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Property Trends in the South African Commercial Property Market

COVID-19 has changed how many businesses around the world operate, and despite vaccine rollouts, new variants of the virus continue to materialise, causing widespread disruption.

In Africa, the Omicron variant has begun to spread around more countries in the continent however, according to the WHO, hospitalisations in South Africa remain low.

While it is still too soon to fully assess the new variant’s impact on the country and its real estate market, enough time has passed to reflect on a turbulent period for a South Africa ravaged by the virus social upheaval.

As part of our previous coverage on Residential People about property trends in South Africa, Commercial People had an extended interview with Nobenguni Nkuli Bogopa , Chief Operating Officer (COO) of Property Management at Broll Property Group.

In our chat, we will look at some of the past issues faced by South Africa in recent months and look ahead to 2022 and beyond.

Commercial People (CP) What has been the most noticeable trend that you have seen within the property market in 2021?

Nobenguni Nkuli Bogopa: On the retail side, we saw the riots and the disruption it’s caused, but the sentiment I am getting from our clients about the retail landscape is that there is still a future as far as township and rural economies are concerned. There’s still quite a keen interest to continue to develop and bring these segments of our society forward with us, and that is backed by government policy and, to some extent, the grant facilities made available.

Nkuli Bogopa, COO at Broll

It is important to encourage differentiated spatial planning in the country, as historically, not all sectors of the population have been catered for. Everything we see now is supportive of that, and I can see the growth in this segment. We also picked up after the riots that our clients and retailers have been very quick to turn things around and say we want to get back and rebuild. That has been encouraging.

The office market remains very tricky, especially when you do not have a fully vaccinated population, and a lot of companies are saying that they are going to encourage hybrid working, which means half of the staff complement is in the office and half of them or not.

We have also started to see a trend whereby upwardly mobile people are now saying one can move and work anywhere you want to in the world. We have a number of employees ourselves who have moved to other continents to work from there and continue to be employed by the company.

Therefore, I think the changes in the office segment are going to be necessary, but we don’t quite know exactly what these changes will look like yet.

Offices in Cape Town

An emerging sub-trend has been the conversion of office parks into residential. Perhaps that is a direction we will start to see more of due to our deficiency in housing, but a lot of the funds have quite strict strategies around their investments and where they are going to invest, and they are not all aligned in terms of going into social housing versus remaining focused on the commercial office sector.

A worrying trend in the office segment is the high level of vacancies that did exist even pre covid-19, and which have now soared to record highs. Arrears are also quite concerning, especially in that segment, but it is also largely due to the macroeconomic situation that we find ourselves in as a country.

It is not a desirable state, and the hope is that the push for vaccination and for the world of work to normalise will result in our economy picking up, but that is a macro picture depending very much on the political landscape.

Vacant offices are a major problem for landlords in South Africa

We have seen with the recent municipal election a big shift happening with the ruling party now finding themselves in a minority position and a number of different parties having to put their heads together. It does tell you that as a country, there are a number of different moving parts at play all at once.

We are just going to have to watch closely, but while doing so, continue to operate on the two horizons mentioned, namely the horizon of containment, which is to do the best that you can, and tighten your belt tight and remain resilient and agile, while you are planning for the future.

On the industrial side, we are seeing quite a lot of strengthening and a lot of investment, and a very keen interest and upward trajectory.

CP: Looking forward to next year, what do you think will be the major trends that will take hold of the property market?

NNB: Do we actually know where the sector is going over the next five years, considering the amount of significant and severe disruption that we have seen recently?

I certainly do not have all of the answers. The question is: Who is advising your clients and landlords as to what direction to go in when a large portion of your real estate investment is sitting vacant and idle? Who is advising them as to what to do going into the future, considering that we are now talking about hybrid working models and the future of work?

At this moment, it is all quite uncertain, given that the Covid-19 situation will likely carry on well into 2022. If we are still talking about the emergence of a new variant as we are with Omicron now, it probably means the impact will extend into Q1 or possibly even Q2 of next year.

Could vaccines become mandatory in South Africa?

In addition to who is advising the landlords, who is advising the occupiers as to what direction to take?

A vaccination mandate is one option, with a number of occupiers coming out quite strongly to state you will vaccinate in order for you to be allowed back into the office in January 2022. But with this current variant, we do not even know if it will taper down by January. We saw a similar scenario with Delta, which emerged in December and only started to taper off in February.

We need to start a conversation with occupiers and landlords across different international markets, such as China in the East and the UAE, Europe and the USA, largely because South Africa always lags behind on trends in these markets, and secondly because the East has seen the biggest impact in terms of viruses like SARS and Covid-19.

Having these discussions is important so we can get a sense of what is likely to transpire, because as it stands right now, there is a lot up in the air and unknown to a very large extent, and it is a difficult time to make predictions. Having said that, one does have to operate within a number of horizons. Firstly, the containment of the current situation. Secondly, looking into the future and planning so you do not find yourself handcuffed by the present.

CP: As one of the largest property companies in Africa, how has COVID-19 affected how Broll has done business, both in South Africa and across the continent

NNB: It is very difficult to comment on the rest of Africa, but if South Africa is anything to go by, I think that the disruption that has been caused has compromised our income and destabilised the sector. I do not believe that there is any organisation or industry that has been immune, and so I don’t think this is a secret to anyone.

However, from an employment point of view, we have been quite lucky in that we have been able to contain our employment. I know that in our country right now, unemployment has continued to soar, with a number of sectors continuing to shed jobs.

CP: Looking at the market as a whole, what impact or damage has the pandemic caused to the South African real estate market?

NNB: I think the impact for us as well is that it has called for our leadership to be a lot more agile. We have shown resilience in this time. I think that something positive that has really stood out is the strength of our relationships with our clients. It has really strengthened us and equally strengthened them.

If anything, I think Covid-19 has made us really think a lot further about what other kinds of disruptions could happen in this sector and how do we bolster our business model to remain sustainable into the future, and a future that is largely unknown.

I think that for the next two years, we probably will be in a Covid-19 limbo and hopefully start to taper off and settle down by Y2, which is 2023. Nobody has a crystal ball, and so we do not know what is for certain. Though if you look 100 years ago when there was an equally deadly virus globally in the form of the Spanish Flu, the real estate sector was able to move upwards shortly thereafter.

The difference now is that technology exists and is advancing far quicker and enabling people from wherever they may be located. Whether or not that upwards trajectory we hope to see after the virus will happen in an undisrupted manner is difficult to say because now you are contending with technology. I think that technology is actually our next biggest disruptor.

At an organisational level, it has also resulted in a closer level of collaboration happening much quicker than what it may have otherwise. We have seen how fast people can adjust and adapt very quickly and still be able to run businesses effectively.

Meanwhile, at a broader level, I think what Covid-19 has enabled is cost-containment, because where one would have been travelling unnecessarily before has now been curtailed. From an organisational point of view, we are seeing efficiencies and staff delivering more, and that has been quite positive.

Yes, Covid-19 has wreaked havoc on our sector. It has been tough, but I also think that it is sometimes good to go back to the fundamentals, which is that real estate is responsible for 70% of the world’s wealth. The truth is that real estate has underlined and underpinned growth and wealth over generations. I think we should not lose sight of that. We should always believe we have got an asset class that is tangible and an absolute requirement.

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