Breaking new commercial ground
In the long term, space requirements are likely to go up due to the increased need for social distancing
The onset of Covid-19 did not only affect people and communities, it also impacted the global economy. While the commercial property market is no exception, an array of trends and new opportunities have emerged here as a result
WORDS: ATLEHANG RAMATHESELE – IMAGES: SUPPLIED
he pandemic’s hard knock on property in Africa and across the globe may be palpable, but it has also given rise too many innovative solutions.
With a footprint spanning various parts of Africa, including a diverse portfolio of clients and services across 13 countries in which 737,325m≤ of retail space has been leased over the past five years, pan-African real estate provider Broll Property Group is well versed on the matter and setting its sights beyond 2021.
The outlook for each country’s market at any given time is largely tied to the expectations on the performance of the wider economy in that country, and it’s likely these trends will persist in the short to medium term, says Roger Long, director of valuation and advisory services, Broll Property Group.
In the throes of the pandemic, it was initially anticipated the hardest hit property sector would be retail due to the lockdowns and subsequent inability to trade. However, many malls and most of the smaller centres have, in fact, fared relatively well during the past 14 months.
This may be attributed to landlords acting swiftly with rent reductions and deferments, for instance, resulting in many retailers managing to stay afloat, thereby preserving the rental income of the asset.
Instead, the office sector has been the hardest-hit asset class in South Africa, and the pressures are not expected to ease in the coming months. The fallout in the office market has seen property buying and rental values recede sharply.
In the early stages of the pandemic, several occupiers held firm and retained space during the lockdowns. Landlords were therefore still receiving most of their income even from empty buildings, but vacancies are now rising as occupiers decide they no longer need as much space.
Offices in smaller outlying towns are not as badly affected due to a more limited offering.
Flexibility is key
The South African Property Owners Association (Sapoa) reported Q3 2020 vacancies reached an all-time high of 15,4%, while the pre-Covid-19 level was 11,6%. Additional supply is also coming to market because of projects planned and started well before the pandemic. At the beginning of 2020, about 263,000m≤ was in the pipeline, which slowed to about 47,000m≤ by Q3 2021.
Overall, occupiers want maximum flexibility, considering their demand for space in the short and medium term is relatively unknown or unconfirmed. Occupants prefer flexibility to either work from home or to do so on a rotational basis. This could most likely be a long-term trend post the vaccination rollout.
Occupiers are increasingly focused on understanding what the future workplace will look like and how it affects their existing real estate structure. More corporates in this market are looking not only to optimise operational functions in terms of cost, but also based on the size of their requirements.
Landlords, on the other hand, are seeking strategies to drive occupancy of their buildings. These range from more flexible lease terms and notable rental discounts (on a case-by-case basis) to looking at less traditional uses for their buildings, such as the co-working model. Furthermore, landlords are looking at repurposing surplus or vacant space.
Broll Group CEO Malcolm Horne believes adaption in this current climate is golden with redesigning and reconfiguring of spaces prioritised in the future.
Statistics that show a slow return to offices across the continent is largely because of a sluggish vaccination rollout. People are still seeing a lot of hybrid working and working-from-home opportunities, so returning to the office is delayed alongside rationalising of space.
“The space ratio people used to occupy was less than 10m≤ per person. It’s going to increase because there will be spatial distancing,” says Horne. “We went through a decompression phase where optimisation was the name of the game, and now it’s going to increase again.”
Prime logistics facilities are doing well, not only in South Africa but across the continent. Furthermore, the growth in online retail has seen a corresponding rise in interest in data centres as companies move to exploit opportunities in the online sector.
Several data centre companies are expanding in strategic locations across West and East Africa, as well as in South Africa. Horne has seen many other asset classes gain traction during the pandemic, including hospitals, spheres in life sciences and research and development, as well as the cold storage arena.
“This is because of the pre-packaging of meat and smaller, more decentralised storage centres due to home deliveries,” says Horne. The housing sector, including student and social accommodation, has also seen an uptick in demand.