SA office property sector faces ‘work from home’ threat

Covid-19 expected to exacerbate already high office vacancies.
The office property segment is in for more pain, according to the latest Rode Report. Image: Moneyweb

The retail property sector may have been hit hard by the initial lockdown to curb the spread of Covid-19, but South Africa’s struggling office property sector faces a potential longer-term threat if the work-from-home paradigm shift takes hold.

Property economists Rode & Associates warn that the pandemic may advance the trend of working from home in their latest Rode Report on the South African Property Market (Q2: 2020).

Read: Interest rate cut won’t turn around property market – Rode

“Companies might reduce their required [office] space as more employees work from home on a permanent basis, leading to a prolonged oversupplied market,” Kobus Lamprecht, head of research at Rode & Associates, notes in the report.

He added however that the impact of this trend “will be offset somewhat” by more space required per employee in order to adhere to Covid-19 social distancing guidelines.

Lamprecht said that due to its significant oversupply, the office property market was in deep trouble even before the advent of Covid-19 in the country in March.

Citing statistics from the SA Property Owners Association (Sapoa) Office Vacancy Report for the first quarter of 2020, he noted that decentralised vacancy rates nationally for Grade A and Grade B offices combined averaged 11.1%.

Read: SA office property development activity decelerates to 14-year low

“This was up from 10.6% in the fourth quarter of 2019 and the worst rate since early 2004. We expect vacancy rates to increase sharply over the rest of 2020 and into 2021 as more companies close,” he noted.

Sapoa’s report, which came out in April, also highlighted the impact of Covid-19 on the sector, including an increase in remote or flexible workspaces. Sapoa’s Office Vacancy Report for the second quarter usually comes out in late July.

Another report that zoned into this expected shift in the office sector is FNB’s Commercial Property Broker Survey for the second quarter of 2020, which was published last week.

FNB Property Strategist John Loos, who penned the report, noted: “Remote work has become a key potential challenge to office market performance on top of SA’s long-term economic stagnation.”

Survey

He said that a “very significant” 38% of brokers surveyed by FNB believed that companies were “busy reconsidering their office space needs” due to a greater portion of their workforces working remotely post-lockdown, and possibly reducing their office space.

“A significant portion of brokers are thus perceiving what has been much talked about ever since lockdown forced a major portion of office staff to work from home,” he added.

Meanwhile, in the Rode Report Lamprecht said that the Covid-19 pandemic is expected to “prolong the oversupply situation” in the office property market and that “a sustained upturn” is now several years away.

“We expect the real impact of the coronavirus crisis will only be seen in coming quarters as transaction volumes increase.

“Leases that come up for renewal will see sharp rental reversions, as most landlords aim to keep tenants as the risk of finding good new tenants in this market is high,” he said.

However, he added: “A positive aspect for the market is that international and domestic Reits [real estate investment trusts) have reported a high percentage of rental collections in April and May, probably as most companies that were forced to close their offices could work from home and still obtain some form of income.”

Lamprecht said companies that have been more severely hit by the lockdown have received rental holidays or steep discounts.

“Despite reporting high rental collections, office-focused Reits have struggled on the JSE in 2020 on concerns about long-term demand prospects as the coronavirus crisis could lead to a new ‘work from home’ paradigm.”

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Office and retail property is not going to be a good place to invest in for a long time to come but beware false valuations in the interim.

Work from home does not work. Old Mutual is one example of total failure. People go to the office once a week and nothing happens.

I have had dealings with 3 of their divisions in the past 2 months and something that should have taken a week or two to complete has still not been done after 2 months.

A useless lot and Nedcor not far behind. Just get back to work or close your business. You have no idea how to work from home.

I work with the state. Working from home is a complete contradiction in terms for public servants. Not that they work too much at the office, but they do less than nothing from home.

That is not an indicator as a lot at Old Mutual never worked.

Three years ago my financial advisor encouraged me to invest in a property heavy fund because values were low and things were likely to improve.

Thank goodness I didn’t go down that road!

Screaming kids and barking dogs are annoying and very unprofessional! Few people have the facilities and self discipline to work from home.

change some of the space to apartments

That is it in a nutshell.

A select few employees are self starters, they do not have the self discipline to work from home.

Those that do will show up the free loaders and the useless BEE appointments very quickly.
The savings of no tea girl, no office cleaner, no water fountain time waste, no fancy suites needed, no tea or coffee provided, no corporate dining room, no broom cupboard bonking must be enormous.

The day of the huge corporate office is gone, savings to be past on to clients.

Imagine legal fees dropping?????

When you work from home, you call it an office, they call it home…. the bark stops with them. The professional world will have to adjust, unfortunately. Man was created after animal after all. They were here first.

True, the noise from kids, dogs, loud music is unbearable and have an unprofessional feel- Worse I just saw this week that as usual SA law is one of the weakest and also in tends to serve and side with the wrong doers.
They say you need to prove that the noise is disturbing your peace of quality of life.
Complex rules and general SA noise rules have little to no weight now.

Not only the retail property sector. Residential rentals are going to fall flat on their posterior. Estate agents are desperately trying to talk the market up. No talking up will help the slightest. Property owners will deal directly with potential clients. Many of the so called estate agents including the ones with fancy titles are just plain worthless.

Been hearing that same story for 20+ years now and still the direct buyer/seller model shows no sign of working…sold my house last month through a sole mandate with an estate agent…still good value in terms of service and time to shift the asset…

Last month? You sound like the desperate estate agent talking up the market he was referring to.

End of comments.

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