Commercial property sector challenges post-Covid and beyond

Remaining agile and alert to customer needs is the key to success in the Covid environment

Even before 2020, the South African economy was in recession and when the Covid-19 pandemic arrived, and with it the various lockdowns and severe economic disruption, the commercial property sector became one of its biggest casualties.

More than a year later, the situation has not reverted to the previous “normal” and it is clear that companies in this sector need to reassess the way they do business in order to continue to grow and generate profits while meeting the needs of their clients. 

Rosh Pinah Properties is doing just that. “Right now, we are enduring the hard times and thinking long-term,” says RPP Director René Styber.

What was the situation in Q3 of 2020, six months after the first lockdown?

The sudden arrival of Covid-19 early in 2020 and the initial “hard” lockdown sent the economy deep into recession.  Once the first lockdown phase came to an end and things began to open up, property experts considered the state of the commercial and retail property sectors in October.

Gareth Stokes (FA News) said, “The expected surge in business liquidations and business rescue processes will continue to ripple through the commercial property sector”.  The 2020 FNB Commercial Property Broker Survey was equally ominous, singling out “financial pressure” as a key motivator for falling sales in the commercial property sector.

John Loos, Property Strategist at FNB, wrote, “Prices will come under pressure as businesses dispose of various property assets through liquidation or restructure and will be further affected by significant changes in the usage of commercial properties. What happens next is anyone’s guess, but those who believe that normalcy will soon return could be in for a rude awakening”.

Fast forward to March 2021

Loos was correct as the weak demand-supply balance in all 3 property classes continued in the 4th quarter of 2020.

In particular, he said that the office property market surpassed the retail market as the weakest of the three major commercial property markets in South Africa.  “Given a major bias towards oversupply in all three major commercial property markets, we expect that 2021 will continue to see of a decline in average values of commercial property.”

It was clear that many client companies were re-assessing their office space requirements in light of the successful lockdown-related remote working trend and experts agreed that retail was also under pressure as people become more adept at purchasing goods online. 

Looking forward at the end of the first quarter of 2021

CEO of national real estate group Just Property, Paul Stevens, believes that buyers, sellers, landlords and tenants will be looking for more value in the services that are offered to them. This will lead to an even more competitive business environment.  “Practitioners in the real estate sector need to ensure that they shift focus from a transactional business to a relationship-based business,” he said.

How has RPP navigated the market in these times?

“Remaining in close contact on a continuous basis with our clients, addressing their needs as the environment changes.  Where clients’ needs change, we are finding properties to suit them,” says Director Patricia Potgieter.

How does RPP plan to succeed going forward?

 “We have pivoted in both our thinking and in our relationships with clients and the market in general,” Potgieter says.

Conclusion

The Covid pandemic in 2020, coming as it did as the local economy slid into recession, hit the commercial and retail property sectors hard.  And, according to experts, recovery will take some time to take effect. 

As a result, RPP is moving swiftly and decisively to meet short-term needs of our customers and take advantage of immediate opportunities.  But the real benefit will come in the longer-term, as we begin to understand long, as opposed to short-term market changes.  We are of the firm belief that the South African economy will recover and when it does, RPP will be ready to grasp every new opportunity that arises.

References

https://www.mordorintelligence.com/industry-reports/commercial-real-estate-market-in-south-africa

https://www.moneyweb.co.za/investing/property/non-residential-building-sector-performs-dismally-in-q1/

https://www.fanews.co.za/article/investments/8/property/1018/commercial-property-in-the-doldrums-awaiting-economic-tailwinds/30461

https://www.property24.com/articles/office-property-market-set-to-be-the-weakest-in-2021/30164

https://www.moneyweb.co.za/investing/property/non-residential-building-sector-performs-dismally-in-q1/

https://businesstech.co.za/news/property/460546/heres-what-to-expect-from-the-property-market-in-south-africa-in-2021/

 

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