Rising interest rates do not appear to have ‘dampened the spirits’ of the commercial property market, which is arguably more responsive to economic growth trends than interest rate trends like the residential property market.
FNB’s Commercial Property Broker Survey for Q1 2022 recorded a significant improvement in property broker sentiment towards market conditions, rising from 32% in Q4 2021 to 47% in Q1 2022 – the highest ‘positive’ recorded since FNB’s Q3 2019 survey.
The RMB-BER Business Confidence Index for Q1 2022 recorded a very similar encouraging sentiment of 46%.
“We did get the feeling at the start of 2021 that business confidence was improving, arguably driven by a sense that the Covid-19 threat was receding, lockdowns having been relaxed significantly, and economic life largely getting back to ‘normal’”, comments John Loos, Property Strategist at FNB Commercial Property Finance.
“We believe that this ‘normalisation’ from a Covid-19 point of view, may have had a positive impact on the economy as well as property markets. In addition, economic growth had regained positive momentum in Q4 2021 after a Q3 unrest-influenced dip”.
Property brokers remain the most ‘upbeat’ about the industrial and warehouse property market which recorded its highest activity reading since early 2019. While this market is not seeing a strong economic performance in the related manufacturing sector, FNB believes it is benefiting from the most affordable and adaptable property class in tough financial times, as well as from an increasing need for logistics and warehouse space.
Sentiment towards the retail property market was slightly lower during Q1 2022 albeit a slight improvement from Q4 2021. This asset class has not yet achieved a rating higher than pre-Covid-19 readings (Q1 2020) and it remains constrained by financially pressured consumers.
Unsurprisingly, the office property market remains the weakest of the three, although indicating a modest improvement on the previous quarter. Its challenges arise from weak levels of services sector employment as well as increased levels of remote work.
While all three property classes continue to record rising activity ratings, “the war in Ukraine, and resultant sanctions and boycotts in Russia, could dampen the global economy, leading to higher global inflation and domestic interest rates. Future broker surveys may give us insight as to whether these events will begin to dampen the commercial property market or not”.