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Interest rate increases start to bite for commercial property market

Commercial property agents are most upbeat about the industrial and warehousing property markets. Picture: Rich Howard

Commercial property agents are most upbeat about the industrial and warehousing property markets. Picture: Rich Howard

Published Jun 26, 2022

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Office and retail properties are showing a decline in market sales activity, a fact that appears to be caused by rising interest rates.

Only the industrial property market’s activity rating is rising, according to FNB’s Commercial Property Broker Survey for Q2 2022.

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The percentage of broker respondents perceiving business conditions to be satisfactory declined slightly in the survey, from 47% in the prior quarter to 46%, says FNB commercial property economist John Loos.

“This decline comes after a prior rising trend, remaining at a mediocre level. This reflects an economy battling to fully recover from the very deep recession of 2020, and more recently pressured by rising interest rates.”

When asking brokers for their ratings of market activity levels, he says the group of respondents is still most upbeat about the industrial and warehouse property markets.

“Rising interest rates may have begun to dampen the spirits of the market. Prior to the Q2 survey, sales activity ratings had been on a rising trend in all three property classes following the easing of Covid-19 lockdowns.

“We believe that this ‘normalisation’ from a Covid-19 point of view may have had a positive impact on the economy as well as property markets. But global supply chain disruptions had been contributing to building global inflationary pressures, and more recently war in Ukraine - and resultant sanctions and boycotts on Russia, have further exacerbated the problem.”

The result, Loos says, has been 1.25% worth of interest rate hikes by the SARB since late-2021, with a further 1% worth of hikes expected this year.

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“Future broker surveys will give us insight as to whether these events will dampen the commercial property market further or not, but we would expect to see some weakening in the near term.”

IOL BUSINESS

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