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SA’s property market is recovering, except for offices

Industrial property was in the best position compared to other non‐residential property types. Picture: Dan Riedlhuber/Reuters.

Industrial property was in the best position compared to other non‐residential property types. Picture: Dan Riedlhuber/Reuters.

Published Oct 11, 2021


The property market continued to recover in the third quarter of 2020, as indicated by a further increase in listed property prices, boosted by higher global economic growth and better-than-expected company results, according to the latest Rode Report.

But it has a long way to reach pre-pandemic levels.

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Listed property prices at the end of September were 20 percent higher than at the end of 2020, but were still 10 percent below those at the end of February 2020, shortly before Covid-19 emerged in South Africa, according to the research report that is compiled by well known property economist Erwin Rode.

“The prospect of higher local interest rates is looming” as several countries had already raised rates and “hikes in global interest rates will force South Africa to follow suit.”

The move to Covid-19 lockdown level 1, at the end of September, was a boost for the economy and property market.

However, the possibility of a fourth wave closer to the end of this year, given only about 21 percent of the population had received a first vaccine dose by the end of September, with only 15 percent fully vaccinated, represented challenges.

“This implies it will be a bumpy road ahead,” the report said.

Industrial property was in the best position compared to other non‐residential property types. The retail market had recovered well, while the office market remained significantly oversupplied.

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Just when it looked as if more workers would return to the office, the third Covid‐19 wave came in June. Another wave possibly closer to the end of 2021 meant office property owners were bracing for tougher times, as many workers would continue to stay away from the office.

However, the report said, the impact of the work‐from‐ home trend over the long term was probably overstated.

“Working completely from home won’t work for many companies, especially large corporates, as humans need face‐to‐ face interaction to build a company culture and morale.”

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This meant a flexible or hybrid approach would likely become the norm, for example working 3 days a week at an office.

The national decentralized vacancy factor (for grades A and B combined) stood at 4.2 points, equal to an average vacancy rate of about 14 percent, the highest this century.

Several REITs, like Growthpoint, reported even higher vacancy rates this year, suggesting the national figure could rise more.

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“Tenants are spoilt for choice and clinching eye‐popping deals,” according to the report.

The industrial property market continued to recover, with gross market rentals growing 2.6 percent year-on -year amid low vacancies, according to Rode’s industrial survey data.

This meant growth had picked up from about 1 percent in the first half of 2021, but it was well below the 5 percent of 2019.

“The industrial sector is comfortably the best placed of the major non‐residential sectors. One of the key reasons is the largely non‐speculative nature of developments.”

The housing market continued to cool in the third quarter. Nationally, nominal house prices increased 3 percent year-on-year in September 2021, slowing from 5.1 percent in April 2021, according to FNB data.

“Prices grew 4.3 percent over 9 months compared to the same period in 2020 − on par with consumer inflation. The cooling house prices do not come as a surprise, given the record‐high unemployment, and that the economy, albeit recovering, has not reached pre-pandemic levels and will probably only do so in 2022 or 2023.”

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