Improved Industrial and Retail Rebound: Is commercial Property on an Upward Trajectory?

2023 is shaping up to be a challenging year on the economic front with rising interest rates, load shedding, and a potential slowdown in the US and world economy weighing on the minds of investors.

Despite this gloomy outlook, the commercial property sector has reason to be hopeful this year. As vacancies start to drop, investors look forward to improved returns on investments with Cape Town leading the pack as this turnaround gathers speed.

In this post we examine some of the latest trends on commercial and industrial property yields and vacancies and what these could mean for the future performance of commercial property investments in the Mother City.

Strong commercial property yields despite a troubled economy

Since the reserve bank did an about-turn on its ultra-low interest rates that helped consumers weather the pandemic, the cost of borrowing has risen sharply – and there may still be more increases in the works.

The reserve bank is under pressure to raise rates in order to curb inflation and provide support for the Rand, which has been weakened due to a strong dollar rising on high US interest rates.
As the central bank plays catch up, economic performance has been losing out, especially in the property market which is extremely sensitive to changes in the cost of financing.

A second negative factor affecting the country’s short term economic trajectory is the effect of load shedding.

Reaching stages 6, 7 and 8 recently has once again raised concerns that the national power grid may be at serious risk and businesses are faced with increased costs in terms of securing reliable power.

With so many headwinds facing the economy, it’s surprising and extremely encouraging to see rental yields in cities like Cape Town and Durban improving with vacancy levels dropping.

What’s behind this interesting shift in the market, and should property investors have a reason to be cautiously optimistic?

Loadshedding: a dark cloud with a silver lining?

Commercial building owners have been expressing their concern for many years over the work from home phenomenon which accelerated during the covid era and saw a dip in rental demand.

However, many businesses are finding it almost impossible to operate on a “work from anywhere” or hybrid model in the era of extreme load shedding and in a reversal of remote work, many businesses are asking their employees to return to the office permanently.

As a result, commercial and industrial properties are highly sought after in 2023 and landlords may start to raise rental rates as they ride the wave of high demand.

Underlying this trend is the rise of commercial premises that can provide electricity and internet connectivity to ensure that work gets done no matter what the outcome of the day’s “Eskom roulette” may be.

Despite the challenges of load shedding and a high interest-rate environment, we expect to see increased investment in commercial properties over the medium term

Industrial and retail properties show great potential in 2023

As office space sees an uptick in demand, an even bigger bounce back may be on the cards for malls and logistics facilities as consumers regain their pre-pandemic taste for shopping and entertainment.

Cape Town retailers have shown innovation and resilience to ensure that the CBD, a cultural hub and vibrant business node, attracts both tourists and business tourism alike, while the return of businesses to the city has brought a steady influx of new customers.

The retail and light industrial segments of the commercial property market are expected to grow between 10%-15% this year, with further improvement expected in 2024 and beyond.
Cape Town’s relatively scarce land area for development means that light industrial areas around the Peninsula – from Epping to Atlantis – may be set for a bumper decade as demand for warehouses and order fulfilment centres continues to increase.

Meanwhile, closer to the heart of the Mother City, businesses in the CBD surveyed by the CCID are overwhelmingly positive about business conditions, with over 80% of respondents expressing confidence in economic conditions and opportunities this year.

Overall, all indications point to a rebound in the commercial property sector, with investors continuing to pour into Cape Town to take advantage of the excellent services and quality of life that the city has to offer.

Take advantage of the return to the office: Find your ideal commercial space with us.

With companies resuming operations at their premises full-time, the demand for office space in the Cape Peninsula is likely to spike in the coming months. Securing the ideal office space that suits your company’s needs before the market turns in the favour of landlords is one of the best strategic moves you can make in the first half of 2023.

To view our portfolio of modern, green-friendly and energy independent buildings in Cape Town and surrounds, contact our team of area specialists today.