There’s been an increase in optimism in the commercial property market among brokers, most notably in the over-supplied office market, according to FNB’s Commercial Property Broker Survey for the third quarter released yesterday.
“The survey shows an increase in optimism over the future direction of sales activity levels in all three major commercial property classes, compared with the previous quarter,” FNB’s Commercial Property Finance property strategist John Loos, said.
He said the strongest expectation for near-term sales activity was in the office property survey component, a property class that has been the weakest performer in recent years.
The FNB Commercial Property Broker Survey surveyed commercial property brokers in the six major metros of South Africa, namely, Joburg,Ekurhuleni, Tshwane, eThekwini, City of Cape Town and Nelson Mandela Bay.
“If FNB’s expectations are proved correct, in that interest rates have peaked and will start to decline next year, then some mildly improved optimism regarding property sales activity may not be out of place,” Loos added.
“While brokers, therefore, still appear to perceive the environment largely ‘negative’ when one views the factors cited, they appear to have become ‘less negative’ in the 3rd quarter compared with the prior quarter. This may explain some improvement in their near term expectations for sales activity.
“Perhaps this is related to a ‘low base effect’, many brokers possibly believing that the office market can ‘only go higher’ off recently very low levels of sales, and perhaps a 3rd quarter increase in the actual sales activity rating has buoyed confidence mildly,” said Loos.
Much of the expected rise in office sales activity in the near term may be merely due to a growing belief that interest rates had peaked, with an expectation that the next move in interest rates would be down.
“Given such expectations, a mild rise in the optimism level in all three property classes, from the prior quarter, is perhaps not too surprising, although a still-weak economy with unpredictable electricity supply, amongst other structural constraints, makes any predictions risky,” said Loos.
The retail property market’s negative reading of +5, albeit up from a negative -2.27, was the weakest expectations index reading of the 3 property classes. The industrial property market’s reading was positive to the tune of +16, up from a negative -15.26.
The Office Property Market’s reading was a positive +23, up from a positive +3.33.
On the office market, brokers felt that the work from home impact on office space downscaling had declined in significance, albeit still there, with the troubled state of the economy being the primary concern. However the latter had diminished in prominence too.
Nevertheless, against the 36% that expressed negative sentiment regarding the economy, only 7% expressed the opinion that business sentiment was positive.
The office property component showed 36% of respondents citing reasons related to “economic and political uncertainty”.
Some 29% of respondents cited factors influencing expectations that fell into the “Changing Trading Conditions” category.
These conditions included downscaling on office space due in large part to greater levels of remote work, and the belief that load shedding was preventing effective working from home.
Hot-desking, load shedding, growth in small business, developers customising units, distress sellers coming to the market, financial pressure and the conversion of some offices to residences were other factors influencing trading conditions.
“Improved office market expectations may be more the result of perceptions of negative factors having diminished as opposed to an abundance of perceived positive drivers of activity,” said Loos.