Commercial property hit by slump

Speaking to Business Day, Norbert Sasse said his group's view was that the struggling property market had not yet hit the bottom and expected further deterioration.

“Even when the recovery comes in the market, it is going to be a lot slower than expected. Vacancies are up, debt and funding pose a major challenge, building costs remain high and, to make matters worse, rent is softening because of high vacancy levels,” Sasse said.

The recession had caught the property industry off guard, with retailers reeling from falling consumer spending and some closing shop. Adding to the industry's challenges was the tight monetary policy environment, the high levels of inflation and household debt, and declining consumer and business confidence.

Data from the South African Property Owners' Association and South African Council of Shopping Centres showed that trading densities for all shopping centres declined 12.5% year on year to March, the sharpest decline in the series' 69-month history.

All types of centre except super regional ones — those larger than 100000m² — recorded a decline in annual growth for the quarter ending March. Community-sized centres — those less than 5000m² — continue to be particularly hard hit, with trading density for the quarter ending 15.3% down from the same period last year. These centres were negatively affected as a result of their inability to attract shoppers during the busy December period. The biggest reason for this was that the more varied tenant mix of the larger centres positioned them better to cater to the average Christmas shopper.

On an annual basis, super-regional centres recorded a positive growth of 6.2% to March, highlighting the defensive nature of larger centres. In contrast, the trading density growth of community-sized centres had been negative for the past seven months.

Regional centres — those bigger than 60000m² — and small centres both recorded a slight decline in annual trading density growth, ending down 2.2% and 3% respectively.

Sasse said there was now more space in the commercial property market and few tenants taking it.

“With the economy in trouble, most centres will find it difficult to fill vacancies. We are likely to see few new commercial developments because of the dramatic slowdown in the economy,” he said, adding that recovery would depend on how deep and long the recession was.

“It is not an exact science, but a gut feeling that we are going to recover in the next 12 to 18 months.”

Although Sasse sympathised with those bemoaning tight lending by banks, he said banks were also under enormous pressure to preserve enough capital and liquidity.

“Even though prime has come down, banks are charging more margins. Previously most people got prime minus two, but today it is prime plus two, which means the cost of debt is high,” he said.

Source: Business Day

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