Cape Town Commercial property trends – a result of market shifts

As we dispose of 2021 with an enthusiastic farewell to a second year of a pandemic that none of us chose, unprecedented riots and the combined associated economic crisis, there is no denying that South Africans have been put through the wringer. Needless to say, the events of the past two years have also had a major effect on the Cape Town commercial property trends and industry.

While we welcome 2022 with cautious optimism, there are several major trends in the commercial real estate sector – both in Cape Town and across South Africa as a whole – that will shape the year ahead.

Here’s what’s on our Cape Town commercial space radar for the next 12 months.

Vacancies: the biggest challenge of 2022

Remote working helped to save lives during the pandemic, but this necessary emergency measure also had a negative effect on office rentals.

With the work from home trend which is only now beginning to see a positive shift to hybrid and back to office, vacancies in Cape Town‘s office buildings hit record levels during the first lockdown – and the recovery has been slow.

Companies returning to the office in 2022 despite the threat of the new Omicron variant will certainly help to alleviate these persistently high vacancy levels, but building owners also need to take measures to make their properties more attractive to would-be tenants.

This comes at a time when workers have become used to the comforts of home and expect their workplaces to offer these as an incentive for returning office users.

While vacant office buildings may be struggling with empty rooms, the same isn’t true of industrial property. The Mother City has seen a tremendous interest in light industrial and warehousing facilities over the past 24 months, with the current vacancy rates sitting at just 5%.

As consumers shifted from physical to online shopping, demand for warehousing and delivery facilities suddenly spiked, breathing new life into formerly neglected industrial areas across the Cape peninsula.

However, as in most cities around the world, the demand for Cape Town retail space has also taken a dip over the past year or two.

While this trend may take longer to reverse, driven by social distancing and regulations, we anticipate a future in which people return to malls and restaurants in large numbers. When this happens we should see impressive returns on investment from shopping and dining facilities.

Green buildings as a solution to the ongoing Eskom crisis

Green building technology is definitely the way of the future, but in South Africa it offers a more immediate benefit: the ability to go off the grid at a time when Eskom’s woes seem to be continuing indefinitely.

After almost 14 years of power supply issues, the national grid remains fragile.

Fresh revelations of corruption and inefficiency at Eskom aren’t doing much to reassure property investors that they’ll be able to enjoy a regular supply of electricity anytime soon, and many are opting to create their own.
Over the past year we’ve seen strong interest in buildings that have their own emergency generators, with property buyers and tenants being especially excited about facilities that can produce their own power entirely with zero reliance on the Eskom grid.

While other countries may embrace green buildings for the sake of environmental consciousness and sustainability alone, the urgency created by the power crisis is pushing South Africans to adopt a green way of working at a rapid pace – and this could help save the environment while addressing the urgent electricity supply crisis facing our country.

Interest rates: are the days of cheap money coming to an end?

Like many central banks around the world, SARB responded to the pandemic and its devastating effects on the economy by slashing interest rates. From a commercial property point of view, this resulted in some of the lowest bond rates we’ve seen in our lifetime. But rising inflation is threatening to end this era of easy liquidity sooner than later.

Rapidly rising inflation in countries around the world, including large economies like the USA, are cause for concern at the Reserve Bank. Although inflation is just over the midway mark in the bank’s 3%-6% target range, interest rates were raised by 25 basis points in late November with a potential for more increases to come.
High interest rates increase the cost of borrowing which makes it more expensive for investors to finance property purchases. This has an effect on yields and desirability of office space as an investment.

However, the outlook for Cape Town commercial office space investors is far from gloomy. Buyers who secure a good bond rate in the next few weeks or months, especially with a capped interest rate, may still be able to find excellent deals in the Cape Town commercial property sector.

Once the economy recovers fully from COVID-19, so to speak, increased interest from tenants and potential increases in monthly rentals could produce an excellent ROI for savvy investors.

Using Office Space Strategically

While opportunities certainly exist in the current market, the winners in 2022 are likely to be buildings that have positioned themselves to attract post-pandemic tenants.

Modern commercial office spaces that provide areas for collaboration while maintaining high sanitary standards are high on every tenant’s list in the current era.
“Home comforts” like business lounges, work pods, and green spaces are also sought-after as a bridge between working from home and returning to the office.
Even as companies return to the office, remote collaboration with clients and satellite teams is here to stay. Buildings with fast internet and video conferencing facilities will stand out against the competition.

Location is still important – and Cape Town has an edge

The pandemic has served as a major pressure test for societies and governments around the world – and Cape Town has weathered the storm rather well. One of the reasons for this is the city’s efficient local government and strong social cohesion.

Cities that are perceived to be efficient and safe are more likely to retain residents – both residential and commercial – during and after the pandemic.
Cape Town is seeing a strong influx of semigrants from other provinces despite the pandemic, and this is excellent news for the city’s future.
Investing in office or industrial space in the Mother City means being part of a good news story that’s waiting to happen. Investors who take the opportunity to buy in the next year may be generously rewarded when the economy recovers fully post-pandemic.

2022 has the potential for greatness. Invest in it with us.

Despite the unpredictable headwinds of Covid, the commercial property market in Cape Town has many reasons to be optimistic over the next 12 months.

If you’re returning to the office or would like to invest in Cape Town commercial property, our team of area specialists would love to assist you. Contact us today to discuss your office space needs, a return to office strategy or to schedule a viewing.