FNB Commercial Property Broker Survey - Q2 2024: Insights

Market Trends and Insights

The FNB Commercial Property Broker Survey by John Loos, Senior Economist: Commercial Property Finance for First National Bank. Let us unpack the latest findings from the FNB Commercial Property Broker Survey for the second quarter of 2024. As we navigate through the complexities of high interest rates, election jitters, and regional disparities, we aim to provide a clear picture of where the market stands and what lies ahead. Let's get started.

Market Overview

According to John's latest FNB Property Insights note regarding the FNB Property Broker Survey component pertaining to sales activity, the commercial property market in Q2 2024 shows signs of weakening, with brokers reporting a lack of strong directional trends. Election-related uncertainty and persistent high interest rates have contributed to this subdued market activity. The FNB Commercial Property Broker Survey canvasses opinions from brokers in Johannesburg, Ekurhuleni, Tshwane, eThekwini, Cape Town, and Nelson Mandela Bay. The focus is on the "Owner-Serviced" market, with respondents also dealing in the developer, investor, and listed sectors.

Business Confidence Declines

Broker business confidence has seen a decline, with only 30% of respondents finding business conditions satisfactory, down from 35% in the previous quarter. This marks the lowest confidence level since Q4 2023, with a significant 70% of brokers viewing current conditions as unsatisfactory. Factors such as high interest rates, electricity supply issues, and transport challenges have contributed to this sentiment.

Activity Levels by Property Class

The survey reveals mixed activity levels across different property sectors:

• Industrial and Warehouse Market: The activity rating dropped to 5.27 from 5.59 in the previous quarter, well below the peak of 6.35 at the end of 2022.

• Retail Property Market: There was a slight increase in the activity rating to 4.41 from 4.36, still lower than the multi-year high of 4.9 at the end of 2023.

• Office Property Market: The activity rating declined to 3.54 from 3.72, significantly below the peak of 4.29 in 2023.

Cape Town Leads in Sales Activity

Cape Town emerges as the strongest metro for sales activity, particularly in the Retail and Office Markets. In contrast, Greater Johannesburg exhibits the weakest activity ratings across Retail, Office, and Industrial Markets. These regional disparities underscore the varying levels of investor confidence and market performance across the country.

Cautious Optimism for Market Recovery

The overall sentiment in the commercial property market aligns with broader economic conditions, reflecting weak GDP growth and high interest rates. The recent elections have contributed to a "wait-and-see" approach among investors, adding to the market's cautious stance. However, the formation of a "market-friendly" Government of National Unity post-elections may boost property investor confidence.

Looking ahead, there is cautious optimism for a potential uptick in market activity in the latter half of 2024. This outlook is contingent on favorable economic and political developments, including anticipated mild interest rate cuts.

Top 3 Solutions for Businesses in the Current Market

1. Lease Renegotiations

With business confidence low and economic pressures high, now is an opportune time to renegotiate lease terms. Businesses can seek more favorable rental rates, extended lease periods, or additional concessions from landlords.

2. Diversifying Property Portfolios

Investors should consider diversifying their property portfolios to mitigate risks. This can include exploring different property sectors (e.g., industrial, retail, office) or investing in properties across various regions to balance exposure.

3. Adopting Flexible Workspaces

Given the decline in office property activity, businesses can benefit from flexible workspace solutions such as coworking spaces or short-term leases. This approach provides flexibility to scale operations up or down based on market conditions.

Final Thoughts

The Q2 2024 FNB Commercial Property Broker Survey paints a picture of a market in flux, with mixed activity levels and declining business confidence. While external factors such as high interest rates and election uncertainties weigh heavily on the market, there is hope for improvement in the coming months. The anticipated interest rate cuts and a stable political environment could provide the stimulus needed to revitalize the commercial property market.