Advice and Opinion

Tenants eclipsed by buyers in Cape Town’s commercial property market

A view of Cape Town's CBD.

Several key factors have produced a number of emergent trends and market shifts in the commercial property sector since the onset of Covid-19, not least the fact that for the first time ever, qualifying lease clients have been eclipsed by qualifying buyers, according to Brent Townes, Commercial Property Chief Operating Officer in Cape Town for Lew Geffen Sotheby’s International Realty.

Although this has largely been within the industrial sector which was already dominant before the pandemic, we are also seeing more buyers in the retail segment as well as vacant land for development”, he says. “The majority of sales have been warehousing, retail mails, and smaller industrial units for owners to run their businesses with most local buyers”.

Despite the fact that rental prices have consistently dropped for the past three years as have the lease periods, from five-years, down to three and sometimes even two years.

The office sector, which bore the brunt of the pandemic, resulting in a massive over-supply of stock, is once again showing signs of revival, but only in certain areas, he says.

The areas in which we are seeing the most movement are precincts like Century City, Westlake, and Tygervalley because they are essentially live, work, play nodes that require little or no travel time and offer the convenience of an array of on-site amenities”.

And, with rental prices remaining constant for the time being, more people are encouraged to take their businesses back into the workplace”.

Another notable shift is the growing demand for ‘big box’ industrial space which was not as sought-after as small-to-medium sized properties prior to the pandemic.

These are currently in very short supply and even non-existent above 35 000m2”, he says, adding that the industrial park take-up along the N7 is doing well with the development of medium to larger-sized units.

For a number of years now, e-commerce has been eroding the retail sector and prior to the pandemic, smaller neighbourhood shopping centres were thriving whilst many larger malls were under pressure.

However, although Covid-19 may have further dampened this sector during lockdown, it is now driving growth as many people have moved out of formal employment and are trying to start new businesses.

In November 2021, South Africa’s retail trade surged by 3.3% from a year earlier, up from a revised 1.96% increase in the previous month and the third consecutive month of growth in retail activity and the strongest since June.

Retail is actually growing across most shopping centre types, and we are now seeing a large volume of tenant applications for churches, car washes, gadget and electronic shops, pet care, personal grooming and bakeries or pie shops”.

This revival not only bodes well for the sector, but also investors and Townes recommends two distinct investment opportunities in the current climate.

Retail land for development has been taken up, and other malls already dominate most markets, so local convenience stores are sought after, as are single tenant retail buildings”.

In the larger centres, franchises now start to play a role, as landlords like branded stores and the security of a lease backed by the Franchisor’s selection process”.

Mini-industrial units in secure parks and storage units are worth looking at as are warehousing units, especially those with a tenant with a good payment track record and a three-year lease in place, preferably to run for five years with further option to renew, escalating from 7% to 8% per annum”, Townes concludes.