After a challenging period marked by a more than 20% decline in 2022, the commercial property market in KwaZulu Natal (KZN) is experiencing a remarkable resurgence. That’s according to Malusi Mthuli, Provincial Head for FNB Commercial Property Finance in KZN, who points out that despite this growth taking place of a relatively low base, the upward trends are clearly evident, and appear to be firmly entrenched.
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He highlights strong supporting evidence of this fact in the form of a steadily increasing number of large property finance deals that FNB Commercial Property Finance in KZN has been instrumental in concluding over the past 12 months. "These strong deals point to buyers and developers having more confidence and optimism about the KZN market than has been the case since the pandemic,” Mthuli says, “and despite the challenging interest rate environment, stakeholders in the region appear to be less wary of the market than has been the case in recent years, with many now proactively looking for good opportunities again."
Even the office market, which has long suffered from an oversupply – a situation exacerbated by Covid-19 and work-from-home arrangements - is now showing signs of recovery according to Mthuli. "A strong underpin in this regard has come from the BPO sector, which has seen significant investment by global organisations into establishing South African call centres, many of which are located in KZN and particularly in the Umhlanga precinct," he notes.
According to Mthuli, the only area in KZN where the commercial office property market is still somewhat sluggish is the Durban CBD, where tenant quality and demand for sizeable spaces have seen a steady decline in recent years. This has led to a large-scale exodus out of the CBD by larger tenants that still operated from there until fairly recently. “On the positive side, lower commercial demand in the CBD continues to create many unique opportunities for the conversion of offices into residential units or mixed-use spaces, which a number of developers are undertaking now," he says.
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Given that the general uptick in the commercial property market in most of KZN has taken place despite the current high interest rates, Mthuli is confident that the scene is set for a significantly stronger upward trajectory as the anticipated rate cuts begin to materialise in 2024.
And he points to the country’s banks being another valuable contributor to the improving commercial property trends in the province, and the country, as these financial institutions have taken positive steps to shift their approach to financing commercial property deals against the changing economic landscape. "To account for higher interest rates and the shifting relationship between intrinsic property values and actual yields, most banks, including FNB, have become far more sophisticated in how they structure their funding deals with clients," he explains, “and the result is far more compelling finance offerings that are designed to unlock long-term value for investors and developers - all of which is playing a key role in driving the increasingly positive market sentiment."
On the subject of industrial property in KZN, Mthuli is very positive. “Industrial property across KZN remains as strong as ever," he highlights, "with continued growth in demand for industrial space translating into steadily increasing investment, particularly into well-located ‘flat land’, large industrial building developments and, particularly, industrial parks that incorporate significant storage capabilities.” He says that on-site storage has become especially important to industrial tenants, as the lingering challenges experienced by Transnet have created the need for longer storage periods of goods awaiting road transportation.
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"The proven resilience and steady growth of both industrial property and commercial property in KZN over 2023 is a testament to the province’s significant value and importance as a key contributor to the South African economy,” says Mthuli, “and a strong indicator of the vital role KZN has to play in ensuring a prosperous future for SA Inc."
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Craig Mott, Head of Business Growth for the Rawson Property Group, said toward the end of 2023 that (click here to read the full article here) , 2023 has been a tough year for commercial property, there’s no skirting around it. “Between poor economic growth, loadshedding, elevated interest rates, rising operating costs, poor municipal service delivery and a global economic slump, it’s just a really tough time to be a business in South Africa.” Of the three main commercial property sectors (office, retail and industrial) Mott says the office market has struggled the most. “There is still a significant oversupply creating high vacancy rates,” he says. “These have begun to show early signs of recovery as more workers return to office – possibly driven by load shedding – but there’s definitely still a long way to go.” Mott says the office vacancy rate recovery has been most pronounced in Cape Town – a trend he expects to see continue into next year. However, he believes similar trends could start emerging in South Africa’s other major metros if the interest rate and inflation rates manage to remain stable.
“Retail has also been adversely affected by economic conditions, with weakened sales performance driving high mall vacancy rates,” says Mott. “Industrial, on the other hand, has enjoyed relatively low vacancy rates, resulting in stronger growth in the sector, making it the best-performing commercial property type in 2023.” As for what to expect in the year to come, Mott says recent increases in high value commercial and industrial sales are extremely promising.
“2024 looks set to be a better year to acquire assets,” he says. “Sustained pressure on interest rates and inflation could see more properties coming to market, making it a great time for investors to expand their portfolios.”
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