AnalysisCommercial News

The Industrial Property Market investor demand exceeding supply

By John Loos

In short, perceptions regarding demand relative to supply are that that both the Office and Retail
Markets are “oversupplied” relative to demand, albeit less so in Retail than the “extremely” oversupplied
Office Market.

The Industrial Property Market continues to stand out from the other 2 markets, with its investor demand
exceeding supply on a national average basis, albeit by only a small magnitude of late. The 4th quarter 2023 survey may have begun to show early signs of strengthening in the commercial property market, with both the Industrial and Retail.

Markets perceived to have had a shorter average time of properties on the market prior to sales, over the
prior 6 months. This, while the Office Market’s average time of properties on the market was perceived to have remained almost unchanged by the sample of brokers (only 1 percentage point more brokers perceiving an increase in time on market than those perceiving decline).

However, in the direct question regarding broker perception of demand for property being greater or
less than supply, we did not see any meaningful improvement in this perceived balance in any of the 3
markets. Only retail property saw a perceived diminishing in oversupply, while Industrial saw a slight
weakening in perception of demand exceeding supply, and the office market perceived oversupply
was greater than in the prior quarter’s survey.

None of these quarterly moves in demand-supply balances were significant, however. Putting it all together, the 4th quarter 2023 survey pointed to no strong direction in the market yet, with average time on market perceived to be shorter in 2 of the 3 markets, but simultaneously perceived demand-supply balance showed a quarterly
weakening in 2 of the 3 markets.

We do expect an improvement in investor market demand-supply balances in 2024. The reason for this
expectation lies in interest rates having moved sideways since May 2023, with a widespread expectation that the next move in rates will be down later in 2024.

In addition, lower global inflation, the expectation that global interest rates may start to decline, and lower levels of load shedding in the early stages of 2024, all leads to the expectation of a slightly improved domestic economic performance in 2024.

All of this could conceivably cause some strengthening in property investor demand, and lessen oversupplies in the retail and office markets, or increase supply shortages in industrial property during 2024.

At a major metro region level, the 2 latter 2023 quarters continued to reflect the key regional theme in South Africa of late, i.e., that both business and household sentiment is the most positive in the Western Cape region (a region where local government services generally work better than elsewhere), with this region’s big 3 commercial
markets reflecting a greater combined strength than any of the other major metro regions surveyed.
The City of Cape Town Metro continues to return the strongest perceived demand-supply balances in all 3
of the major commercial property markets, albeit also being oversupplied in the office market.

 

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