The Year in Property

Category General

The Year in Property

Covid-19 brought the property market to an absolute standstill with some sectors faring better than others. Undoubtedly, the pandemic has played a part in accelerating some underlying trends in the property sector with its recovery relying on the roll out of vaccines. But, there have been some green shoots. In particular, the high volumes of transactions in the entry level residential market.

 

Residential

Estate agencies have reported a significant nationwide demand for properties priced under R3 million with the rental market languishing with declining rentals and increasing vacancies. This trend has been driven by a combination of historically low lending rates and declining prices seeing younger first-time buyers entering the market.

Appealing to this new generation of home buyers, two of the 'Big Five' financial players launched digital game-changers. Capitec partnered with SA Home Loans on its easily accessible full home loan offering while Nedbank introduced a USSD home loan calculator, opening access to homeownership for low-income earners.

With a predominantly residential portfolio, Octodec suffered because of this shift and its share price has dropped by 50% since the beginning of the year. It had already slowed its development pipeline in 2019, disposing of some of its properties while adapting to the changing market reflected the strength of its experienced and respected executive.

Government quietly announced that it would no longer be supporting 'free' housing projects , citing abuse of the system by the electorate, and considering the total housing shortfall is estimated at 2.6 million units, this decision effectively ends the policy of providing free housing to those in dire need.

Retail

The retail sector, in particular larger malls, struggled against the migration of consumers to online purchases prior to the pandemic. This was highlighted by Edgars closing many stores under its business rescue processes leaving large vacancies in its wake.

This highlighted the pressing need to pivot retail towards a more sustainable and resilient future. One such conceptualization included EGG, a collaboration between Old Mutual Properties and the founder of YDE, which leverages key consumer behavioural insights creating a platform that allows entrepreneurs an easy path to offering their products in a mall/department store environment. The first EGG store opened with 250 local brands available in 3,800m2 of prime retail space previously occupied by Edgars at Cape Town's Cavendish Square. It welcomed 7 000 customers within its first two days of trading. The recently launched Mall of Thembisa, includes a similarly focused offering with its Kasi-CoLAB. These platforms allow access to mall space, traditionally the domain of national retailers, to small businesses and allowing young entrepreneurs to grow and formalize their businesses.

Office

The office sector was undoubtedly amongst the hardest hit with vacancy rates rising strongly and the remaining uncertainty as to how much space office users will really require going forward.

A move to flexible working patterns had been emerging prior to Covid-19 with the expectation of shorter work weeks, hot desking and shared office environments being replaced by working from home. The closure of offices during the first initial lockdown gave way to the remote working phenomenon which has remained strong throughout the year, despite most businesses already having returned to work.

Referred to the 'Zoom Boom', the pandemic has challenged the traditional norms of the working environment with most office users significantly scaling back on their space requirements. Investors and property managers alike will need to adapt to their tenants' needs by providing workspace that meets strict Covid-19 protocols, which ironically may require more space to implement, and offering more flexible solutions.

Co-working environments suffered badly, with clients typically being on short-term commitments and exiting their contracts during the pandemic. However, they are well positioned for a strong recovery with their more flexible terms offering the scalability office users will eventually require.

Hospitality

As the biggest hotel industry market in Africa, South Africa has been the hardest hit. Pre-Covid-19, STR, a global data-driven solutions agency, recorded 405 hotels operating in the local market which drastically plummeted to 70 hotels in the thick of the national lockdown during May 2020.

Numerous local hotels have remained closed including the Mount Nelson with permanent casualties including the iconic Somerset West NH Lord Charles hotel which closed its doors for good at the end of August 2020. The irreparable damage to the hospitality property sector has filtered through in various channels with specialist REIT, Hospitality Property Fund, recording a -60.71% drop in its share price for the year to date. 

Hospitality giant, Sun International, announced the sale of its Carousel Casino license after the company made the decision not to reopen after the national lockdown restrictions were lifted, it has however reopened under new management.

Industrial

On a more positive note,  the industrial sector seems to be the 'winner' in the property market with FNB reporting that vacancies being filled in the shortest time relative to other sectors. The exponential growth of online shopping, coupled with the increasing demand for data centres, has had a direct and positive impact on this sector.

Listed Equites Property Fund has managed to unlock significant value in the logistics asset class with most of its portfolio growth attributed to pre-let developments in South Africa and the UK. Its focus on high quality logistics properties saw it weather the year with its share price only losing 10,5%.

South Africa's listed self-storage fund, Stor-Age had a similar performance with many transport and logistics companies increasingly utilising its services in favour of fixed term leases. The group also entered an international JV with real estate fund manager Moorfield to develop a UK portfolio of self-storage assets with an initial value of approx. £50 million.

All in all, it has been a dreadful year but there were few casualties with REITS being forced to restructure and optimise their balance sheets to avoid breaching their loan covenants but emerging leaner and stronger. Looking forward, recovery will hopefully come sooner rather than later for the property industry.

Author: Property WHeel