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2022’s built environment in review: the commercial phoenix began to rise

Deon van Zyl, Chairman, WCPDF.

2022 was the year that the penny dropped on national government’s inability to deliver, writes Deon van Zyl, Chairman of the Western Cape Property Development Forum (WCPDF).

The result of government’s decades-old inability to procure infrastructure, the crisis seemed to elevate this year from the financial press to general media. Finally, there appears to be a broad-based understanding that the same lack of inertia to fix Eskom is the same inertia that stops pit latrines being replaced in schools.”

There have, for example, been the many headlines around the SANRAL debacle and, just last week, the shock hit that only 5 out of 56 solar photovoltaic projects have been approved nationwide, in spite of SA’s loadshedding tsunami.

The impact of this procurement crisis on the sector was revealed in the StatsSA June report on the construction industry, which showed that employment had contracted by 25% (already pre-Covid-19), with 118 000 jobs lost between June 2017 and June 2020. In a press conference following the report’s release, Joe de Beer (Deputy Director General, Economic Statistics, StatsSA) attributed the decline largely to the lack of government procurement.

Says Bafikile Bonke Simelane, a director at Cape Town-based project management company AL&A: “This proves that the sector’s current woes predate the advent of Covid-19, but which then in turn saw associated lockdowns exacerbating an already deteriorating situation.”

Therefore, it’s a misnomer to speak of a ‘post Covid-19 recovery’. This is partly why the much-vaunted but persistently stubborn ‘infrastructure-led’ recovery of our country remains elusive with specific reference to built environment-related public-sector projects.”

The crisis was further amplified last month when the South African Institute of Civil Engineers (SAICE) published its 2022 Infrastructure Report Card (IRC), rating the overall condition of SA’s infrastructure as a ‘D’ – the lowest since the IRC first launched in 2006. This scorecard is based on a five-point scale: A (world class), B (fit for the future), C (satisfactory for now), D (at risk of failure) and E (unfit for purpose).

Adds Simelane: “Among the biggest challenges that have been experienced by the industry, in regards to infrastructure procurement, are supply chain management processes, namely: the inordinate length of time it takes to evaluate, adjudicate and award tenders; numerous requests to extend tender validity periods; tender cancellations; and acceptance of excessive discounts on professional fees. Among other factors, these lead to margin erosion and lack of or sub-optimal investments in skills development and capacity building.”

In addition, the growing phenomenon of the so-called ‘construction mafia’ is also worsening the situation, along with global supply chain constraints that are having an adverse impact on the sector.”

Semigration stepped up in regions with strong governance
The degree of failure, however, varies from province to city. On the one hand, there have been a handful of politicians and officials brave enough to stop the buck while, on the other, members of the private sector stepping forward to breach the gap.
In terms of the former, Tshwane’s DA Mayor Randal Williams recently lashed out at the top-heavy municipal personnel structure put into place by the previous political party, declaring that it had made service delivery near impossible in his metro: “You’ve got very few plumbers … very few electricians. We are top-heavy.”
This is indeed a weighty issue that has been raised time and again by the WCPDF, particularly over the past year – too few people in government with the practical knowledge and experience to identify and fix the blockages. A short-term ‘fix’ suggested by the WCPDF would be for councils to invite members of the private sector (such as engineers, town planners and architects) to have proportional representation at council meetings, and then to hold these in the late afternoons or early evenings when these professionals would be able to attend. 
The political buck also appears to be stopping in the Western Cape, a province increasingly seen as SA’s last bastion of hope (at least for the foreseeable future) for competent government delivery. Evidence of this saw Premier Alan Winde recently report that semigration to the province had increased in 2022 by 20% (120 000 people).

The commercial phoenix began to rise

The office sector especially came under severe pressure during Covid-19 due to the work-from-home policies many companies implemented, and pressure on businesses across the economy, even as the pandemic eased early this year, saw the market taking time to regroup. 
Riaan Munnik, Western Cape-based Regional Development Manager for Growthpoint Properties, elaborates: “Confidence in the property sector dipped drastically and the result can be seen in many of the listed share prices. All of this was exacerbated by a general negative sentiment towards the South African economic and political environment. Challenges with failing infrastructure, especially Eskom, have been hugely damaging to growth. And let’s not forget the rise in crime and unemployment which are some of the other biggest hurdles we face as a country.
There is light, however, at the end of the commercial tunnel, notes Munnik: “Office is making a huge comeback. We are excited.”
His excitement is shared by Leon Cohen, CEO of the Rabie Property Group: “One of the biggest wins this year was the return to the office.  With the office market severely impacted by work-from-home, we were extremely fortunate to end 2022 with a vacancy rate of less than 1% within the Rabie portfolio concentrated in Century City, with 30 000 square metres let in the last 11 months.”

Affordable housing was recognized as a strong market player

This year has also showed the results of increasing numbers of private residential developers embracing affordable and inclusionary housing. Throughout the Western Cape, this has seen developers including these in their own schemes even before the proclamation of official policy, and demonstrating that the market is more sensitive to the realities than for which government gives it credit.
Helen Rourke, a programme director at the Development Action Group (DAG), believes that strong messages of hope have emerged in 2023, along with the broadening acknowledgement of the important role that micro developers play in the economics of the affordable market: “We’ve got a lot to celebrate in terms of shifting the conversation around cities in South Africa, in a very different way – from those with developers to ones with politicians.”
The latter have included DAG’s own dealings locally with the City of Cape Town, to discussions with national organisations such as COGTA. Rourke says: “There is now a great deal of alignment towards growing the affordable housing market and driving it post Covid-19.
The formal establishment of the Township Developers Forum of Western Cape (TDFoWC) in 2023, and its incorporation as a representative organisation onto the Management Committee of the WCPDF, has further acknowledged transformation of the industry and the marketplace.
Another positive shift for both DAG and the WCPDF has been the conversations around the release of municipal land to drive transformation – one which both organisations hope will snowball in 2023:  “But even in a city like Cape Town that is changing its mindset,” notes Rourke, “a strong and united political commitment towards land-use planning is required.
But affordability remains a hurdle

For many private residential developers, the growing challenge throughout 2022 has been the increase in interest rates which always contract the residential. Cohen elaborates: “While this drives up rentals for investors and in our own rental portfolio, first-time homeowners and owner-occupiers are affected, which slows down sales and eventually the rate of new developments.”
Affordability remains a hurdle to entry and therefore leniency and creative ways of making finance available by financial institutions would be a very welcome stimulant for the construction industry in 2023.
A strong message from among WCPDF members was that government also needed to be sensitive to the additional costs it, too, increasingly leveraged onto the development sector – such as NHBRC fees and above-inflation utilities cost.

Innovation will be key in 2023

It will clearly no longer business as usual; a factor which the sector welcomes this as it will drive innovation. Munnik explains: “This year, we proved again that we are one heck of a resilient nation; we learnt that although its important to think outside the box even more than before, getting the basics right are just as important; we learnt that unity means strength; and we learnt to be even more agile in our thinking – in how we do deals, develop, operate and in what we offer. Diversification has become an even more important strategy.”
Indeed, one of the biggest messages of hope emerging from the industry was the feeling that – while 2023 would still be a tough year – there was light on the horizon and even an anticipated boom in the marketplace from 2025 onwards.
It would also becoming increasingly evident that growth in the sector will no longer be constrained by the municipal boundaries of the large metropoles. Investors would go where it is easier to interact, their money was safer, and where their investments would be driven by government entities with long-term visions of economies that work.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of Property Wheel.