportunities to invest and grow portfolios, develop properties in new nodes and upcoming areas, and regenerate previously unfavourable locations.