Latest news with #CommercialPropertyFinance
IOL News
10-07-2025
- Business
- IOL News
South Africa faces a decline in homebuying activity amid economic challenges
If the US does implement the 30% tarrifs on all South African imports on August 1, homebuying activity in the country may ultimately slow down. Image: Sergio Souza/Pexels South Africa may see a dip in homebuying activity as consumers grapple with various economic challenges and rising household costs. Although the tariff increases do not directly target South Africa's residential property market, there will be some indirect implications as they will have an impact on economic slowdown, investor sentiment and inflation, says Bradd Bendall, the national head of sales at BetterBond. 'Tariff increases will affect major industries, such as the motor vehicle industry, which could hamper the country's economic growth. Job losses in these industries as a result of the tariffs will reduce consumer spending power,' Bendall said. He added that higher tariffs could also weaken the rand, making building materials more expensive. # "This could lead to much-needed new residential developments being delayed or becoming more expensive, he said. However, Bendall said every stock market decline in recent years has been followed by recovery and even a new growth phase. 'We saw this in 2020 with the pandemic, where governments responded with fiscal support and low interest rates, which resulted in an unexpected market rebound in subsequent months.' The industries that have already been flagged as being at significant risk if the United States(US) 30% import duties are implemented next month are notably automotive manufacturing, steel and aluminium, and agricultural products, says John Loos, the senior economist for Commercial Property Finance at FNB. He said should any of these sectors experience financial strain, the direct property risk would lie primarily with the manufacturing segment of industrial property and, to some extent, the logistics and warehousing component, particularly where export-dependent tenants may come under financial pressure. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ 'However, there is also a broader, indirect risk to the property sector stemming from the wider economic consequences of any export-related shock. Manufacturing is deeply interconnected with other sectors of the economy, which would also be affected to varying degrees. "For example, household financial stability is crucial for residential property demand, as well as for retail consumption, which underpins the health of shopping centres. "Therefore, if the large manufacturing sector were to experience significant job losses, this could reduce residential and retail purchasing power, impacting both the residential and retail property markets,' Loos said. In essence, the direct potential impact would be felt most in the manufacturing component of industrial property, and perhaps to a degree in warehousing, with broader indirect effects rippling through various segments of the property market due to the overall economic impact of such an export shock, he added. Furthermore, the senior economist said that while many agricultural products are produced on farms and fall outside of the urban commercial property market, any economic damage from disrupted agricultural exports could still indirectly affect urban property markets, especially in smaller centres whose local economies rely heavily on agriculture. Loos said export-focused tenants that are heavily dependent on the US demand may likely seek to diversify into other global markets to mitigate risk. Bendall said that while the US tariffs will have an effect on some local markets, South Africa has several key macroeconomic indicators pointing in the right direction that will help pave the way for sustained economic growth and more employment opportunities in the longer term. He said inflation is currently well within the 3-6% target range and there is no reason for the South African Reserve Bank(SARB) to hike the prime lending rate when it meets again at the end of this month. 'There is also talk of lowering the target band of the interest rate. Fortunately, the rand has remained firm, despite the announced intention to hike tariffs from the beginning of next month. 'The property market has repeatedly shown its resilience and remains an asset class that can offer reliable returns. BetterBond's June Property Brief reported a 4% year-on-year increase in home loan applications for the 12 months to May 2025. "This suggests that the property market is showing signs of growth amidst the geopolitical uncertainty that has marked the first half of 2025. As always, consumers are urged to budget wisely and avoid unnecessary debt during these uncertain times,' Bendall said. Loos said another potential consequence of an export shock is its impact on the broader economy and, by extension, government tax revenue. He said a reduction in revenue could widen the fiscal deficit, increasing the government's borrowing needs and putting upward pressure on bond yields. 'Since bond yields influence property capitalisation rates, this could result in upward pressure on cap rates and, consequently, downward pressure on property valuations,' Loos said. Tariffs continue to dominate the headlines, but US Fed minutes have added a twist, says Bianca Botes, Director at Citadel Global on Thursday morning. She said only a few officials backed a July interest rate cut, with most citing inflation risks tied to US President Donald Trump's tariff spree. 'Markets now expect cuts later this year, but not imminently,' Botes said. According to Botes, the rand is trading largely rangebound as markets wait to see the outcomes of tariff negotiations leading up to August 1. Independent Media Property
IOL News
03-07-2025
- Business
- IOL News
