2022 - BETTER THAN 2020 AND 2021, BUT 2023 COULD BE CHALLENGING
Category Property
The real estate industry in South Africa could be facing a challenging 2023 but some sectors may surprise. This is according to leading property management company, WatchProp.
WatchProp managing director, Craig Coetzee says that while this may be of concern to property owners, it is comforting to see the market appearing to be making its way from the bottom of the curve, but complete recovery is still some way off. Recent announcements that our GDP showed positive growth in the third quarter of 2022 may provide some confidence, but this growth is on the back of a poor performing economy through the pandemic of 2020.
However, if the pandemic of 2020 was not enough, and as recovery seemed to be on the horizon and with the latest GDP leap, reality hit the market hard in 2022. Economists are still of the general opinion that GDP growth at this level is unlikely in 2023.
Rising inflation marked the end of the pandemic-induced record low interest rates, and the Ukraine/Russia conflict put pressure on global energy prices. And, with Ukraine being a major supplier of wheat and sunflower oil, this war impacted global food prices on top of supply constraints from China due to the slowdown in their economy. Not to mention a renewed COVID-19 lockdown in that country.
The return of an interest rate hiking cycle by the South African Reserve Bank, to counter inflation, has seen the attraction of rental property return. While many tenants took the plunge into homeownership when interest rates reached a 50-year low, the return of the interest rate to pre-pandemic levels has seen the demand for rental property increase.
The mortgage lending rate is still attractive, and the lending climate of recent times is still favourable, but this may not carry into 2023.
Rising inflation and interest rates has historically seen an increase in demand for rental property and this is likely to be the case in the new year. For buyers, affordability will be a factor behind property purchases. The interest rate hiking cycle may push many property owners into positions of not being able to afford bond repayments. These concerns will force potential buyers to re-evaluate purchasing decisions.
This will see the rental market recovering somewhat in 2023 especially in the price ranges per sector that fall within that "sweet spot" of affordable and value for money rentals.
Coetzee says that landlords should be prudent with their pricing. While landlords bore the brunt of the pandemic slowdown, signs of recovery during 2022 indicate that they are making their way back to favourable positions. However, tenants are being more debt-wise and will evaluate comparative prices more thoroughly.
In the commercial real estate sector, Coetzee expects challenging times in 2023. Retail is still overcoming battles from the lockdown and tenants are still reluctant to invest in retail space. TPN reported a dip in good tenant standing in the first quarter of 2022. Having said that, malls are filling up again as consumers regain confidence to return to their shopping habits, even with malls having more empty spaces than before.
The 2022 festive season, however, is expected to yield positive returns for retailers. Coastal cities are already reporting an uptick in occupancy in the hospitality sector. This bodes well for our retail industry.
Coetzee believes that retail will see some movement as retailers negotiate the best leases possible in testing times. The challenge here is the positivity of lockdown being lifted, but there is a return of an interest rate hiking cycle and rising inflation, notwithstanding the Ukraine/Russia and China effects on global food and energy prices and stock volatility that pressurise the retail industry.
The office space sector is still debating the issue around a work-from-home strategy versus a full recall of staff to the office. While this still needs to see some direction from employers, this sector will largely see the work-from-home environment continue into 2023 or at least only essential staff returning to the office.
Industrial properties will likely surprise as workforces get back to full speed, albeit with streamlined workforces.
Coetzee says that property as a collective industry tends to be a barometer for the economy. When property does well, the economy does, and vice-a-versa. But what the past 2 years has indicated is that there is a global effect on local economies and while the world is one in terms of a global economic model, we are just as vulnerable as any country to international market instability.
What is clear is that the traditional property market is evolving as work and home become more intertwined. Retail is responding to this trend and investing in online ordering to cater for changing lifestyles, while still operating from existing premises.
According to Coetzee, the property industry continues to evolve, but has some way to go yet to achieve a changed role in the market.
WatchProp can be contacted on 021 441 8800 or email info@watchprop.co.za.
Author: Watchprop