Property Flash


January 9 2024

Guest article by Galetti Commercial Real Estate

2023 saw the commercial property sector continue its road to recovery. The industry fought against uncontrollable odds such as elevated interest rates, high inflation, ongoing loadshedding and economic uncertainty.

“People generally associate commercial property with office space, however, the clear industry frontrunners for 2023 would have to be retail and industrial property. Adding to this is heightened demand for auction properties and commercial space in the Western Cape,” says John Jack, CEO of Galetti Commercial Real Estate.

While industrial properties remain the commercial real estate favourite, sparked by increased demand for eCommerce during the COVID-19 pandemic, rental growth has started to plateau.

The effects of loadshedding cannot be overlooked

Jack says all asset classes have been heavily impacted by loadshedding and its subsequent knock-on effect on productivity.

“2023 has been a defining year for the country’s energy crisis and landlords have had to fork out a lot of money to ensure that their tenants can continue normal operations,” he says.

Local reports by the Association of Communications and Technology suggest that telecommunications companies like MTN and Vodacom will have spent R1.1bn on diesel in 2023 alone.

“Another prime example of the cost implications of loadshedding would have to be South Africa’s retail sector,” comments Jack. “The country’s largest retailer, Shoprite is said to be spending R95m on diesel per month. In fact, the company spent the same amount in one quarter of 2023 as it did for the whole of 2022,” he says.

2024 trends unpacked

Looking ahead, Jack cites five rising trends for 2024 as follows:

1.    Western Cape and demand for easy port access continues…

2023 saw heightened demand for coastal commercial real estate.

“Demand outweighs supply in Cape Town, largely driven by its strategic location, increased investment by the City of Cape Town and good governance,” says Jack. “The logistics sector is a key driver for this demand because of Cape Town’s prominent road network and easy access to nearby ports,” says Jack.

2.    Lowered interest rates as a lifeline for landlords

“Predicted rate cuts from mid-2024 onwards will be welcomed by all landlords,” says Jack.

As rate cuts come to the fore, so does a landlord’s ability to start to recoup cash flow and benefit from higher yields.

“While interest rate cuts are not the solution to the problem, they will ignite investor confidence and kick-start further activity amongst asset classes – particularly the office sector which has been in a lull since 2020,” says Jack.

3.    Auction and sealed bids as a preferred method of sale

The idea of auction being used as a preferred method to sell off dilapidated and distressed properties is a thing of the past. Today, many sellers are opting for auction as a quick and easy way to sell off prime assets in a competitive environment where bidders try to outbid each other.

For large-scale assets, sealed bids have proved to be popular, and this trend is set to soar. “We continue to see more sellers opting for sealed bids on properties valued at over R50m. It is an efficient method of sale that ensures transparency and generates some healthy competition.” 

4.    REITs fight back 

Despite dismal returns and a total of R100bn lost among the ‘big five REITs’ (Real Estate Investment Trusts), we are seeing some bold investment moves being made, some of which should start to pay off from 2024 onwards. 

Fortress aims to double its solar capacity by 2025, recognising this as a key pillar for growth in its portfolio, while Attacq announced growth at Mall of Africa thanks to new retail brands and upgraded stores.

5.    Cash retail 

Township and rural malls continue their upward trajectory and keen investors are taking note.”

Galetti has “continued to enjoy favourable demand – come auction time – for cash retail properties. These flagship properties attract high volumes of foot traffic and data shows that there’s a vast amount of cash circulating in these markets – despite the current climate.”

JSE-listed REIT, Vukile Property Fund has taken a bullish stance on expansion in the rural and township retail market. “The company recently announced the acquisition of a 60 000m2 mall in Mthatha.”

“The use of technology in our industry has accelerated, and now with the advent of easy-to-use AI tools, we have the ability to improve efficiencies, reduce costs, and make better-informed decisions. This doesn’t mean that AI is better than a human workforce, and business leaders should keep in mind that these tools are most effective when utilised by a skilled professional. Don’t view AI as a threat to job security, but rather as a way to ‘work smarter’ and provide tenants, landlords and property managers with a better experience,” says Jack.

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