Image: iStock
The property market is recovering, but it will not be plain sailing ahead due to property fundamentals, such as vacancy rates and rentals, that are generally still under significant pressure, as well as the weak economy and the fourth wave of Covid-19.
According to the latest issue of the Rode’s Report, State of the property market in quarter 2 of 2021, the listed property market continued its recovery in the second quarter, with share prices of JSE‐listed companies ending June about 16% higher compared to the end of 2020, thanks to higher global economic growth and better‐than‐expected company results.
While the low base of 2020 undoubtedly played a role in the increase, the writers believe that it indicates that the worst is behind us, though we are not out the woods yet.
In addition, the move to lockdown level 4 from level 3 and the associated restrictions will put further pressure on property owners as many tenants, such as restaurants and cinemas, run into more financial difficulties.
The report also points out that a high prevalence of Covid‐19 also means the trend of shoppers generally shunning malls and shopping closer to home at community and neighbourhood centres will continue. This will impact the leisure industry especially, while workers will largely avoid going to the office where possible.
ALSO READ: Residential property market highs and lows
The housing market defied the odds during the pandemic, according to the report, but it is starting to cool. House prices increased nationally by 4,1% year on year in May 2021 based on FNB data, slowing from 4,5% in April and failing to beat consumer inflation (+5,2%) for the first time this year, a sign that the interest rate‐induced demand may have peaked.
According to the trend for 2021 so far, prices increased by 4,3% over the first five months of 2021 compared to the same period in 2020. This implies that price growth is still positive in real terms, as inflation was 3,8% then.
The writers are not surprised that house prices started to cool given the weak economy, which is expected to take a further hit from restrictions to combat the third Covid‐19 wave and high and increasing unemployment, as well as the prospect of rising local interest rates from next year.
The vacancy rate for flats also declined further to 11,4% from 12,1% in the first quarter of 2021, according to Rode’s residential survey data. However, vacancy rates are well above the 5% average recorded in the three years that preceded the pandemic.
ALSO READ: Office and industrial property industry playing from the rough
Industrial property is still in the best position compared to other non-residential property types, according to the report, while the office market remains the riskiest.
The industrial property market is continuing its slow recovery, with nominal rentals in the second quarter of 2021 growing by 0,8% year on year amid continued low vacancies, somewhat better than the 0,5% growth in 2020, but still well below the 5% rental growth of 2019.
The results of Rode’s first office vacancy survey indicates a high and increasing amount of empty office space, with the national decentralised vacancy rate close to 14% in the second quarter of 2021.
This oversupply gives tenants the upper hand to negotiate for longer rent‐free periods and much lower rentals. Nationally nominal rentals for decentralised grade‐A space decreased by 6% year on year, declining on an annual basis for the fourth consecutive quarter.
None of the major cities managed record rental growth above inflation. Market rentals decreased by 10% in Cape Town, 7% in Johannesburg and 5% in Pretoria.
During the second quarter of 2020, 17% of workers worked from home and during the second quarter of 2021, 7% according to Stats SA before the third wave hit. The writers expect that more people will again work from home now.
ALSO READ: SA’s flat vacancy rates spikes to 11%
Download our app and read this and other great stories on the move. Available for Android and iOS.