The 2020 fourth-quarter First National Bank (FNB) Commercial Property Broker Survey saw all three major commercial property sectors, that is, office, industrial and retail, showing slight increases in perceived market activity levels, with the office property market’s activity remaining the weakest and industrial the strongest.
The survey includes input from a sample of commercial property brokers in and around the six major metros of South Africa, namely the City of Joburg and Ekurhuleni (Greater Johannesburg), Tshwane, eThekwini, the City of Cape Town and Nelson Mandela Bay.
The percentage of respondents perceiving business conditions to be satisfactory declined in the fourth quarter survey to 21%, down from 31% in the previous quarter, following a mild third-quarter increase as the country emerged from the hard lockdown in the second quarter.
When asking brokers for their ratings of market activity levels on a scale of one to ten, FNB says this group of respondents is most upbeat (or least pessimistic) about the industrial and warehouse property market.
The industrial property market’s fourth-quarter activity rating rose slightly, from 4.64 in the prior quarter to 4.68 in the fourth quarter.
The retail property activity rating also increased, from 3.37 to 3.59 over the same two quarters.
The office property market activity rating remained the weakest of the three, but also rose slightly from 2.97 to 3.32.
The near-term expectations indices of property market activity, reflecting broker expectations, saw the respondents being least optimistic about office property, which recorded a mild positive of 12, while the industrial property market recorded a stronger 19.
The retail sector response surprised, notes FNB, with brokers posting the strongest response in this sector, to the tune of 27.
In all three major property markets, the brokers saw the negative economic impact from Covid-19 lockdowns as still being a major influence on their near-term market activity expectations.
However, in the office sector, the lockdown-related “Zoom boom” and its potentially major “work from home” implications continued to overshadow even the recession impact, playing a major role in brokers continuing to be least optimistic about the office market, FNB notes.
The impact of online retail in the retail property sector is seen as far less significant than the “work from home” impact on the office market, says the company.
The survey for the period was undertaken during November, at which stage South Africa had long since emerged from the “hard” Covid-19 lockdowns of the second quarter, but had not yet seen a major uptick in new daily Covid-19 cases in what has more recently become the second wave of infections, notes FNB.
It says that while economic activity had rebounded significantly during the third quarter, following the end of the second quarter's “hard lockdown”, gross domestic product levels had probably not yet returned to pre-Covid-19 levels, according to fourth-quarter high-frequency economic data already released.
In the late stages of 2020 when this survey was undertaken, the economy, which was already weak prior to 2020, was likely even weaker than 2019, states FNB.
“Therefore, it is not surprising to see the broker business confidence survey component continue to show the overwhelming majority of respondents being dissatisfied with business conditions,” says FNB.
It notes that the negative economic impact from Covid-19 lockdowns on the property market still comes out most strongly as a key issue in influencing broker near-term market activity expectations.
“Nevertheless, brokers perceived mild market activity improvements in the fourth-quarter survey, compared with the previous quarter, albeit still weak levels of activity.
In addition, they expected some moderate near-term improvement in activity levels early in 2021 in all three property sectors.
However, it must be borne in mind that the survey was done prior to the second virus infections surge getting under way, and prior to any thought perhaps of renewed stricter lockdown regulations and heightened consumer “fear”,” says FNB.
Globally, there has been ongoing debate around the “work from home” trend and whether this would heavily impact on office space demand, says FNB.
There are those that see imminent downscaling of office space requirements by many companies, and a resultant major glut of office space. Recently, however, some “naysayers” have been fighting back, citing the need for office space to enhance human collaborations, the argument being that working online full time has limitations in terms of human relationships, the company explains.
“Such arguments have validity. But the broker survey still points to a very strong broker perception that many companies are indeed revising their office needs lower, and the brokers do perceive activity in the office market to be the weakest of the three major sectors.
We would have expected such a perception. While office space has its place for physical meeting and interaction, our belief is that less of it is needed for such purposes, with staff able to spend a very significant part of their time at home. In addition, financial realities for pressured companies may play a key role in decision-making, and office space is costly.
But finally, regardless of the “pros and cons” arguments around remote work”, recent South African Property Owners Association office vacancy data points to an acceleration in the rising national office vacancy trend. Whether that is purely financial pressure-related downscaling or “work-from-home”-specific thinking, the end result looks set to be the same, that is, very weak demand for office space, and increased over-supply,” the company says.