You need a thick skin to have skin in the property game

And just like that, the 5th client of mine has called me to sadly let me know that they cannot afford to do business anymore and they need to close down. Could there be anything more sad than a passionate business owner being forced to shut their doors because the challenges that South Africa puts on business have become one too many. I am a passionate entrepreneur and a big driver for me in my business is that we feed close to 25 mouths each month. My interpretation of the saying “charity starts at home” is that charity starts in my own business. Making sure that our staff are paid on time each month and that all 25 of those mouths are fed, is essential for my staff to function in their roles optimally and for me to sleep well at night.?

Petrol

Since the onset of the pandemic and the boom of e-commerce, the number of enquiries for logistics businesses and distribution centres has soared. Both large and small operators in the logistics space are bleeding due to the irrational increases in petrol. There is only so much pain that can be passed onto their paying customers until the entire business model of fast last mile logistics becomes infeasible. I read that our beloved Takealot is making a loss. Which begs the question, can fast last mile logistics work in this country and make a profit? We haven’t touched on when Amazon hits our shores either.?

Transport has always been one of the largest expenses for employees each month as some workers spend a third of their salary to get to and from work via a minibus taxi, bus or train. The cost of transport for staff was already high and the increase has caused stress for staff like never before. We live in a country where getting to work costs the same amount of money as school fees; pair that with taxi protests and the burning of train stations that will take forever or never to get repaired.??

I recently placed a call centre client who pays a third party for private mini buses to drop staff to and from their homes at no extra cost to the staff. A few of my clients already subsidise their employees transport and I believe that this will become the norm for South African business owners if you want to ensure that you have a full work force at the factory every day. There is no such thing as a free lunch, therefore this extra expense will need to come out of somewhere or someone’s salary.?

Electricity?

For years, we have become accustomed to our infamous load shedding schedules. At the time of writing this article, stage 6 was implemented. A Lack of power stations, a lack of maintenance and protesting has led us to this dark fate. My client owns a hair salon and cannot accept card payments when the power goes down and the signal towers worsen. She also closes up shop for the afternoon as she cannot use her blow dryer. With the world going more and more cashless, how does a business operate if customers prefer to not pay cash? They don’t and they lose the business. Business owners need to come up with methods for payment of money that don’t inconvenience the customer and work efficiently. More and more tenants are requesting generators as a compulsory requirement to ensure that they can operate.??

What is the plan for power? No one knows. Literally no one knows. Is that not the scariest part of it all? We will just wait for more business closures, more depressing headlines, more pain and more challenges that will arise out of these challenges. And while we wait, the employees of Eskom will add fuel to fire and protest. Growthpoint’s latest results presentation was a hard listen. They have experienced first-hand the cost of maintaining and running generators for tenants and they are making a huge loss while doing so. Can tenants afford the generator pain that needs to be passed onto them? When looking for a place to rent for yourself to live or your business, the demand for generators being a standard requirement will increase.?

Water

I heard from an engineer the other day that in the Kwazulu-Natal area - for every litre of water that passes through the pipes, 40% of it is lost due to poor pipe infrastructure such as leaks and cracks. Couple this with the fact that multiple areas are going days without water. We are used to operating without electricity and when it comes to business, we have made plans to keep business going as best we can when the lights go off. However, how do you expect a business to run without water?

I had a meeting with a restaurant franchise client of mine and they mentioned that their stores go days without water and that they are bringing in thousands of litres every day via tanks. This is not sustainable.??

The water infrastructure issue has been a ticking time bomb for years. No money was deployed to maintain and fix the infrastructure underground which will lead to issues much worse than taxi’s sinking in sudden sinkholes. Boreholes, much like generators, will become a requirement for tenants going forward to ensure that they can operate.?

Inflation

At the time of writing of this article, inflation is at 6.5% with further increases expected in 2022. In a lease agreement, inflation goes hand in hand with escalation rates. Escalation rates are supposed to cover the predicated increase of operational costs to manage and maintain a property. A healthy escalation rate in South Africa is anywhere between 7% and 9%. I wouldn’t be surprised if Landlords start asking for escalation rates higher than this in order to cover the rising cost of maintaining a property.?

Once again, more pain needs to be passed onto the tenants as business as a landlord is becoming harder and harder. Couple that with the exorbitant amount of money that landlords have to pay towards property rates and taxes and you have a pile of expenses so large that it takes up half of your income to own and operate a property. This is regardless of if the property is let or vacant.??

If there’s a silver lining, let’s hope it’s not powered by Eskom

I consider myself a positive person which is why typing this article was hard to do. As I sit here on my laptop typing, the lights have just gone out. My power is off for the next few hours and I have a ton of work to get through. I will hotspot from my phone and plough through what is already overpriced data. Don’t even get me started on the price of data in South Africa when compared to the rest of the world, it is daylight robbery, or should I say, darkness robbery while I am already being robbed of my right to light.??

I have always believed that emerging markets offer a wealth of opportunities, especially for entrepreneurs. South Africa needs to come to the party when it comes to business. I saw a tweet earlier today where the President Cyril Ramaphosa was overseas and enthusiastic to be attending the G7 summit to discuss climate change. All the while his country sits without water, power and overpriced everything. We need more CEOs to drive the “open for business” narrative. We need more privatisation. We need more support for SMEs. We need less corporate regulations that are continuously being implemented by government yet can’t be monitored properly or consistently. We need more privatisation and we need the government to let us privatise. We need less of a bureaucracy and more professionals to come to the party.??

Cheers,

Ash

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WRITER BIO:

Ashleigh Meyers is Principal Commercial Property Broker and Managing Director of Ask Ash National Property Brokerage. If you’re keen to continue the conversation (because Ashleigh sure is), please connect with her on LinkedIn: Ash Meyers or look up Ask Ash on Google to read their reviews.??