Advice and Opinion

South Africa’s commercial real estate: disruption and confidence

CEO of Galetti Corporate Real Estate, John Jack.
CEO of Galetti Corporate Real Estate, John Jack.

This year welcomes major shifts and a highly anticipated shake up in commercial real estate. It’s ‘do or die’ for industry players with the need for adaption, diversification and innovation at an all-time high.

Commercial real estate was under major pressure last year with many companies down scaling or opting to renew rather than relocate. In addition, landlord incentives to attract and retain tenants had the industry battling it out and losing significant margins. “We saw companies renewing rentals at 20 – 30% discounts” says Galetti CEO, John Jack.

A survey run by Galetti echoed this statement, with 71% of respondents saying that they expected a 5- 20% reduction in their property rentals due to the economic downturn. “We do see an improved sentiment entering 2020 with clients opting to act rather than adopting a wait and see approach.”

What difference does the new repo rate make?

John says that while the recent announcement of a repo rate reduction of 25 basis points has been widely welcomed by commercial property owners, the cut is smaller than one would have hoped for.

The industry has been under major pressure with many companies down scaling or opting to renew rather than relocate. Adding to this, electricity supply constraints are likely to keep economic activity muted in the near term”.

John does however believe that the industry will start to recoup its losses in 2020. “While some say that the private sector is on an investment strike, this is simply not true. We’ve started seeing really promising private-sector fixed-investment growth towards the end of last year and this trend is set to continue”.

Current commercial real estate trends

  1. The Rise of Proptech

More than a buzzword, proptech is changing the real estate landscape. In a recent article by Forbes.com, experts predict that 2020 will see an acceleration in the proptech start-up ecosystem. Johannesburg alone is home to more than 10 million m² worth of commercial real estate and has been identified as a receptive market for opportunists in the proptech sector.

While companies like Zillow in the US have been innovating in this space for years, the general uptake has been slow” says John.

Proptech (such as geo mapping) brings much-needed digital transformation to CRE. “Data is key in making informed decisions. Knowing where the market is and where the best deals can be found is critical”. 

  1. Rentals are stabilising

Rentals are now finding a base despite the oversupply. Although vacancies are high in certain sub sectors it’s not a one size fits all scenario. Tenants still require unique space for their operation and it may not be readily available.”

  1. Opportunistic buyers are out there

There are some good deals in the market and planning ahead is key. “Companies with a good balance sheet are looking for opportunistic buys,” explains John.

  1. Trusted advisory is key

Clients are now looking to reputable, full-service providers for peace-of-mind. “Consider consultants with proven track records and an offering that includes both agency and tenant representation”.

  1. Co-working and mixed-use buildings continue to soar

With companies like WeWork paving the way, this trend is set to continue. In a recent survey hosted by Galetti, 60% of participants said that they would opt for flexible working over a 5% salary increase.