MAIN IMAGE: John Loos, Property Sector Strategist at FNB Commercial Property Finance
John Loos
Non-residential building statistics release showed positive growth for January 2022 in square metres of building plans passed, hinting at possible growth in completions in 2022. But the levels have not fully recovered to those of pre-2020 lockdown times.
The StatsSA January 2022 release of non-residential building plans data pointed to a still-weak picture for the Commercial Property Building Sector early in 2022, but with some acceleration in year-on-year growth in plans passed.
The square metreage of total industrial, retail and office space building plans passed rose by +105.79% in January 2022, a further acceleration on the +61.87% year-on-year in December 2021. However, the January 2022 level of plans passed was still -42.5% down on the January 2020 level.
Non-residential building stats can be notoriously volatile from month to month though, so we also view the broader trend on a 12-month moving total basis.
Here, we have seen a +38.2% increase in the 12-month moving total to January 2022, up from +25.79% for the 12 months to December 2021.
However, the post-lockdown levels of plans passed have remained well-below pre-COVID-19 levels. For the 12 months to January 2022, square metres of plans passed were still -14.0% below the 12 months to January 2020 and -29.5% down on the total passed for the 12 months to January 2018.
Building completions, lagging plans passed considerably, continued their year-on-year decline in January 2022 to the tune of -9.43%, which was a significantly smaller rate of decline than the -44.65% year-on-year decline in December 2021.
On a smoothed 12- month moving total basis, square metres completed were very slightly down by -0.47% year-on-year for the 12 months to January 2022, compared with a -6.21% decline for the 12 months to December 2021.
For the 12 months to January 2022 in total, square metres completed were still weak by pre-Covid-19 standards, being -40.6% down on the 12 months to January 2020 and -40.3% down on the 12 months to January 2018 levels.
While total square metreage of commercial buildings completed declined for the 12 months to January 2022, positive growth in plans passed suggests that there may be some growth to come in building activity and completions in 2022.
Building trends
Office space planning and completions are the key drag on overall non-residential building levels, remaining low compared to pre-lockdown levels.
Office plans passed declined by -17.9% year-on-year in January 2022 off a very low base a year prior. But we don’t place much emphasis on this, because this small sector’s monthly moves are highly volatile. More insightful is that for the 12 months to January 2022, square metreage of office space plans passed grew positively year-on-year by +51.31% off the low base of the 2020 lockdown year. But while seemingly impressive, this growth does not nearly compensate for the earlier weakening during the lockdown period and remains -39.3% down on the 12 months to January 2020, just prior to lockdowns, and -57.9% down on the 12 months to January 2018.
The low level of planned new office space development, despite some recent growth, is not surprising, with office vacancies nationally at around record levels. Employment numbers in the office bound economic sectors have declined since lockdowns started in 2020, greater levels of remote work are the future, and more efficient use of office space through the “hoteling” of desk space is a key factor too.
For the 12 months to January 2022, square metreage of retail space plans passed were -12.24% year-on-year down. While this is a weaker growth outcome for the 12-month period than in the case of office space, retail had less of a decline in 2020 than office space planning and is thus a slightly lesser -26.2% down on the 12 months to January 2020, and a slightly lesser -54.58% down on the 12 months to January 2018, than the declines on those years in the Office Sector.
But while not quite as weak as office space planning, retail building is still very weak, and does have significant challenges. Besides a constrained consumer, due to a severe 2020 recession, increased levels of online retail also challenge the Retail Sector.
The recently released 1st quarter 2021 FNB-BER Consumer Confidence Index came in at a still very weak -13 reading, reflective of the pressures and concerns that consumers face, and that isn’t strongly supportive of retailers and retail property.
Industrial building activity remains the “least weak” of the 3 segments. Besides being the most affordable property class of the 3 majors, it receives something of a boost from greater online retail levels requiring an increased focus on logistics and warehousing. But its macro fundamentals remain weak, manufacturing GDP production remaining mediocre and economy-wide inventory levels still low due to years of economic stagnation.
For the 12 months to January 2022, square metreage of industrial space plans passed were +59.55% up year-on-year. This is a significantly better recovery from the 2020 lockdown dip compared to office and retail, leaving this sector’s new space planning at only -3.2% down on the 12 months to January 2020 and -5.8% down on the 12 months to January 2018.
Conclusion
In short, significant growth in square metreage of non-residential building plans passed over the 12 months to January 2022 points to positive growth in building activity and completions to come in 2022.
However, the sector has not fully recovered back to pre-Covid19 2019 or 2018 levels.
Despite its growth in plans passed over the 12 months to January 2022, the Office segment is the major longer run drag on overall building activity, being the sector still the most significantly down on 2018/2019 levels, challenged by a very high vacancy rate on a national average basis.
Given the key structural changes in office work, including a shift to greater remote work and the hoteling of office space, the Office Segment is likely to be an area of long-term building activity underperformance, with its share of total building activity likely to decline further in the longer term.
Industrial space building activity is at the strongest end of the spectrum, although still not quite recovered to pre-lockdown levels either. Industrial property has important structural changes in its favour, with greater levels of online retail requiring it to gear up in warehousing and logistics. However, the Manufacturing Sector remains mediocre, and economy-wide inventory levels are low due to a longer-term economic growth stagnation, so while Industrial building activity has been better than Retail and Office, it isn’t overly strong just yet.
