2024 Commercial Property Trend Predictions

By John Jack , CEO of Galetti

2023 saw the commercial property sector continue its road to recovery. The industry fought against uncontrollable odds such as elevated interest rates, high inflation, ongoing loadshedding and economic uncertainty. The clear industry frontrunners in the commercial property space would have to be retail and industrial property. Adding to this is heightened demand for auction properties and commercial space in the Western Cape. On the other hand, SA’s commercial real estate favourite – industrial property – saw a plateau in demand.

The effects of loadshedding cannot be overlooked

All asset classes have been heavily impacted by loadshedding and its subsequent knock-on effect on productivity.?Companies have had to fork out large sums of money to keep the lights on and this has had a major impact on our sector.?Local reports by the Association of Communications and Technology suggest that telecommunications companies like MTN and Vodacom will have spent R1.1 billion on diesel in 2023 alone. Another prime example of the cost implications of loadshedding would have to be South Africa’s retail sector. The country’s largest retailer, Shoprite is said to be spending R95 million on diesel per month. In fact, the company spent the same amount in one quarter of 2023 as it did for the whole of 2022.

2024 trends unpacked

Western Cape and demand for easy port access continues…

Demand outweighs supply in Cape Town, largely driven by its strategic location, increased investment by the City of Cape Town and good governance. The logistics sector is a key driver for this demand because of Cape Town’s prominent road network and easy access to nearby ports.

Lowered interest rates as a lifeline for landlords

Predicted rate cuts from mid-2024 onwards will be welcomed by all landlords, because as rate cuts come to the fore, so does a landlord’s ability to start to recoup cash flow and benefit from higher yields.?While interest rate cuts are not the solution to the problem, they will ignite investor confidence and kick-start further activity amongst asset classes – particularly the office sector which has been in a lull since 2020.

Auction and sealed bids as a preferred method of sale

The idea of auction being used as a preferred method to sell off dilapidated and distressed properties is a thing of the past. Today, many sellers are opting for auction as a quick and easy way to sell off prime assets in a competitive environment where bidders try to outbid each other. We continue to see heightened demand for auction as a preferred method of sale for some. Recently, we brought a billion rand portfolio of properties to the market with excellent results on the auction floor.

For large-scale assets, sealed bids have proved to be popular, and this trend is set to soar. We continue to see more sellers opting for sealed bids on properties valued at over R50 million. It is an efficient method of sale that ensures transparency and generates some healthy competition.

REITs fight back?

Despite dismal returns and a total of R100 billion lost amongst the ‘big five REITs’ (Real Estate Investment Trusts), we are seeing some bold investment moves being made, some of which should start to pay off from 2024 onwards.?Fortress aims to double its solar capacity by 2025, recognising this as a key pillar for growth in its portfolio, while Attacq announced growth at Mall of Africa thanks to new retail brands and upgraded stores. Growthpoint is investing R63 billion into student accommodation as a stable asset class and has announced improved earnings at its flagship property, the V&A Waterfront.

Cash retail?

The cash economy in South Africa cannot be underestimated. Township and rural malls continue their upward trajectory and keen investors are taking note. These flagship properties attract high volumes of foot traffic and data shows that there’s a vast amount of cash circulating in these markets – despite the current climate. JSE-listed REIT, Vukile Property Fund has taken a bullish stance on expansion in the rural and township retail market. The company recently announced the acquisition of a 60 000m2?mall in Mthatha.

There is one more key trend that will continue to gain momentum and empower all parties and that’s proptech. The use of technology in our industry has accelerated, and now with the advent of easy-to-use AI tools, we can improve efficiencies, reduce costs, and make better-informed decisions. This doesn’t mean that AI is better than a human workforce, and business leaders should keep in mind that these tools are most effective when utilised by a skilled professional. Don’t view AI as a threat to job security, but rather as a way to ‘work smarter’ and provide tenants, landlords, and property managers with a better experience.”