- FNB Property Finance says Johannesburg is the weakest link to the property market's recovery.
- The City of Gold is struggling because it no longer has a competitive advantage.
- Highly skilled workers are moving, and companies are following suit.
The City of Gold has lost almost all its sparkle.
Infrastructure problems and poor service delivery in Johannesburg have been thrown into sharp relief in recent weeks, as large parts of the city suffered severe water shortages and its weak power infrastructure was damaged by load shedding, causing extended power outages. The city is currently also being overwhelmed by a deadly third pandemic wave, with almost 70% of new Covid-19 cases reported in Gauteng.
With concerns on the rise that Johannesburg is facing intractable problems, companies are moving and highly skilled workers are shunning it for coastal towns. The once-thriving city is now the "weakest link" in the property sector's attempts to recover from Covid-19.
According to FNB Commercial Property Finance which hosted its quarterly property market outlook webinar on Tuesday, Johannesburg shows the weakest recovery. The bank said brokers who take part in its commercial property broker surveys are more upbeat about KwaZulu-Natal, Nelson Mandela Bay and Cape Town than the city that was once "Africa's New York".
"Joburg has been the weakest link, if you could call it that, in our broker surveys in industrial, retail, and by a small margin in office space as well," said FNB property strategist and economist John Loos.
'Joburg needs to reinvent itself'
The property market may not gauge the city or even the Gauteng province's entire economic picture, but it is a valuable indicator.
What FNB has picked up in the broker survey correlates with the RMB/BER business confidence index findings. The index showed that in the second quarter of 2021, businesses in KwaZulu-Natal and the Western Cape showed the highest confidence level, while business confidence in Gauteng was still depressed.
"I think that Joburg needs to somehow reinvent itself. It was built on gold, [but] the gold has pretty much run out underneath Joburg. The City of Gold is no longer really the city of gold," said Loos.
He said with Johannesburg's global competitiveness gone, the highly skilled employees who drive the modern economy are increasingly looking for a lifestyle and the quality of life that Johannesburg dismally fails to provide.
So, the semigration that began a few years ago kept increasing. Then Covid-19 came along and accelerated a trend that leaves many speculating about what will become of Johannesburg now. Already, companies such as Capitec were setting an example before the pandemic that even banks don't need to have their offices in SA's financial hub anymore.
Capitec unveiled the design of its new head office just outside of Stellenbosch in 2018 and moved into it in June last year.
"These coastal regions have become more popular skilled semigration destinations. And remember, semigrants often own companies; they often run companies. If they want to relocate, they can move their business with them a lot of the time," said Loos.
He said the intersection of yearning for a better lifestyle outside of Johannesburg and remote working, which was also an increasing trend before Covid-19, created a bitter cocktail for the city. Even prime nodes like Sandton are struggling.
Loos pointed out that while all eyes have been on rising office vacancies and failing retail tenants, the latest TPN survey is based on letting agents' submissions put Sandton's residential vacancy rate at 26.7 in the second quarter of 2021.
TPN said Gauteng estate agents and landlords are facing diminishing demand. But Cape Town is also on the same boat on that front as conversions of short-term holiday rentals into long-term lets pushed the vacancy rate to 28.8%.
Meanwhile, FNB Commercial Property Finance's KZN regional manager, Malusi Mthuli, said that the province is becoming a hive of industrial property activity. He said the residential property sector also continues to grow there. The office is also more upbeat.
"The coastal regions [are] very positive. In the coastal regions, the property values are a lot more conservative compared to what transactors in this market feel about where the property market is going," he said about KZN's office property outlook.