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By Suren Naidoo

Moneyweb: Deputy Editor & Host of the Property Pod


LISTEN: Here’s what to expect from SA’s commercial property sector in 2023

Last year SA had a strengthening industrial property market, but that market cannot defy economic gravity forever.


In this, the first episode of The Property Pod for the new year, Moneyweb looks at what could be in store for South Africa’s commercial property sector in 2023.

The start of a new year is generally marked with optimism, new year resolutions and renewed drive after the December break.

SA’s commercial property sector

Will there be optimism in SA’s broader property industry? Which sectors will shine, and which ones will face headwinds?

On this latest podcast, they speak to John Loos, senior economist and property strategist at FNB Commercial Property Finance, who shares his insights and outlook for 2023.

Listen: Property sector predictions

Highlights

Partial post-lockdown recovery

“After the hard lockdowns and the big recession of 2020, we had big dips in property-market sales activity in that year. We also had quite a big dip in capital values as well – well, net operating incomes, capital values. That was a hard year.”

“Since then … there has been what I call partial recovery in the property market, out of that deep recession. But I think 2022 was as good as it got for the time being.”

“Our property broker surveys already showed sales activity and rental market activity in all three of the major commercial property sectors starting to slow as the year went on, because of interest rate hikes and renewed global and local economic pressures starting to show.”

“We believe that last year’s [2022] economic growth rates will probably be about 1.9% when we get the final numbers … and that in 2023 we will see a slightly slower economic growth rate, perhaps 1.5%; a slightly slower economic growth rate this year, and possibly one more interest rate hike this month, in January, [with] the full effect of interest rate hiking still to come through into the property market.”

“We think that sales-wise probably slower transaction volumes of property, slower expansion rates of businesses and therefore growth in tenant demand for commercial property space, and so slower all-round activity. And therefore probably [a return] to some sort of slow capital growth, very low single-digit capital growth which does not keep up with general inflation, and therefore in real terms a real decline in property values.”

Hospitality property

“If one looks at hotel income data from Stats SA – I try to look at that every month – we’ve seen a very significant recovery, as you would expect. The hotel sector took a huge knock during lockdowns; it was virtually totally locked down at one stage. So it really has battled.”

“It has recovered very significantly from that very low base in 2020, as one would expect.”

“[But] the incomes as of late last year were still not back to the 2019 level.”

“I think it’s partly because the household sector, which makes up the holiday markets in the country, has taken a financial knock through the lockdown period, the Covid-19 period, so holiday spending is a luxury item for most people.

ALSO READ: 2022 was a rough year for people everywhere – SA was no exception

Impact of higher interest rates

“There’s been very significant interest rate hiking since late 2021. As I’ve said, we expect one more [hike] this month in January, one of 50 basis points, and then at FNB we think that that’s the end of interest rate hiking and that rates will go sideways for most of this year. But there is a considerable lag.

“Many economists talk about 18 to 24 months before the full impact of interest rate hiking is felt in the economy. So that’s a considerable time.”

“Think of things like property development, for instance, and property transactions. A lot of purchases and developments are planned well in advance of them actually happening. So there’s stuff in the pipeline that still happens, even though interest rates have been rising.”

“But new plans to either acquire properties or develop new properties, those decisions are often based on current interest rate levels which are now considerably higher, and those that impact on those volumes will be seen only in the coming months during the course of this year.”

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This article first appeared on Moneyweb and was republished with permission. Read the original article here.

Suren Naidoo is an award-winning business journalist, deputy editor of Moneyweb and host of the Property Pod. He has a keen interest in covering the property, retail, state-owned enterprises and tourism sectors.