Shifting trends: 19. 3 per cent of office properties now being converted to residential and mixed-use developments
The Virginia Airport site is now a R10 billion investment that will start this year to 2030 and create 10 000 jobs. The strategic plan is to redevelop the airport site for mixed-use purposes, including high-end residential and commercial use. Image: Graphic: Supplied A notable 19.3% of office property purchases are intended for conversion to residential or mixed-use developments, according to brokers' estimates. Residential conversions are playing a critical role, especially in Johannesburg, says John Loos, the senior property economist for Commercial Property Finance at FNB. In the first quarter of this year, the FNB Property Broker Survey included a new question on the main reasons for buying office property. The options provided were company purchase for own office use, investment to lease as office space, conversion to residential or mixed use and others. He said aggregated responses from the first and second quarters provided revealing insights. 'Nationally, 43% of buyers were purchasing for their own use, while 36.4% were investors. A noteworthy 19.3% were acquiring office properties with the intention of converting them to residential or mixed-use, an important mechanism for absorbing excess office space is unlikely to be needed in the future, Loos said. Regionally, he said Johannesburg shows the highest conversion intent, with 38.1% of office property purchases estimated to be for repurposing. Nelson Mandela Bay was at 17.1% and Tshwane (14.9%) followed, while Cape Town (4.6%) and eThekwini (1.3%) showed minimal conversion activity. These figures likely reflect healthier market fundamentals and lower vacancy rates in the coastal metros, Loos said. He said that, however, this also means that in cities like Cape Town, opportunities to address housing shortages by repurposing underused office space are limited-particularly in high-demand areas such as the City Bowl. Loos said many of the challenges facing the office property market in recent years have been well-documented. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Advertisement Next Stay Close ✕ He said when Covid-19 lockdowns began in 2020, there was a surge in remote and hybrid working, sparking debate around the future need for office space. He added that some companies reduced their office footprints to accommodate greater levels of remote work. 'While much of the initial hype around working from home (WFH) was overblown, many employees eventually returned to the office-though not in the same numbers as before the pandemic. Long before Covid-19, however, advances in technology had already enabled more flexible work arrangements. "These trends are expected to continue gradually in the post-pandemic 'new normal',' Loos said. Additionally, the senior property economist said productivity improvements driven by technology have allowed office-dependent sectors to grow without proportionally increasing their workforce numbers, curbing long-term demand for office space. At the same time, he said digitisation has reduced the need for physical document storage, further lowering space requirements. The financial institution's commercial property finance unit said South Africa's sluggish economic growth since the early 2010s has also played a role, limiting formal employment growth and, by extension, the demand for office space. 'Unsurprisingly, these factors led to a sharp rise in the national office vacancy rate-from a post-GFC low of 9.2% in 2014 (MSCI data) to a peak of 18.2% in 2021/22, shortly after the hard lockdowns.' Since 2021/22, Loos said there have been encouraging signs of declining oversupply, particularly in the major coastal cities, with the national office vacancy rate declining to 15.8% in 2024-still high, but a notable improvement. 'Rode data paints a similar picture, with national average A+, A, and B-grade office vacancy rates dropping from nearly 18% in the first half of 2022 to 12.8% in Q1 2025. Although this remains above the long-term average of 9.5%, the trend is positive.' Loos said. He said that, however, Rode data also reveals a regional divergence with Cape Town and Durban's decentralised markets showing vacancy rates just above 8%, possibly supported by a growing demand for call centre space. In contrast, Gauteng is said to remain under pressure, with this year's first quarter vacancy rates of 14.1% in Johannesburg and 13.4% in Pretoria. With regards to investment sentiment, 57% of brokers in this year's second quarter FNB Property Broker Survey believe that office property supply still exceeds demand. However, this is down significantly from the record high of 98.4% in the second quarter of 2021. New was said to have significantly slowed down the key factor in reducing oversupply, being the dramatic decline in new office space development. In 2024, only 82,942 square metres of office space were completed, an 86% drop from 2019 levels and a 90% decrease from the 2013 peak. The affordability improvements were said to support recovery with real (inflation-adjusted) office rentals declining by 16.5% from the 2020 peak to 2024, while real capital values per square metre have dropped by 25.9% since the 2016 high (MSCI data adjusted for GDP inflation). For both tenants and investors, office space has become more affordable, another factor helping to reduce oversupply. In conclusion, Loos said the office property market is gradually 'right-sizing' amid structural shifts in demand. 'While reduced new developments and improved affordability have played important roles, residential and mixed-use conversions-particularly in Johannesburg-are emerging as a key solution to the sector's oversupply. "The future of the office market lies in its ability to adapt to long-term changes in work patterns, economic conditions, and urban development needs.'
