Industrial property is still outperforming retail and office in the commercial property sector, according to the latest FNB Commercial Property Broker Survey.
The effects of the Covid-19 pandemic and the sad state of the SA economy remain the main factors impacting commercial property sentiment, with interest rate hiking emerging as a third key concern.
The FNB survey found the average time on the market of industrial properties is 19.94 weeks, compared to 25.23 weeks in the case of retail and 30 weeks for office space.
Digital market intelligence firm Lightstone Property found there was a slight increase in commercial property transactions in 2021, although the sector has not yet recovered to pre-Covid-19 levels recorded in 2019.
Brokers who responded to the FNB survey were most upbeat about activity in the industrial property market in the near term, with the largest portion of respondents pointing to industrial property's affordability.
Investors are still finding value and it holds appeal for small businesses, the survey found. Furthermore, a boost in online retail during the pandemic is driving increased logistics and warehousing demand.
Optimism regarding office property in the near term has also improved significantly. While work from home impact is still significant, it has diminished in importance, respondents indicated. However, a significant 25.42% of brokers perceive companies to still be re-evaluating their office space needs, and in many instances downscaling.
Retail property was the segment most directly impacted by Covid-19 lockdowns. This sector's tenant population also appears to have been experiencing the most difficulty in recovering financially, as reflected in weak rental payment performance, according to TPN data.
Hayley Ivins-Downes, head of digital at Lightstone Property, says wealthier shoppers now go online and their mall visits have dropped. Visits to shopping malls have stabilised at around 80% of where they were in January 2020, before the pandemic struck.
A study by Deloitte estimates that well over 22 million SA consumers were making purchases online in 2020.
John Loos, property sector strategist at FNB Commercial Property Finance, says non-residential building activity appears to be in the early stages of a declining trend after a muted post-hard lockdown recovery out of 2020. The onset of interest rate hiking late in 2021, and more hiking expected this year, should dampen building activity in the near term.
"The office segment is the major longer run drag on overall building activity, challenged by a very high vacancy rate on a national average basis," says Loos. "Given the key structural changes in office work, including a shift to greater remote work and the hoteling of office space, the office segment is likely to be an area of long-term building activity underperformance, with its share of total building activity likely to decline further in the longer term."
Loos echoed the view that industrial space building activity is at the strongest end of the spectrum, despite still being weak.