Commercial & Industrial Property: 2020 Forecast

2019 was a year of change both economically and politically for South Africa. In terms of property, we saw a break in the housing market with banks being a little more lenient with first home buyers, and in general witnessed a resilient and thriving property market on the industrial and commercial side.

While there might not be solidified higher returns expected for the commercial and industrial property markets for next year, there are certain opportunities and new avenues for the market expected for 2020.

Looking back on 2019

Financial Mail reported in August that the buying sentiment has in recent months been buoyed by banks adopting more lenient lending criteria. This has supported the entry of first-time buyers, in particular, to the market.

In addition to this, we have continued to see foreign investment in the South African property market as a gateway into Africa. API Property Group has "experienced an influx of established and new international business people intent on setting up shop in Gauteng. Johannesburg specifically is regarded by such entities as the gateway of business into Africa. Moreover, their interests lie in the industrial property market, which has had some of the lowest vacancies in 10 years. The demand for medium and large warehousing facilities is particularly high."

Stephanus Weyers, Director and Principal at API Property Group says, "Mentioning that there has been an improvement in the property market conditions may sound counterintuitive if you take into consideration the depressed state of the economy, however, commercial property is one of the industries that manages to sustain itself through the shifts in the economy."

A Shift Towards Digitisation

Despite about the growing volatility of the global economy, we need to be mindful that where there is concern, there is always opportunity. It is important for CRE companies to adapt to the increasing prospects and insights being provided by Big Data and technology.

In their 2020 Commercial Real Estate Outlook, Deloitte comments that, "as we look to 2020 and envision the next decade, the most successful commercial real estate companies could follow the mantra: location, experience, analytics... It has become urgent for CRE companies to prioritize tenants' and end users' needs, given the increasing influence of technology and changing customer preferences."

We are also seeing increased pressure for Green Buildings, sustainability and conscious businesses. This, combined with a greater need for work-life balance as well as restrictions on transport and mobility, has seen a greater interest in mixed-use developments. Millenials in particular, are investing in properties that support their need for blending work, play and lifestyle needs. "Urban living opportunities, matched with significant attention paid to urban regeneration projects across South Africa may usher in renewed demand for interesting, purposeful living spaces." (Bizcommunity, Dec 2019)

Here are some ways the Industrial and Commercial Property sectors are evolving:

1. Tenant Expectation
   Real estate is no longer just a physical space. The industry is at an inflection point: The ways in which real estate tenants and end users engage with their physical surroundings is evolving rapidly. Along with these changes, expectations are evolving, too. Tenant preferences are changing, due to increasing urbanization and globalization, changing workforce demands, such as flexible location and workspaces, and technology advancements, such as AI and Internet of Things (IoT).

2. Unlock the Value of Data
   Knowingly or unknowingly, every company and customer is continuously generating huge amounts of data. Most CRE companies have not yet fully explored how to capture and use information to enhance decision-making, improve operating performance, and create a differentiated tenant experience. It is imperative that companies identify and invest in the right technologies and tools to gather data and use it in constructive consumer-centric ways.

3. Create future-ready buildings
   Green buildings and sustainable development will take center stage in 2020 and beyond. According to the Deloitte report, "Surveyed executives believe that tenants are willing to pay a rental premium to be housed in smart buildings." Smart building features such as lighting sensors, smart plugs, and other technologies can lower energy usage by 26%. Even more pressing in South Africa is the issue of water efficiency: green building standards enforce water conservation strategies.

What we can expect within the commercial & industrial property sectors in 2020:

Retail: Factors like load shedding and our economy are forcing retailers to relook at sustainablity, alternative power sources and shopper behaviour. New data analytics platforms are emerging to evaluate consumer behaviour: they evaluate the quality and quantity of time consumers spend shopping and evaluate the data to generate insights. These can help both retail and investor clients make informed leasing and location decisions

Office: Office space is still likely to be sought after, especially technologically optimised spaces that allow little to no outside pressures to affect the operational efforts of a company. We predict an increase in flexible working spaces that allow people to work on the go and from anywhere. This in turn will improve productivity, creativity and company innovation as time spent in traffic will be better utilised.

Industrial: Industrial and warehouse space will marginally outperform other segments. "There is a specific need for medium and large warehousing facilities. Through our ongoing activity in the industrial and commercial market we have observed that transport and logistics throughout and into Africa is coordinated from Gauteng and Durban. We are also seeing an increase in the demand for manufacturing facilities, the reason for this is the established infrastructure in South Africa with specific reference to roads and municipal services."

Weyers concludes, "I don't predict doom and gloom for property brokers, or buyers, sellers and renters but rather a continuation of what we have already observed with high and lows as we go." Property prospects are taking an exciting, tech-centric turn, and now is the time for companies to adapt with digitization in order to stay relevant.

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