Third quarter data from FNB’s Commercial Property Broker Survey indicates that a recent trend of easing in financial pressure among property owners may be coming to an end.
The survey includes a sample of commercial property brokers in the six major metros of South Africa: City of Joburg and Ekurhuleni (Greater Johannesburg), Tshwane, eThekwini, City of Cape Town and Nelson Mandela Bay.
Focusing on key drivers of movement and sales activity in owner-serviced properties, the survey results show financial pressure to still be the biggest single driver, said John Loos, property sector strategist at FNB Commercial Property Finance.
He said the third quarter points to a stall in the declining trend, which could suggest an approaching increase in financial pressure.
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Loos stressed that the survey provides a broad picture, and what comes out of it is that the highest percentage of owner-occupiers are still perceived to be selling or relocating influenced by financial constraints/pressures, i.e., 32.45% in the third quarter 2022 survey.
This is marginally higher than the previous 31.7%, thus ending a prior downward trend from the post-hard lockdown peak of 65.3% reached in the final quarter of 2020, noted FNB.
The level of financial pressure-related selling has thus not continued its upward trend in the most recent survey.
Financial pressure-related owner serviced movement/sales activity – as % of total
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Levels of upgrade-related selling continue to increase
An additional potential indicator of easing or tightening financial pressures is the percentage of selling in order to relocate to “bigger and better premises”. This percentage continued its upward trend to 22.9%, from the previous quarter’s 22.1%, said FNB.
This now exceeds the pre-lockdown levels recorded through 2019, said FNB. This percentage had dropped to a very low level of 8.2% at the start of hard lockdown in the second quarter of 2020, thereafter recovering slowly as the economy recovered.
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The most recent percentage of 22.9% resembles a seemingly “fully recovered” level if 2019 was “normal”, and does not indicate that financial pressure in the owner-serviced market has increased noticeably yet, said Loos.
Relocating to properties closer to the market.
A further key reason for selling, which may reflect both current financial constraints on businesses as well as levels of risk aversion/appetite, is the estimated percentage of sellers selling to move closer to their market.
This percentage rose slightly in the third quarter of 2022 to 23.4%, from the previous quarter’s 22%.
The level remains low, however, when compared to the 36.3% recorded at the beginning of 2019, said the property strategist. While it has increased, this motive remains well off its pre-lockdown highs. “It is likely constrained by a host of recent negative economic factors sustaining a “wait and see” approach by a portion of aspirant sellers,” said Loos.
The end of lockdowns had promised a more “business as usual” attitude among owner-occupiers. “But more recently we saw a petrol and food price shock, resulting in a broader inflation surge, interest rate hiking, and an economic slowdown once more. These recent negatives may continue to constrain confidence.
“While it may often make sense to incur the cost of relocation closer to one’s market, in weak economic times less relocating and more “staying put” for the time being is the likely outcome.
“Therefore, although having risen, the relatively low recent levels in this motive for selling are likely to persist for a while, given our expectation of further interest rate hiking to come,” said Loos.
Coastal metros continue to “outperform” Gauteng metros
Examining where, by region, the greatest level of financial pressure-related selling or relocation is perceived to be, Gauteng still appears on average to have higher (worse) readings due more to Tshwane region, noted FNB.
Tshwane had the highest reading in the third quarter 2022 survey at 57.1% of sellers, while Greater Johannesburg was a significantly lower 36%.
Of the three coastal metros, the highest (worst) percentage was recorded by Nelson Mandela Bay, i.e., 26.5%, followed by eThekwini with 21.2%, and Cape Town with 14.9%.
Looking ahead, Loos said: “We would expect some indication of tightening financial pressure to emerge in the owner-serviced market, given that we have already had 200 basis points’ worth of interest rate hiking, and more hikes are expected in the near term. In addition, economic growth has weakened significantly recently.
“The post-lockdown economic recovery has thus come to an end for the time being. We would thus expect to see stronger evidence of financial pressure increasing in surveys to come in the near term.”
Read: Big economic shift to Cape Town spells trouble for Gauteng