South Africa's new retail mall and office trends

According to John Jack, CEO of Galetti Corporate Real Estate, South Africa’s commercial real estate industry has been steadily recovering, with new trends expected to define the next year.

When most lockdown limitations were relaxed mid-year in 2022, the sector sighed a collective sigh of relief, allowing many employees to return to in-person employment. However, it faced new hurdles as a result of six consecutive interest rate rises in 2022, pushing the current rate to 10.5% by December 2022.

“Despite the pressures brought on by interest rate hikes, we are confident that the recovery reflected in the commercial real estate sector in 2022 will continue into the new year,” said Jack.

“The growth indicators are strong, and the latest increase rate is still far off from all-time highs. The commercial sector is less affected than residential because many investors have wisely stored capital rather than paying dividends.”

Looking ahead, Jack forecasted the following commercial real estate market trends, focusing on retail and workplaces:

As a service, space

According to Jack, the country’s sustained high numbers of unoccupied workplaces have forced landlords to rethink how they conduct business by shifting away from typical office premises.

“Today there is a lot of talk around ‘space as a service, and this is set to gain further momentum in 2023.”

Historically, offices were thought to be only “four walls” to work in. Today, however, landlords are reviving their properties, according to Jack. “Spaces are being repositioned and reinvigorated as a service.”

“Landlords are attracting and retaining tenants by elevating their space through exciting amenities such as on-site coffee baristas, relaxation areas, canteens and break-away areas.”

B-grade office space is in high demand.

There might be an upsurge in demand for smaller, older workplaces with less facilities.

“There is a massive opportunity in B-grade space and for investors to revamp vacant buildings and bring them to market. Most A-grade spaces standing empty have failed to attract tenants despite already catering to their wants and needs.

In contrast, many B-grade buildings have unrealised potential, and savvy landlords are breathing new life into these neglected spaces,” said Jack.

The retail industry is projected to recover to pre-pandemic levels.

According to Jack, the retail property industry, which includes shopping malls, will continue to recover in 2023.

In its most recent Shareholder Update, Growthpoint Properties, a major real estate investment business, revealed a 5.8% retail vacancy rate and an 82.7% renewal success rate. This recovery stands out when compared to Growthpoint’s office vacancy rate (21.4%) and renewal success rate (61.2%).

According to business data, it forecasts sustained recovery in key retail measures, with turnovers and customer footfalls reaching pre-pandemic levels at most of its shopping centres.

Galetti has seen this recovery pattern replicated in smaller’strip malls’ and the township retail sector, according to Jack. “An estimated R150 billion in cash is spent at spaza shops in the informal economy every year, and we expect to see more retail landlords realising the opportunities available in the informal sector by funding smaller retail developments in these areas,” he added