Motives for selling property
Financial pressure is still the leading reason for selling commercial property. So what is the current state of affairs?
![Motives for selling LNN](https://images.caxton.co.za/wp-content/uploads/sites/22/2023/05/motives-for-selling-lnn.jpg)
The fourth quarter 2022 results of the FNB Commercial Property Broker Survey show that financial pressure is still the biggest single driver of commercial property sales.
The survey covers a sample of commercial property brokers in the six major South African metros – City of Joburg and Ekurhuleni (Greater Johannesburg), Tshwane, eThekwini, City of Cape Town and Nelson Mandela Bay.
John Loos, Property Sector Strategist at FNB Commercial Property Finance, says the survey focuses on key drivers of movement and sales activity in owner-serviced properties.
“The level of financial pressure-related selling has not shifted noticeably in the past three quarters, after a very significant prior downward trend. Although it had previously been diminishing in significance until early-2022, it has moved more or less sideways in recent quarters.
“A noticeable change in recent quarters is that there has been a significant increase in selling to move in search of better utilities and municipal services, for instance, electricity and water. This is hardly surprising as such services deteriorate at varying speeds in the different regions.”
Other drivers
Loos says the levels of upgrade-related selling moving have lost momentum.
“An additional potential indicator of easing or tightening financial pressures is the percentage of owners selling to move to bigger and better premises. This trend was increasing but has now stalled – at 22.1% in the fourth quarter of 2022; it was slightly weaker than the 22.9% recorded in the third quarter.”
He says the percentage of owners selling to move to improved premises dropped to a very low level of 8.2% at the start of the hard lockdown in the second quarter of 2020. However, there was a recovery along with the general recovery in the economy.
Relocating to properties closer to the market is a further key reason for selling that may reflect current financial constraints on businesses and levels of risk aversion or appetite. This percentage declined slightly to 22% in the fourth quarter of 2022 from 23.4% in the third quarter. However, the level remains low compared to the 36.3% recorded at the beginning of 2019.
“The end of lockdowns promised a more ‘business as usual’ attitude among owner-occupiers. But more recently, the petrol and food price shock resulted in a broader inflation surge, interest rate hiking, and an economic slowdown once more. These recent negatives may continue to constrain confidence,” says Loos.
“It may often make sense to incur the cost of relocation closer to one’s market, but in weak economic times, less relocating, for the time being, is the likely outcome. We expect the relatively low recent levels in this motive for selling will persist for a while, given our expectation of a weaker economy in 2023 compared to 2022.”
Relocating in search of more reliable utilities and municipal services is another key reason for selling and has become more prevalent in recent quarters.
“This motive became noticeably more prominent in 2022, and we believe varying speeds of infrastructure and services deterioration in various areas and regions are driving this. Although not the only one, the electricity crisis might possibly be a key factor of late, given recently heightened levels of load shedding,” says Loos.
In the second quarter of 2022 survey, the estimated percentage of sellers driven at least in part by this motive rose sharply from a prior 15.2% to 23.1%. In the subsequent third and fourth-quarter surveys, it continued to record elevated percentages of 24.2% and 23.1%.
“As various services provided by utilities and municipalities deteriorate in many parts of the country, we expect to see this motive for selling and relocating remaining prominent,” says Loos.
Writer : Sarah-Jane Meyer