By John Jack, CEO of Galetti Corporate Real Estate
Tomorrow marks the seventh interest rate increase in the space of just one year. The speculative announcement of a 25-basis point hike will see the interest and repo rates at 10.75% and 7.25% respectively. While the increase is minor, this announcement, coupled with ongoing loadshedding, high commercial vacancy rates in some parts of the country, and economic uncertainty are all set to have a major effect on commercial real estate – and landlords in particular.
The compounding effect of loadshedding
The reality of stage 6 loadshedding is settling in and rumours of loadshedding reaching stage 10 have many landlords concerned about staying afloat. Simply put, as interest rates rise, so do the monthly repayments. An incremental 25 basis points increase on properties worth hundreds of millions of rands can be substantial.
Adding to this is the need for landlords to take matters into their own hands by installing solar power and other renewable energy sources as a long-term solution to combat loadshedding. Whether it’s solar panels, inverters or generators, all these alternate power sources come at a high price.
Good news is that it’s not all doom and gloom. The JSE All-Share Index was up by almost 9% at the beginning of 2023. Despite concerns around a local recession, there is a global trend to rally behind the markets and a large portion of our JSE-listed companies are international. This bodes well for investor confidence and could alleviate some economic pressure.
Regional sector performance
Looking to commercial property demand across the country, we believe that the Western Cape has recovered quickly, and that space in the province is in high demand. Companies are moving their head offices to the Western Cape to ensure better public service delivery.
In Johannesburg, Rosebank remains a top contender for office and mixed-use buildings. Rosebank has reinvented itself over the years and it’s an exciting place to be. The likes of Sandton, Randburg and Waterfall are still falling behind as landlords struggle to attract and retain tenants.
In KwaZulu Natal, the aftereffects of the 2021 riot coupled with concerns around service delivery have proved to be a challenge, however, we believe that the region is on the up – especially in the industrial sector – due to its central location near the port.
Alleviate the pressure
Depending on the structure of a business, an opportunity exists for the landlord to restructure their debt profile. This allows you to become more ‘tax efficient’ and to stabilise the funding of your portfolio.
Chat with our team regarding your options or find your next premise that’s equipped with an alternative energy solution.
