C - 2020

Author:  John Loos
Property Strategist – FNB
21 September 2020


FNB Commercial Property Broker Survey for the third quarter of 2020 surveys a sample of commercial property brokers in the six major metros of South Africa i.e. the City of Johannesburg and Ekurhuleni (Greater Johannesburg), Tshwane, eThekwini, City of Cape Town and Nelson Mandela Bay.

The survey focuses on the key drivers of movement and sales activity in owner-serviced properties and the results show financial pressure to still be by far the biggest single driver. This factor became more noticeable in the second quarter survey as the Covid-19 lockdowns hit and it has remained ‘elevated’ in the third quarter survey.

There is not a long history recorded to gage what a ‘good’ or ‘bad’ level of financial pressure-related selling is, but the recent readings do appear significant.

FNB asked respondents for their perception of the major drivers of ‘movement and sales activity’ in the owner-serviced property segment. The respondents estimated the percentage of movement and sales that they believe would take place for a reason. The total percentage of all the reasons can add up to more than 100% because businesses could be selling or relocating for more than one reason. It is not an exact science, but it gives a broader picture and what comes out of it is that by far, the highest percentage of owner occupiers are perceived to be selling or relocating influenced by financial constraints i.e. 56.68% in the third quarter 2020 survey, a very similar percentage to the second quarter’s 57.4% as well as being almost ten percentage points higher than the 46.8% recorded in the third quarter a year ago.

This is significant with the two other motives being ‘relocating to be closer to the business’ market (26.83%) and ‘looking for a location with better access to transport, logistics and commuter nodes’ (21.04%).

Sales and relocation for ‘bigger and better premises’ remain at a lowly 9% in the third quarter survey, like the 8.2% of the prior quarter. This remains far below the 22.4% estimate from the third quarter a year ago, having declined in prominence as economic and financial times toughened already prior to the lockdown but declining far more noticeable in the second quarter of 2020 as the lockdown caused the recession to go far deeper.

The elevated percentage for downscaling due to financial pressure, along with the noticeable lower percentages of selling in order to upgrade during the second and third quarter lockdown quarters compared to the pre-lockdown quarters, ties in with data regarding rental payment performance in the tenanted market. Viewing preliminary monthly TPN data for the percentage of commercial tenants in good standing with their landlords regarding rental payments, FNB saw a significant drop in this percentage in the second quarter as lockdown impacted severely on the economy.

From 72.76% of tenants being in good standing in March, the percentage declined to a lowly 47.98% by May, improving only marginally to 52.03% by July as lockdowns eased.

The results emanating from the survey point to the owner-occupied segment of the property market and experiencing a similar noticeable deterioration in its financial situation (as seen in a significantly elevated percentage of selling due to financial pressure and a far lower percentage selling to upgrade) in the second and third quarters of 2020 as the tenanted population that rents commercial space.

It is important to note that the economy was already on the path of long-term stagnation prior to Covid-19, and these financial pressure-related statistics were already appearing weak before lockdown quarters.

Examining by region, the greatest level of financial pressure-related selling or relocation is perceived to be the Gauteng regions as with the case in the previous quarter. Tshwane being the highest at 72.5% of sellers followed by Greater Johannesburg with 58.7%.

The three coastal regions appear better by comparison, Cape Town recording 53% of sellers perceived to be selling for financial pressure-related reasons, eThekwini 47.4%, and Nelson Mandela Bay at 46%. All five regions’ percentages remain elevated compared to just prior to lockdown.

In conclusion, the third quarter broker survey points to financial pressure amongst property owner-occupiers remaining ‘elevated’ even after lockdown has been eased with the estimated percentage of sellers selling in order to downscale due to financial pressure remaining relatively high compared to pre-lockdown surveys and the percentage believed to be selling in order to upgrade to a better property remaining very low compared to pre-lockdown surveys.

This points to a lagged economic and the financial impacts of the second quarter hard lockdown persisting as they are expected to do for a lengthy period. This appears to tie in with what TPN data shows in the tenanted property market where the percentage of tenants in good standing with landlords remains low from July, even though lockdowns had been eased significantly by that time. These survey results add support to the view that ‘full’ post-lockdown economic recovery will be slow.

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