Western Cape still the place to be for rentals

the Western Cape's tenant population, both in the residential and in the commercial property sector, continued to outperform those of Gauteng and KZN.
the Western Cape's tenant population, both in the residential and in the commercial property sector, continued to outperform those of Gauteng and KZN.
  • The Western Cape's tenant population, both in the residential and in the commercial property sector, continued to outperform those of Gauteng and KZN during the second quarter lockdown period.
  • This is despite the economic and financial impact of the lockdown.
  • The one area where the Western Cape's performance suffered was industrial property.


Of South Africa's three key provinces, indications are that the Western Cape's tenant population, both in the residential and in the commercial property sector, continued to outperform those of Gauteng and KZN during the second quarter lockdown period, according to John Loos, property sector strategist at FNB Commercial Property Finance. 

This is despite the economic and financial impact of the lockdown on tenancy in the Western Cape. 

Loos says the comparison between the three provinces continues to point to a greater level of average financial strength amongst both the business and residential population in the Western Cape.

"That relative financial strength we had previously believed, could enable the Western Cape's property market to get through the severe Covid-19 recession slightly better off than the other two major provinces, and so far that appears to behave been the case," commented Loos in a statement issued on Tuesday.

Furthermore, in two of the three major property sectors, namely office and retail, the Western Cape had had the lowest average vacancy rate as it approached 2020.

Residential

In residential rentals, the Western Cape has shown a consistently higher percentage of tenants "in good standing" with their landlords over the past decade. Recent years had, however, seen a gradual deterioration in the "good standing" percentages in all major three provinces.

What was, however, striking for Loos, is that the pace of deterioration in KZN and Gauteng had been faster than in the Western Cape, widening the performance gap between the Western Cape and the other two provinces.

In the second quarter of 2020, TPN data showed the Western Cape's percentage of tenants in good standing at 80.86%, while those of KZN and Gauteng were a noticeably lower 70.83% and 71.1% respectively.

Commercial

Loos says that by late-2019, all three major provinces had seen the rental payment performance of their commercial property tenant population slide mildly from highs reached a few years previously. This was due to a gradual economic growth stagnation in most major regions of the country.

By the first quarter of 2020, just prior to the impact of "hard" lockdown, the Western Cape's percentage of tenants "in good standing" was 86.39%, compared to 79.49% in KZN and 76.27% in Gauteng. Then came the weakening in tenant performance during the second quarter Covid-19 lockdown period, and no region was spared the impact. Yet, the Western Cape managed to retain its relative advantage, its percentage of tenants in good standing recording 58.97%, sharply weaker than the prior quarter but still significantly above the 51.81% of KZN and the very weak 48.89% of Gauteng.  

"These 'less oversupplied' markets, too, should assist that part of the Western Cape's property market at least to hold up its rental and property values better," foresees Loos. 

He cautions, however, that this is not to say that the Western Cape won't experience severe property market pressure. 

"It will, given the magnitude of the 2020 recession that has unfolded. But it may come out of the recession in better shape than the other two major provinces," says Loos.

"Gauteng, on the other hand, looks to be the most vulnerable property market of the three major regions, having the weakest tenant performance in the commercial property sector, and close to the weakest in residential. In addition, Gauteng has the highest vacancy rates in all three major commercial sectors, with its office and retail vacancy rates being the highest of the three provinces." 

In the first half of 2020, the Western Cape had the lowest average retail property vacancy rate, according to MSCI data, to the tune of 3.26%. KZN recorded a higher 4.5% while Gauteng had the highest rate of 5.76%. All three provinces' vacancy rates had been on the rise in recent years though.

The relative picture was the same with regard to office space, the Western Cape having the lowest average vacancy rate of 6.71%, KZN with a higher 8.72% and Gauteng with a very high17.01% rate in the first half of 2020.

The one area where the Western Cape no longer had the best performing number was in the area of industrial property, where its average vacancy rate rose considerably in 2019 and registered 4.73% in the first half of 2020. Gauteng's vacancy rate was higher at 5.89%, while KZN had a noticeably lower rate of 2.62%.

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