There was a “remarkable improvement” in the value of buildings completed in the metro’s and larger municipalities in the first five months of this year, according to Optimum Investments economist Dr Roelof Botha.
Additions and alterations to homes data came out on top in terms of year-on-year growth, increasing by a whopping 92 percent. However, this trend might be short-lived.
Botha said although the value of residential buildings completed rose by 16 percent year-on-year, the category for non-residential buildings had a hefty growth rate of almost 50 percent when compared with the first five months of 2021.
Further evidence of a recovery of the property market from the debilitating effects of the pandemic was reflected in the latest TPN Rental Monitor, which showed an improvement in the national residential vacancy rate to 8.3 percent in the first quarter of 2022, from 13.3 percent in the first quarter of 2021.
Botha said the strong showing of additions to buildings was linked to the after-effects of the pandemic, which had led to a structural decline in the occupancy of many office apartments. Some of these were now being converted into residential units or multi-purpose real estate, which could include a mix of commercial, hospitality and warehousing facilities.
“Additions and alterations to existing buildings have overtaken non-residential buildings as the second most important category. This type of construction is inherently more labour intensive than non-residential buildings and also allows for a significant participation rate of smaller firms,” said Botha.
He said several real estate investment trusts (REITs) would be buoyed by these trends, with non-residential properties still feeling the pinch of lower occupancy induced by the pandemic. Although the listed property sector has outperformed the JSE all share index over the past year, its five-year performance remains in the red.
A recent resumption of dividend payments by most REITs has also improved investor confidence in the sector.
“The pandemic has given rise to a structural shift in working conditions, with a large measure of remote work here to stay. This will continue to shape the future performance of the property sector, especially with regard to an increase in demand for logistics space and re-purposing of existing commercial and residential buildings,” said Botha.
He said the Western Cape currently had the lowest residential property vacancy rate and the highest number of tenants in good standing. It had also overtaken Gauteng as the province with the highest value of building plans passed.
“These data sets confirm the so-called "semigration" trend, mainly as a result of huge and visible regional differences in the standards of service delivery at municipal level,” said Botha.
FNB property sector strategist John Loos said they were cautious to conclude that the country had reached a sustainable declining vacancy trend in any of the commercial property sectors, given renewed economic pressures.
“After significant recovery in economic growth off a very low 2020 recession base, renewed pressure comes from a significant rise in inflation, and SARB interest rate hiking. The global economy is also showing signs of pressure from high energy prices and inflation, and widespread interest rate hiking, and this can also dampen the domestic economy and business confidence,” he said.
“We would anticipate that at least in the office and retail property sectors, the declining vacancy trend may fizzle out in the near term, retailers coming under renewed pressure from consumers financially pressured by high inflation and rising interest rates,” Loos said.
He said of the three main commercial property classes, second quarter activity had only risen in the industrial property market, the bank’s latest broker survey had showed.
Botha said although the value of residential buildings completed only rose by 16 percent year-on-year, this growth was impressive, as it was generated from a high base.
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