IOL News
27-06-2025
- Business
- IOL News
South African commercial property brokers report decreased business confidence in second quarter
The upward trend in property broker confidence observed in previous quarters was reversed in the second quarter of this year. Image: Magda Ehlers/Pexels The business confidence among commercial property brokers declined in the second quarter of this year, thereby reversing the upward trend observed in previous quarters. This is according to the FNB Commercial Property Broker Survey, which assesses a sample of commercial property brokers operating in and around South Africa's six major metros: the City of Johannesburg and Ekurhuleni (Greater Johannesburg), Tshwane, eThekwini, the City of Cape Town, and Nelson Mandela Bay. Before assessing market activity levels, brokers are asked whether they find current business conditions 'satisfactory' via a simple yes/no response. In the second quarter of this year, the percentage of brokers who perceived conditions as satisfactory dropped from 55% in the previous quarter to 40%. This marks the end of three consecutive quarters of improvement, says John Loos, the senior property economist for Commercial Property Finance at FNB. The survey showed that all three major property classes recorded a decline in activity ratings this quarter, with the industrial and warehouse property one remaining the strongest-performing market, although its activity rating declined slightly from 5.69 in Q1 to 5.59 in Q2. Retail property activity fell from 4.79 in Q1 to 4.47 in Q2, while office property activity declined from 4.95 in Q1 to 4.67 in Q2. These figures were said to represent a reversal from the previous quarter, where all three sectors saw improved activity ratings. As a result, the Q2 2025 FNB Property Broker Survey suggests that both business confidence and perceived market activity have weakened, indicating a broader sentiment of caution in the commercial property space. The financial institution said the survey was conducted in May, shortly after the South African Reserve Bank (SARB) chose to hold interest rates steady in March, following three consecutive 25 basis point cuts at earlier Monetary Policy Committee (MPC) meetings. Although the SARB resumed its rate-cutting cycle in late May, it said the temporary pause may have dampened sentiment among brokers and their clients. Loos said additional factors influencing negative sentiment include the instability within the Government of National Unity (GNU) regarding national budget negotiations, raising concerns about the coalition's longevity, tense diplomatic relations between South Africa and the United States, with US President Donald Trump threatening trade tariffs and accusing South Africa of human rights violations and hostility toward the US and its allies. This led to the closure of USAID in South Africa and fears of increased tariffs on exports-potentially impacting the economy. He said that slower economic growth, with the first quarter GDP expanding only 0.1% quarter-on-quarter, down from 0.4% in the last quarter of last year, suggests that early 2025 may be constrained in terms of business growth and investment. Despite the current decline, FNB said it expected a mild recovery in property sales activity in the second half of this year. It said the full-year activity is forecast to outperform 2024 levels, driven by an anticipated 25 basis point interest rate cut in the second half of this year, supported by a low May inflation rate of 2.8% y/y-below SARB's lower target threshold of 3%. The property economist said positive signs from leading economic indicators included SARB's Business Cycle Leading Indicator (March), which rose 4.1% year-on-year and 1.1% month-on-month, new passenger vehicle sales, which surged 30.3% year-on-year in May and residential mortgage demand, which had reached 16.2% y/y growth by last quarter of last year (though data for early 2025 is still pending). Based on these indicators and a looser interest rate environment, FNB forecasts GDP growth of 1.1% for this year, compared to 0.5% last year. However, it said not all signs are optimistic as the Manufacturing PMI's new sales orders index recorded a low 38.3 in May (on a 0-100 scale), indicating continued pressure in this critical sector. Despite weaker sales activity, brokers continued to report declining vacancy rates across all three property classes. Lower vacancy rates are typically associated with stronger rental growth and improved net operating income, which may attract more investors seeking higher returns. While the second quarter of this year showed a dip in confidence and activity across the board, FNB said it remains cautiously optimistic. 'Given the expected macroeconomic tailwinds and improving indicators, a modest rebound in commercial property sales activity is anticipated in the latter half of 2025.' While the South African real estate sector has not been insulated from the various macroeconomic challenges, the sector has shown notable resilience. This was as this year got off to a volatile start with significant movements across global markets, shifting geopolitical dynamics, and ongoing volatility driven by persistent macroeconomic headwinds. Despite global pressures, South Africa's real estate market faced significant domestic headwinds. These included stubbornly high interest rates, the continuing impact of the post-Covid-19 recovery, and overall weak economic growth, said Simon Fiford, senior vice president for Real Estate Coverage at Standard Bank recently. These factors have impacted each asset class differently. Across these categories, performance has varied. 'According to Standard Bank's internal estimates, the South African commercial real estate sector is currently valued at approximately R1.9 trillion. This represents a significant increase from the R1.3 trillion recorded in 2015, highlighting the sector's growth over the past decade. "If we add to this the estimated value of the residential property market (R6.9 trillion), the market size exceeds R8.8 trillion (as of the end of 2024),' Fiford said. Independent Media Property
IOL News
23-05-2025
- Business
- IOL News
Why multifamily properties are shaping the future of South Africa's real estate market
