The first issue of Rode’s Report on the South African Property Market for 2021 shows that the office market remains the riskiest due to a swelling vacancy rate as a result of the work-from-home trend and an oversupply of commercial space built during the last few years when the economy was already struggling.
On the positive side, industrial property is still doing well due to its superior fundamentals, while house prices are performing better than expected.
The listed property market continued its end-of-year recovery in the first quarter of 2021 as shown by the improvement in the share prices of JSE-listed Real Estate Investment Trusts (REITs) - albeit from a low base.
Fundamentally, industrial property is still in the best position compared to the other non-residential property types, due to its few speculative developments, low vacancies and recovering rental growth. In the first quarter of 2021 nominal rentals for prime space of 500 m² grew by 1% year on year, nationwide. This is better than the 0,5% growth achieved in 2020, but still well below the 5% rental growth of 2019. Although experiencing fewer headwinds than the office and retail property markets, the slow rental growth shows that the industrial market is also feeling the effect of the weak economy.
Rode’s office market survey for the first quarter of 2021 indicates that commercial landlords’ worst fears have been realised. Market rentals are still dropping further due to a growing oversupply as employees continue to work from home. No major city recorded above inflation office rental growth, with rentals for decentralised Grade-A space decreasing by 5% in the first quarter of 2021 compared to the first quarter of 2020. This is the third consecutive quarter showing a decline in rentals countrywide.
The report shows that house prices in South Africa remain buoyant with nominal price growth reaching about 4% in February 2021 compared to February 2020 due to the low interest rate.
“This implies that so far in 2021 house prices have surprisingly outpaced consumer inflation, which averaged 3% in the first two months of the year,” says Rode Report editor, Kobus Lamprecht.
“This is very encouraging as house prices have been declining in real terms - after deducting consumer inflation - since 2016.”
However, he says there are early signs that the market is starting to cool, with prices essentially trending sideways month to month since December.
This is possibly because the impact of the low interest rate is starting to fade, and high unemployment statistics and salary cuts are starting to play more of a role in curbing demand growth.