MAIN IMAGE: Mieke Purnell, Research Manager at JLL
Staff Writer
According to a report recently released, the South African property market has shown mixed fortunes during the first half of 2022.
JLL, a leading professional services firm that specialises in real estate and investment management, states in the report, which covers Cape Town, Durban and Johannesburg, that the office, industrial, retail, hospitality, and residential sectors are all growing at different rates.
Office
Within Cape Town’s office sector, semi-gration, better governance, and associated lifestyle factors continue to drive performance. The metropole is markedly smaller than Johannesburg or Pretoria, and therefore the influx of affluent and skilled migrants has the potential to bolster economic recovery for the city. Notwithstanding, the local economy still lacks the stimulus provided by the tourism sector that is yet to re-emerge in any meaningful form. Businesses are also not migrating to the same extent as individuals, meaning local purchasing power may be ticking up, but office demand not necessarily so.
According to the report, office development is currently at lower than conventional levels, with primarily occupier-driven development occurring. A feature that differentiates Cape Town’s office market from that of Johannesburg is that speculative development has historically been low. This placed the city in a better position to handle the economic shock that introduced by the COVID-19 pandemic and decimated office demand fundamentals.
eThekwini’s commercial market, in turn, shifted out of the traditional CBD toward uMhlanga and La Lucia’s commercial districts a few years ago and has gone from strength to strength since, barring the impact of the pandemic. Greater land availability and the degradation of the historic CBD led to this shift, and hence this node now offers the bulk of quality, contemporary stock, which is where the greatest demand is concentrated. The past six months have seen considerable take-up of vacant office space in the uMhlanga commercial node.
Mieke Purnell, Research Manager at JLL, said: “Most demand has originated from the business process outsourcing (BPO) sector, resulting in few fit-for-purpose premises remaining. Demand in eThekwini is almost solely directed toward these nodes, and the Durban CBD is experiencing historically high vacancies. P-grade vacancies have declined by 45% in H1 2022, and B-grade vacancies have risen by 28%.”
Industrial
There is good demand for logistics and distribution-related industrial property in Cape Town. Borne from technological advances, booming e-commerce and global supply chain disruption, there is a country-wide distinct shortage of prime logistics inventory.
In Durban, the industrial market has faced externalities such as severe weather events and civil unrest that resulted in a shift in the market. Being a port city, there is strong demand for large-scale industrial premises originating from the logistics sector.
According to the report, Johannesburg’s supply pipeline is impressive, but it is limited to occupier-driven development, as current construction costs may result in prohibitively high rentals on completion. Moreover, the pace of construction has to date been insufficient to alleviate supply shortages within the logistics sector.
Residential
The residential market in Cape Town has favoured buyers for several years now, with excess stock available for sale, and prices decreasing. Conditions worsened through the pandemic when buying activity moderated, particularly from the foreign market that supports some of the higher value bands. As the pandemic progressed, there was increased interest in the local housing market stemming from semi-grants to the city.
In 2021, Cape Town’s residential market was valued at R1.229 trillion (CAHF, 2022). Per the Centre for Affordable Housing Finance’s Cape Town Housing Market Report 2021, 43% of all stock is categorised as ‘luxury’ – valued at over R1 200 000. The entry-level (<R300 000) segment accounts for 16% of the market, and affordable housing (R300 000 – R600 000) comprises a further 18%. Residential sales activity in Cape Town slowed in the first half of 2022, although to a lesser extent than the moderation recorded in Johannesburg and Durban.
In Johannesburg, the recent uptick in semigration out of Gauteng to coastal regions in the Western Cape has been topical in the context of Johannesburg’s residential market. While this is believed to have softened the market over the past couple of years and remains a risk factor overall, the impact is limited mainly to the higher value bands of the market, as Gauteng’s net migration rate remains positive.
Retail
The report notes that eThekwini’s retail market has suffered more than most since the onset of the pandemic in 2020. The unrest and riots experienced in July 2021 placed the sector in a severely negative position. One year on, most affected retail centres have reopened, but independent retailers are believed to still be struggling.
eThekwini benefits from several ‘destination’ retail centres that are proving popular in the current climate. Throughout most of the pandemic, neighbourhood and convenience centres were preferred as fewer people travelled far from home, but as lockdown restrictions have eased, regional centres have reported a robust recovery in footfall.
In Johannesburg, the retail property market proved one of the stronger property sectors coming out of the pandemic, despite the major headwinds faced. Recovery within this sector is still underway as footfall and trading densities improve but are yet to reach pre-pandemic levels, and operating conditions are stabilising. Rental collections have essentially normalised once more, and the negative rental reversion trend appears to be moderating as well.