Inkanyezi Village, Katlehong South. Image: Supplied South Africa's large-scale residential rental property market, commonly called 'multifamily', is quickly emerging as a promising segment of the country's real estate sector. Amelia Dieperink, the head of Commercial Property Finance (CPF), Affordable Housing, Absa CIB, said this was backed by competitive financial returns and reduced volatility, all while addressing a critical housing shortage. She said multifamily presents a compelling investment case. 'The multifamily offering has gained momentum, buoyed by the increasing demand for affordable, centrally located and well-managed rental housing. Institutional investors are taking note. Statistics South Africa reports that 4.5 million households, or 23% of the national population, are currently renting. "Of these, 15% (around 685,000 households) reside in blocks of apartments, pointing to a significant opportunity for scale within the multifamily sector. Multifamily housing refers to institutional ownership and professional management of apartment buildings and residential portfolios. "This model is fast becoming the global standard for urban housing delivery. According to the Centre for Affordable Housing Finance(CAHF) in Africa's recent report, Aligned Interests: The Case for Long-Term Institutional Investment in Multifamily Rental in South Africa, the sector is increasingly robust, demonstrably resilient, and qualitatively rewarding,' Dieperink said. The head said, despite challenges, ranging from service delivery to economic strain, developers have remained committed to delivering quality, well-managed housing with attractive amenities in desirable locations. She said the multifamily model has proven itself to be low risk and defensive in nature when well managed by strong operators, as well as adaptable and responsive, bolstered by innovation in property management and a surge of interest from both local and international players. 'The residential property market is a major contributor to the South African economy, playing a pivotal role in supporting growth, job creation, and meeting the evolving housing needs of a diversifying population,' notes the CAHF report. Video Player is loading. Play Video Play Unmute Current Time 0:00 / Duration -:- Loaded : 0% Stream Type LIVE Seek to live, currently behind live LIVE Remaining Time - 0:00 This is a modal window. Beginning of dialog window. Escape will cancel and close the window. 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Text Color White Black Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan Transparency Transparent Semi-Transparent Opaque Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps Reset restore all settings to the default values Done Close Modal Dialog End of dialog window. Next Stay Close ✕ For the sector to realise its full potential, Dieperink said, process and structural inefficiencies must be addressed and capital unlocked. She said institutional players, lenders, and policymakers must collaborate to accelerate delivery, scale developments, and enhance regulatory support. Absa CPF said it has been instrumental in supporting the rise of multifamily developments, especially within the affordable housing segment. Over the past decade, it said it has focused on this high-growth area, providing financing solutions to investors and developers across the country while also enabling the transformation of urban centres such as Johannesburg's CBD. Here, obsolete office buildings have been revitalised into thriving, community-based residential spaces, it said. 'The social impact of this investment cannot be overstated. Beyond providing homes, these developments stimulate economic activity, improve safety, and bring dignity back to neglected urban spaces.' Absa added that it has also led the way in embedding sustainability within property finance. In 2023, the bank concluded a R4.5 billion transaction with the International Finance Corporation under the Market Accelerator for Green Construction (MAGC), the first in size of its kind in Africa. More than half of this funding was allocated to affordable housing projects, cementing Absa's position at the intersection of environmental and social impact. Yet, the bank said, despite the sector's momentum, one of its most pressing challenges remains the availability of data. 'Comprehensive, granular, and reliable data specific to the multifamily rental market is lacking. Investment-grade decisions depend on transparency, and for many institutional investors, the absence of detailed analytics has been a key barrier.' Recognising this, Absa said it sponsored the original MSCI compilation of residential sector data in 2018. More recently, alongside Divercity Urban Property Group, the bank co-funded two critical research studies commissioned by the South African Multifamily Residential Rental Association (SAMRRA), an emerging industry body representing thirteen major players who collectively own and operate over 75,000 units valued at over R40 billion. That figure alone represents 11% of the entire multifamily market. Dieperink said as investor sentiment shifts and appetite builds, the focus must now be on scalability. She said that with institutions such as the Public Investment Corporation(PIC) committing capital and financial institutions such as Absa providing finance, the growing imperative shifts to the increase in delivery of quality housing stock. 'Unlocking scale will further facilitate a residential-focused listed REIT structure, improving access to capital while offering the broader investment community a new vehicle for inclusive, impact-driven growth. "South Africa's multifamily rental sector stands at a defining moment. With the right blend of capital, data, and policy support, it has the potential to reshape the country's housing market and, in doing so, drive a broader economic and social transformation,' Dieperink said. According to Mordor Intelligence's South Africa Real Estate Market Analysis, the rental market continues to demonstrate resilience and attractive returns for investors, with gross rental yields in major metropolitan areas like Johannesburg ranging from 6.5% to 9.3%. The report said this robust rental market is particularly evident in urban centres where young professionals and students drive demand for rental properties. 'The market has seen a significant shift in rental preferences, with increased demand for properties offering modern amenities, security features, and proximity to business districts. Property investors are increasingly focusing on developing rental properties that cater to these evolving tenant preferences while maintaining competitive pricing strategies,' reads the analysis. Independent media Property
