Just under half of South African companies selling their business premises are doing so to move to areas with better municipal services and reliable utilities.
This figure is even higher than the number of commercial property owners selling up due to financial pressure.
Focusing on key drivers of movement and sales activity in owner-occupied properties, results of the Q3:2023 FNB Property Broker Survey, shows that, for the third consecutive quarter, selling to relocate in search of better utilities and municipal services – for instance electricity and water, is the key motive for selling at 44 percent.
While electricity supply issues and heightened load shedding since late-2022 may play a key role here, FNB senior commercial property economist John Loos says South Africa’s mounting water issues and other services and infrastructure shortcomings may be playing a significant role too.
“But it was the sharp increase in electricity load shedding that appeared to precede the early-2023 ‘elevation’ in this motive for selling.”
He says the motive to sell in favour of premises in areas with better water and electricity supply rose steadily in significance in 2022, and then jumped sharply in the Q1:2023 survey.
“We believe that various infrastructure and services deterioration in various areas and regions has been driving this, but that the late-2022 surge in electricity load shedding was likely the key factor in the early-2023 spike.”
While the estimated percentage of sellers driven at least in part by this motive did decline slightly from the second quarter’s 44.9 percent of total sellers, this level still remains strongly elevated at a level not seen prior to 2023, and still outstripping all other perceived motives for selling.
“With various services provided by utilities and municipalities deteriorating in many parts of the country, and load shedding remaining elevated, we would expect to see this motive for selling and relocating remaining prominent in the near term.”
Financial pressure is the second biggest single selling driver at 30.15 percent of total selling, the survey shows. Although declining slightly in prominence, Loos says this could be due to future optimism regarding financial situations as a result of the apparent end of interest rate hiking, rather than an actual decline in financial pressure of late.
“Selling due to financial pressure was perceived to have declined mildly in the Q3 survey, from 32.3 percent in the prior quarter to 30.2 percent. We had expected some increase in this motive’s prominence, given a likely lagged financial impact on many companies’ finances from interest rate hiking that took place up until May 2023.
“Interest rates had risen by 475 basis points in total from November 2021 to May 2023. However, it is possible that the apparent end of interest rate hiking in May, with a subsequent unchanged interest rate decision by the SARB in July just prior to this survey, may be driving increased business confidence regarding future company financial positions, with an increasing expectation that the next interest rate move will be lower.”
Decisions to sell or not to sell could then in part be made based on near term expectations.
In addition, real GDP (Gross Domestic Product) growth did improve somewhat in the second quarter, from 0.2 percent year-on-year in the prior quarter to 1.6 percent year-on-year. Reduced electricity load shedding at a stage of the second quarter played a role here, and the RMB-BER Business Confidence Index for the 3rd quarter of 2023 did show a small improvement, after prior decline.”
Therefore, Loos says it is possible that some improved future confidence is containing sales of properties due to financial pressure.
An additional potential indicator of easing or tightening financial pressure is the percentage of selling in order to relocate to ‘bigger and better premises’.
“Here we see a slight improvement, from 16.4 percent of sellers in the prior quarter to 17.4 percent in the third quarter of 2023, after prior quarters of decline. This may, once again, reflect small improvements in business confidence on the back of slightly better economic and interest rate news recently, although it is too early to draw conclusions.”
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