|These high perceived percentages of financial pressure-related sales and movement in the Owner-Serviced Property Market, after 2 quarters of increase, appear reflective of the impact economic stagnation in recent years, and tie in with recent trends in other key economic data releases. Notable in this regard is accelerating growth in liquidations numbers, with the average year-on-year growth rate for total liquidations for the 12 months to November 2019 having been 27.2% compared with the 12 months from a year prior.
Ethekwini Metro appears to be an interesting “outlier”, though. Its relatively low level estimate for financial pressure related movement and sales suggests that to date its economy may have held up slightly better than the rest of the regions through recent years of national growth stagnation.
In this note, we continue with the 4th quarter 2019 results of our FNB Commercial Property Broker Survey, which surveys a sample of commercial property brokers in the 6 major metros of South Africa, ie. City of Joburg and Ekurhuleni (Greater Johannesburg), Tshwane, Ethekwini, City of Cape Town and Nelson Mandela Bay.
Focusing on the key drivers of movement and sales activity in owner-serviced properties, the survey results show financial pressure to be the biggest single driver, and this factor has become slightly more prominent in the 4th quarter of 2019 survey.
We don’t have a significant history yet to see what a “good” level of financial pressure-related selling is and what a “bad” level is, but the recent readings appear significant and have been rising.
We ask respondents to give us their perception of the major drivers of “movement and sales activity” in the Owner-Serviced segment. They estimate the percentage of movement and sales that they believe would take place for a particular reason, but the total percentage of all the reasons can add up to far more than 100%, because businesses can be perceived to be selling or relocating for more than 1 reason. It isn’t an exact science, therefore, but gives a broad picture, and what comes out of it is that the highest percentage of owner occupiers are perceived to be selling or relocating influenced by financial constraints/pressures, i.e. 47.11% in the 4th quarter 2019 survey, up from 39.5% and 46.8% in the 2nd and 3rd quarters of 2019 respectively.
This would appear to be very significant, and is followed by “relocating to a place with better transport, logistics and commuter nodes” (28.18%), relocating to be closer to the business’ particular market” (24.24%), and “looking for bigger or better premises” (16.79%).
Accompanying this rise in selling motivated by financial pressure, we have begun to see a further selling reason advanced which may also point to the financial pressure-related impact of a weak economy. Here we refer to the percentage of respondents citing the “closure of a business” as a motive for selling. This percentage is still low, but has risen from 1.4% in the 2nd quarter 2019 survey to 8.8% by the 4th quarter of 2019.
Examining where, by region, the greatest level of financial pressure-related selling or relocation is perceived to be, it turns out to be Cape Town, with 60.5% of sellers, but with Tshwane (57.1%) not far behind. Greater Joburg (45%) and Nelson Mandela Bay (47.1%) are somewhat lower but still significant.
However, Ethekwini metro’s respondents perceive that metro to have a far lower level of financial pressure-related property movement and sales in the Owner Serviced Market, i.e. 30.2%.