A recent report published by JLL, South African Real Estate Investment Review and Outlook 2021/22, corroborates other industry surveys, which showed that the SA commercial property market struggled through the pandemic, with virtually all sectors registering a decline in performance.

The JLL report reviews local commercial property investment activity, and its primary sources of information include publicly available databases and resources as well as interviews with industry stakeholders. It focuses on deal flow registered in 2021, comparing investment volumes in 2021 to deal flow over the past four years.

According to JLL research manager Mieke Purnell, student accommodation and filling stations emerged as a growing asset class in 2021, and demand remained strong for prime logistics and retail assets.


The report shows that office space investment has continued to decline, which started in 2018 as the local economy weakened and oversupply remained a problem. The office sector remained under pressure throughout 2021, as several adverse drivers from the previous year persisted.

Investors were deterred by weakened rentals, high vacancy rates and a slump in demand, with limited opportunity for improvement. The office sector’s aggregate investment value reached roughly R2.6 billion in 2021 - down by 18% from the R3.1 bn reported in 2020.

The leading office deals in 2021 were mostly lease-back and sale transactions linked to large corporates, like the Telesure campus transaction in Dainfern, Gauteng or associated with refurbishment and redevelopment, like the disposal and acquisition of 1 Thibault Square in Cape Town.

According to the Director: Capital Markets, JLL, Pepler Sandri, average sales rate data reflects a split in the market, with prime stock achieving comparatively favourable rates. Contrary to this, lower grade stock in weaker nodes realised significantly lower prices - particularly when compared to replacement cost.


According to the report, retail suffered under the initial lockdown restrictions but proved resilient in 2021.

Staggered lease expiry profiles at shopping centres, together with negative rental reversions, lower escalation rates, and shorter lease terms, continue to hinder the sector’s performance.

The retail sector’s aggregate transactional increased by +17.6% in 2021. This increase effectively exceeded values reported over the historical five-year period. Though transaction counts declined, the aggregate lettable area transacted improved.

“Retail income performance is on the rise as vacancies are filled, and landlords look for alternative revenue streams through the installation of signage or solar PV systems, for example,” says Sandri.

“Retail transactions are estimated to account for around 34% of total deal flow activity, remaining level in terms of investment values reported for 2020. Regardless of the challenges, investment in the retail sector showed strong growth in 2021, increasing by 18% to peak at just over R7 billion.”

Several landmark deals during 2021 included:

The sale of Atterbury Value Mart finalised for more than R1 billion.

The Nicolway Shopping Centre transaction recorded a yield also over R1 billion. “Looking ahead, JLL is involved in and aware of several significant shopping centre transactions currently under negotiation. However, it remains to be seen whether investment in 2022 will reach R7 billion or higher,” says Sandri.


The JLL report shows that investment volumes dropped significantly in 2021 following the outlier transaction volume the industrial property sector experienced in 2020.

When comparing investment in 2021 to pre-Covid-19, demand fundamentals remain strong. For example, the recent sale of the 145 000m2 DSV Campus in Plumbago at R2.05 billion in 2021 accounted for almost half of all deal flow in the industrial sector for the year.

However, further investment in industrial property is presently limited by the lack of core stock available rather than a lack of demand.



Other sectors

The alternatives and living sectors reported a record year. This sector was dominated by senior housing, student accommodation, and mid-market rental accommodation.

In 2022 and 2021, data centres were added to the pool of non-traditional property investment, and filling stations emerged as a strong investment prospect. Sandri says the outstanding performance of this sector is primarily the result of two of the largest student accommodation portfolios changing hands.

“Unless a similar extraordinary deal is finalised in 2022, investment volume is unlikely to reach the record R6.6 bn achieved last year,” says Sandri.

Of all the property sectors, hotels and hospitality properties possibly experienced the most damage from the pandemic. Harsh operating conditions resulted in lower capital values, creating an opportunity for investors with a longer-term outlook to acquire hotels at well below replacement cost.

“Despite the adverse effects of Covid-19, investment activity is supported by debt capital becoming more affordable through lower interest rates. Along with discounted asset prices, this has led to an ideal investment climate for investors who predict a medium to long term recovery,” says Purnell.

Green shoots

The report concludes that the annual economic growth trends are forecast to stabilise to pre-pandemic levels as extraordinary stimulus winds down. Although interest rates are increasing - locally and globally – lending rates are widely expected to stay below the levels experienced before the global financial crisis of 2008.

Looking forward, Sandri says the green shoots of growing investor appetite are emerging - 2022 is set to be a strong year for commercial property investment sales, with several important deals already underway.

Courtesy of Sarah-Jane Meyer | Private Property



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