The commercial real estate sector in difficulty under the impact of Covid-19 and the recession


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Cape Town – Industrial real estate continues to be the best performer in the commercial real estate sector although it is not growing either. The office sector is hardest hit and is unlikely to recover significantly this year.

This gloomy outlook is in line with the latest key findings from the ETF brokerage survey results that covered the second quarter of this year.

Added to this, the results also indicate a further decline in average commercial property values. This follows significant drops in value over the past year, the sector which includes office, retail and industry, which was heavily affected by anti-Covid strategies.

These declines, according to the FNB, are not only linked to Covid, however, but reflect recent conditions of deep recession from which the South African economy has still not fully recovered.

“There is almost no doubt an economic environment resulting in weak demand and strong real estate supply in the market, and the brokerage survey continues to reflect this, albeit significantly less in Industrial Property.

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Before the Covid-19 epidemic, the local economy had stagnated for a few years and also experienced a massive contraction of -17.78% year-on-year in real GDP (gross domestic product) in the 2nd quarter of 2020. “Despite some rebounding thereafter, it still recorded negative growth of -3.2% year-on-year in Q1 2021.

The survey revealed that the industrial real estate market was still perceived to be the strongest of the three main commercial real estate sectors of industry, retail and offices, in terms of supply-side balance. request.

The three coastal metropolises – Cape Town, Nelson Mandela Bay and Ethekwini, are where the relative market strength has been found to be the industrial property market. The Gauteng metropolitan areas, however, being the area of ​​relative weakness, Johannesburg being particularly weak.

Meanwhile, the office market continues to be hit the hardest, with brokers ranking the oversupply in this sector as the highest. A significant proportion of survey respondents felt that many businesses are reassessing their office space needs.

In recent Property360 articles, it emerged that companies are looking for a hybrid way of working – with a few days in a home office and others in a workspace. This does not bode well for the office sector, which saw a significant drop last year when offices closed, with many workers and businesses failing to return when lockdown levels were previously lifted across the country.

“It seems increasingly likely that office real estate will be the weakest of the three major property categories in 2021, facing both service sector job losses and an increase in employee work. at home, which is dampening demand for this class of properties, ”FNB said.

On the positive side, however, recent quarterly surveys in commercial and office real estate show that indices of perception of oversupply are starting to move more sideways rather than weakening, suggesting some possible early signs of future movements towards a “stabilization” in these approaching markets.

But, says the FNB at this point, “perceptions of significant oversupply in all three markets lead us to believe that our projections of further declines in average value in 2021 remain justified by weak fundamentals.”

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