What the GNU – Could a Government of National Unity Boost the Commercial Property Space?
2024 will go down in history as the year – 30 years following the fall of apartheid – when the African National Congress (ANC) was humbled at the polls and formed a Government of National Unity (GNU) with one of its biggest rivals.
With the ruling party now joined closely in a Democratic Alliance dominated coalition, that includes numerous other smaller parties, several political and economic scenarios could play out across the country.
As every property investor knows, government policy and service delivery have a huge impact on economic performance and investor confidence.
To understand the ramifications of the new governing alliance on the commercial property sector, let’s explore some of the scenarios that could pan out in the years to come and what each one could mean for the office space sector.
Setting the stage: can the ANC and DA govern together?
When the ANC failed to secure a majority in the May election, many members of society breathed a collective sigh of relief. However, this was soon replaced by uncertainty about who the ruling party would form a coalition with.
With the second biggest percentage of the vote, the DA seemed to be the most obvious choice – but, negotiations had to take place to prevent the EFF and MK from siding with the ANC for a super alliance.
Ultimately, the DA prevailed as the main coalition partner with smaller parties rounding out the new GNU. However, some commentators have raised concerns about the two parties – which have traditionally been diametrically opposed on the political spectrum – and their ability to cooperate.
- The ANC has traditionally adopted centre left policies on everything from employment to education and infrastructure spending and has been severely criticised for its tolerance of corruption and poor service delivery.
- The DA is known for its pro-business libertarian position that is good for growth and development, though some critics say it is contrary to the daily experience and needs of the country’s poorest citizens.
While the two parties have some common ground, including a new commitment to eliminate corruption and spur economic growth, it remains to be seen whether the coalition can govern together effectively.
Historically speaking, the last time South Africa had a government of national unity was in 1994: Unfortunately, it collapsed within two years with many former NP heavyweights leaving to join what became known as the DA.
If the two parties can put their history behind them and govern effectively alongside the other smaller parties, it may result in a significant alliance that sparks growth and boosts investor confidence at a time when the economy is at its weakest level in decades.
The best case scenario: a new era of prosperity
The best possible outlook for the country is for the ANC and DA to solve the problems facing the country jointly.
In this scenario, the President would avail himself of the DA’s expertise in public administration, which could result in improved service delivery and more accountable government.
The financial markets reacted positively to the news of a coalition, indicating that investors are betting on a favourable economic outcome. The strengthening currency, often reflective of global confidence which plays a key role in sculpting the commercial property landscape, reflected a wave of optimism that is welcome – although it’s early days yet.
Enhanced equity and investment potential often go hand in hand with a strengthening currency which can only be positive for the property landscape, but investors will need to be discerning about their investment strategies amidst what is likely to be an ever-evolving market.
While this process will likely take several years to kick in, it could result in improved investor sentiment in the short term – and this could be excellent news for the commercial property sector.
Commercial property is a substantial investment which becomes increasingly risky in the context of poor service delivery and government corruption which threatens to stabilise entire provinces.
The Western Cape has always been an exception to the rule, with investment in both residential and commercial property rising to new heights even in the wake of the pandemic. While it’s unlikely that this phenomenon would be fully replicated in other metros, a degree of stabilisation would be preferable to further decline.
A return to growth and prosperity could be exactly the catalyst that South Africa needs to reclaim its position as the leading economy in Africa. However, a direct path to this favourable outcome is by no means guaranteed.
The less favourable outcome: infighting and stagnation
As a country, we have always clung to hope when assessing our future, and the old spirit of optimism was on full display when the new Government of National Unity was announced.
The probability of two parties on the opposite end of the political spectrum suddenly joining forces with zero friction is an unknown entity.
In a scenario where the ANC and DA stick to their guns and find themselves deadlocked on key issues, like corruption, service delivery, and economic policy, it could be the future prosperity of the country that suffers.
When the DA took over the city of Cape Town in 2006, there was an initial period of tension between the city government and civil servants who had become accustomed to less accountable management under the previous administration. If this process repeats itself under the new GNU at national level, it’s possible that service delivery strikes or other unfavourable outcomes could result before the state of affairs turns around.
There’s no doubt that the commercial property sector would not favour an outcome like this, and that investor confidence may be shaken by a government that operates in fits and starts.
What the current data says
Even before the announcement of the country’s new government coalition, the commercial property sector was showing some signs of recovery – mainly driven by positive commercial property trends in the city of Cape Town.
- While the country as a whole experienced negative rental growth in real terms of roughly 6%, Cape Town rentals grew at an annual rate of 10% in 2023.
A similar trend can be detected in approvals for new developments and pop sales.
- According to the SAPOA Office Vacancy Survey for the first quarter of 2024, the national vacancy rate stood at 14.7% – indicating a drop of approximately 50 basis points.
Looking at the data in more detail, an interesting trend is emerging in the upper end of the commercial property sector. Tenants are economising by trading their P-grade properties for more affordable A grade office space without compromising on quality.
This presents an excellent opportunity for well-priced, high-quality commercial buildings and office space: property types for which Cape Town is well known.
A successful ANC/DA coalition could add considerable momentum to this positive trend creating a new boom in the commercial property sector as the economy expands and workers return to the office.
With the unexpected resurgence in South Africa’s office sector and Cape Town’s stable political landscape and impressive economic performance, property investors can continue to have a high level of confidence in the city.
If you’re thinking of relocating or are in search of new commercial premises in the mother city, contact our team of area specialists today to make your search that much easier.
