Retail property sector’s recovery possibly running out of steam

FNB’s Q4 2021 Property Sales Activity Survey has highlighted renewed strengthening in commercial market activity post the Q3 ‘dip’ possibly related to the civil unrest.

The percentage of property brokers, who perceive business conditions to be ‘satisfactory’, increased to 32% from 25% in Q3. However, despite this improvement, the level of confidence remains weak and largely reflective of weak business confidence across the broader economy following the sharp 2020 lockdown-related economic shock.  

The brokers remained the most ‘upbeat’ about the industrial and warehouse markets with its Q4 2021 activity rating having risen from 5.25 in Q3 to 5.75 (out of a score of 10) and exceeding its pre-lockdown Q1 2020 rating for the first time.

The retail market’s activity rating also increased, from 4.09 to 4.38 over the same two quarters but the office market’s activity rating remained the weakest, albeit rising from 3.35 to 3.78.

While both the industrial and office activity ratings in this survey moved back to above their levels of two quarters prior, suggesting that the Q3 dip may have been temporary, and that the broad strengthening trend since 2020’s hard lockdown period was still possibly intact, retail’s activity rating did not exceed its level from two quarters prior, hinting that the sector’s recovery may be ‘running out of steam’.

The brokers were asked whether they perceive a decline, increase, or no change in activity levels across the three markets with the six months prior and the industrial and warehouse market recorded the highest index reading, having strengthened from the prior quarter’s positive +8.33 to +38.24.

The office market returned mildly positive too, for the first time since Q2 2019, with +11.87.

However, the retail market returned a negative reading of -19.23, suggesting that it may be struggling to achieve further strengthening of late.

*This survey was completed just before the first SARB 25 basis point interest rate hike which could possibly have dampened market sentiment. Whether or not this is the case, this will only become evident in the Q1 2022 survey.