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Industrial and retail property markets continued to improve in first quarter

The industrial, retail and office property markets continued to improve in the first three months of this year, but are not yet at pre-lockdown levels. (AP Photo/Steven Senne)

The industrial, retail and office property markets continued to improve in the first three months of this year, but are not yet at pre-lockdown levels. (AP Photo/Steven Senne)

Published Mar 25, 2021

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CAPE TOWN - THE INDUSTRIAL, retail and office property markets continued to improve in the first three months of this year, but are not yet at pre-lockdown levels.

FNB's latest Property Broker Survey of buying and selling activity yesterday showed that recent economic numbers suggested there would be little further recovery early this year.

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FNB Commercial Property Finance strategist John Loos said month-on-month growth in the OECD's version of the Leading Business Cycle Indicator for South Africa slowed consistently from a June 2020 high of 2.9 percent to only 0.06 percent in January, suggesting slowing economic growth acceleration to come.

Also, the large manufacturing sector's year-on-year growth was negative in January (-3.4 percent) after its first positive growth rate since early 2019, in December last year. Real sales of retail goods remained in negative territory in January (-3.5 percent), as did electricity production (-2.4 percent).

Loos said the industrial property market recorded the highest activity rating of 5.44 points on a scale of 1 to 10, the retail property market 4.18 points, while the beleaguered office property market was the weakest, with a rating of 3.39 points.

In all these markets, the first-quarter activity ratings strengthened over the previous quarter, but had not yet recovered to the pre-lockdown levels reached in the first quarter of 2020 survey, said Loos. The fact that activity ratings were rising but not “fully recovered” was more or less reflective of recent economic data, he said.

Real gross domestic product growth remained negative in the final quarter of last year, at -4.13 percent year-onyear, which was significantly better than -17.78 percent in the second quarter of that year, but at the same time also not “fully” recovered.

Interest rates were low, having fallen by 300 basis points last year, but, unlike the interest rate-sensitive residential property, the commercial property market typically tracked the economy's movements more closely.

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The broker respondents perceived the greater optimism in industrial property was due to its greater affordability compared with the other two property sectors.

Also, they believed the growing move to online retail, necessitating increased warehousing and logistics space, had driven up demand for industrial space.

The brokers did not perceive retail property to be as challenged by technological progress and online retail, compared with office space as a result of the lockdown-induced surge in working from home (WFH).

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More than 40 percent of brokers surveyed saw office-bound companies revising their office space needs and, in many cases, downscaling.

The downscaling was not only due to WFH. Office space demand was heavily influenced by employment trends in the finance, real estate and business services sector, and employment in this sector had dropped -7 percent year-on-year in the second and third quarters of 2020.

“This alone is likely to translate into a significant drop in office space required by the sector,” said Loos.

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Looking at the near term, the brokers were most upbeat about industrial property, which was the property category where they expected market activity to increase the most in the next six months.

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