Although brokers are more optimistic in the commercial property market than they were last year, an economic slowdown and 375 basis point interest rate rises since late-2021 may have begun to catch up with the market, according to John Loos, FNB’s property strategist.
According to the bank’s Commercial Property Broker Survey for the first quarter of 2023, most (51%) commercial property brokers in South Africa’s six main metros are satisfied with the present situation of the market.
This is up from 47% of brokers in the fourth quarter of 2022.
The survey data was gathered from brokers in Joburg and Ekurhuleni (Greater Johannesburg), Tshwane, Ethekwini, Tshwane, the City of Cape Town, and Nelson Mandela Bay.
“This means that the broker business confidence level start in 2023 is still higher than the level at which it started in 2022.
“However, this level of confidence remains mediocre, still implying that a significant 47% of respondents are dissatisfied with conditions,” Loos said.
Broker activity, on the other hand, portrays a less hopeful picture.
When asked to rate market activity levels on a scale of 1 to 10, the average rating of the group of respondents was somewhat lower in all property classifications, namely office, industrial, and warehouse space, as well as retail.
Despite a minor dip from 6.35 to 6.31 in the first quarter of 2023, commercial property brokers in South Africa remain optimistic about the Industrial and Warehouse Property Market, which has the highest activity rating of the three property classes.
In the same time period, retail property activity fell from 4.71 to 4.44, while the office property market activity rating remained the lowest, falling from 4.15 to 4.08.
“Economic growth slowed in the final quarter of 2022, as expected, and this may have had a partial cooling impact on the Commercial Property Market going into 2023,” said Loos.
“Much of the interest rate hiking impact on the economy comes with a lag and can thus impact on property demand indirectly over and above the direct impact via the increased cost of servicing mortgage debt,” said the FNB strategist.
Real GDP growth slowed in the fourth quarter of 2022, from 1.8% in the third quarter to 1.3% at the end of the year; this slowing may be beginning to be seen in the commercial property market.
South Africa’s rate rise cycle began in November 2021, and FNB predicts another 25 basis point raise in March, putting the cycle to a close with prime at 11.00%.
According to Loos, the projection is affected by a drop in CPI inflation from a peak of 7.8% year on year in mid-2022 to 6.9% in January 2023, with a large fall in fuel price inflation playing a role.
