July 2020 – Top executives at Growthpoint Properties, which offers commercial property for rent, recently warned of up to a 20% decline in SA commercial property values. Unfortunately, this is happening during a time of a weakened economy which has further been impacted by the Covid-19 coronavirus.
Large companies, such as Edcon, SA Express, Tongaat-Hulett and Group 5 Construction, to name but a few, have not escaped unscathed, with the banking sector also considering significant retrenchments.
Treasury is expecting between 3 million and 7 million job losses with an unemployment rate of between 30% – 40%, and over 50% in a worst-case scenario. In addition, the South African economy is expected to contract between 7% and 12% due to the impact of the coronavirus.
Similarly, the virus has made its presence felt in the commercial property brokering industry, also impacting on commercial office space rentals. Although it is a relatively small, but high-reward sector in South Africa, it also comes with high-risk and the need for a comprehensive understanding of the industry.
Many of these commercial property brokers have invested heavily into securing and furnishing prestigious office space, with offerings of high-speed wi-fi internet access and full audio-visual conferencing to attract entrepreneurs.
Growthpoint has already offered rental relief to almost 1,500 SMME’s who have been affected by the virus lockdown. Redefine properties have also experienced a number of requests from their tenants for office space rental relief.
Landlords who insisted on signing inflexible, long-term rental agreements with their tenants may be hoping for a recovery over the full term of the lease, but will probably not be able to escape the brunt of the economic fall-out in the commercial office space sector, compared with their counterparts who offered more flexible lease arrangements.
Providers of flexible office space, such as The Business Exchange, WeWork and Regus, are able to add value to their tenants’ businesses by quickly downscaling office space requirements during tough financial times, as well as being able to upscale just as quickly, once business conditions recover. Although downscaling may initially mean a reduction in rent, it still represents a possible income in the short-term. This is not an ideal situation, but one that is becoming increasingly more acceptable to landlords and commercial office space brokers under current conditions.
This pandemic, as with many others throughout history, will also be responsible for fuelling both innovation and entrepreneurship. It has already forced technology forward into first gear, due to the sheer numbers of people forced to work remotely from home during the global lockdown. Remote working increased dramatically, and although most employees will be going back to the office at some later stage, many employers will be looking at cutting costs by reducing the amount of office space previously occupied. This, after they experienced how well some of their employees could work remotely.
This unexpected opportunity that arose during a time of crisis is undoubtedly one which entrepreneurial commercial property brokers will need to explore thoroughly. It may take some time for a full recovery from this pandemic and resulting recession – possibly in the region of four years if the 2009 recession is used as a benchmark – but South Africans have always had a strong entrepreneurial spirit and will overcome this.