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Tough environment persists for commericial property

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With businesses under ongoing financial pressure, commercial property owners are feeling the pinch too

Rising vacancy levels have been plaguing commercial property owners for more than a year as businesses feel the pressure of ongoing economic decline. Some people even believe “this is one of the toughest property sector environments in two decades”, says Gregg Huntingford, chief executive of Spire Property Management.

South African Property Owners’ Association (Sapoa) statistics showed the national office vacancy level to be at 11% during the first three months of the year which, although it was a slight improvement of 0.1%, was also on the back of declining rental growth. “[This is] indicative of the level of excess stock still present in the market,” the report says, also stating that only eight of the past 35 quarters have seen improvements in the level of the overall office occupancy rate.”

The country’s industrial and retail property rates were 3.6% and 4.2% respectively as at December 2018, Sapoa research reveals. Even though the economy is expected to start improving by the end of the year, the challenge of commercial vacancies will not just disappear.

Huntingford advises landlords to adapt and come up with “unique and different” approaches to reverse the rising vacancy trend. One solution could be found in rental structuring, which he says “speaks to the heart of any business owner”.

Creative rental agreements and leases will help attract and retain tenants. Picture: Jens P Raak

Using the company’s own adaptation experience, he says: “There are many ways to address rental structuring. For instance, for certain properties Spire offer a rent-free December, allowing for businesses’ cash flow constraints over December – when bonuses are paid, staff go on leave, and offices close for a large period of the month.

Not having to pay rent for the month can be a huge financial relief for businesses, and because the property runs with lesser operating costs in that month it is viable all round.

It is about understanding the needs of all building stakeholders.” Another option is to offer longer competitive rent-free periods which can be staggered through the lease period for certain properties.

Tenant attraction is also of “paramount importance” and could even involve actively pursuing identified tenants and working with them to structure suitable rental packages that work for all parties.

“This way we also ensure the perfect tenant mix, which is essential for property assets to survive a challenging economic time,” Huntingford says. To maximise occupancy within a building and engender long-term relationships between tenant and landlord, landlords must do things to suit individual customers.

Ultimately, vacancies cost money so tenant attraction and retention must be a priority. “To achieve this it is important to realise rental is the by-product of the property process, not the main driver. Can a business trade is the more important question. Get that right and the rest follows.”

Rodney Beck, director of High Street Auctions, says the “fairly flat” economic conditions mean landlords who have good tenants should work with them on retention strategies and “get creative” with new leases.

This will attract well-rated long-term tenants into properties that may currently be vacant. “Strategies could include structured rental packages specific to tenant requirements, rental bonus breaks over December when businesses carry other financial stresses such as reduced trading periods, or greening strategies to reduce tenant overheads.”

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