Is Now a Good Time to Invest?
CEO of Galetti, John Jack Takes a Look at the Commercial Real Estate Landscape & Rising Trends for 2021
While 2020 will forever be remembered as a year of unprecedented challenges and uncertainty, 2021 promises to bring exciting shifts and investment opportunities to the fore.
Investors bid low to reap big rewards
John believes that a low-interest-rate environment coupled with excess commercial property supply makes for a dynamic investment landscape.
At Galetti, we have seen significant International interest in the commercial property sector, where the listed market may still be mercurial and hard to predict, long-term lease covenants offer far more certainty provided that the underlying tenant is secure.
The rise of residential
While 2020 saw many moving away from business hubs, a new trend is bringing people back to the city. Vacant commercial space is fuelling a surge in residential property developments. One such example is that of Atholl Yards. Previously Nampak’s offices on Dennis Road, Atholl Yards is now a trendy apartment block developed by Capstone.
The properties units are smaller in nature and are used as a second property during the week while your primary residence may be out of the city allowing you to travel between when you are required to be in the office.
Balwin Properties also made history by reaching R1 billion in sales in just 45-days at their new development in Sandton, Wedgewood; and we are currently finalizing the sale of the iconic Sun Carousel Casino which spans 583ha and presents plenty of redevelopment opportunities.
The office still has its place
However, John notes that commercial property still has its place in the market saying that investors are taking note of vacant office space and are buying up properties at significantly reduced rates. Of course, the office still has its place and we do anticipate that many will head back once things start to settle. Areas of keen interest include Illovo, Rosebank, Sandton, Cape Town CBD, and Midrand.
Industrial property remains a hot commodity. Galetti has seen a demand for industrial real estate since mid-last year and this is set to continue.
Jack shares a host of other exciting trends for 2021
Emerging trends restructuring of deals
With the financial year-end fast approaching, tenants and landlords are working together to optimize space and restructure contracts.
Seller financing - otherwise known as vendor financing - is a rising trend for 2021. This unconventional financing model meets the needs of both buyer and seller. In simple terms, a buyer usually a corporate (current tenant) purchases their property for an agreed amount, they then raise normal senior debt with one of the banks and pay the balance off to the seller over a two-to-three-year period. This is essentially a second bond on the property granted by the seller.
Investors are driving long-term leases
Investors are paying a premium for long-term leases in excess of 10 years which will help to minimize the impact of negative reversions in the short-term; on the other hand, shorter leases under five years are ‘oversold’ with an easy 300-basis point spread between that and a 10-year lease. Historically this would have been closer to 100-basis points.
Small to medium businesses are more agile
Taking the cautionary approach, most large corporates will continue to work from home to avoid the risk of COVID-19 infections amongst their employees. On the other hand, small to medium-sized companies are coming back to the office on a rotational working schedule.
Smaller provinces to take a hit in the short-term
Businesses are looking to streamline their operations, and this could mean the closing of smaller branches in outlying areas. Here, we could see businesses in the likes of the manufacturing sector scaling up their production lines to produce more products in Gauteng and centralizing their service base to reduce costs.
Interestingly to note, Jack, says that the mining sector plays a key role in driving property performance in Gauteng.
Finally, Jack advises investors to be realistic in 2021 and look to where the demand is.