The financial sector on the Johannesburg Stock Exchange along with the listed property sector lifted the ALL Share Index as the rest of the market decreased. Listed property was lifted by Rand local listed property companies beating the offshore component of the portfolio. Companies reported their results and the quick recovery of the sector from July’s unrest. For example, Vukile reported that they were on track to repair the damaged malls and centres without having received the insurance pay-out as yet, which takes 6-10months. Sasria also reported that so far, they had received R14bn worth of claims which they could be able to meet.
Going forward, we believe the future of listed property is bright even though there will be several changes within each of the subsectors, especially offices. With vaccination programs across the world gaining momentum and business leaders urging their employees to get back to the office, there’s hope for the office property, even though the onslaught of work-at-home has had devastating consequences. Even before the pandemic of 2020, office vacancies had been sitting at 12% across South Africa and are currently sitting at 15%, with nodes such as Sandton sitting at 22%. Nonetheless here are our viewpoints on the office market going forward:
1. Overall demand for office space
An organisation’s need for office space remains, but the way we use offices will change. While most firms and employees will not go back to pre-pandemic levels of office use, it is also unlikely they will maintain a full WFH model. It is difficult to estimate the overall impact on demand, as we see both forces that could drive an increase in demand — as well as some pressures that may reduce it.
2. Employers focus on employees
Many surveys are focused on what employees want in an office facility, and firms are adjusting plans to meet these requirements. Centrality, ease of access, and high-quality amenities are high on the list of priorities.
3. Location pressures
The shift to increased time working from home has led to discussions as to where to best locate office facilities in order to maximise connectivity.
4. Sector clusters drive demand
Growing technology firms have driven office space development in tech clusters. Across Europe, there is a likelihood of increased clustering of industries such as tech and life sciences, similar to the preponderance of tech in the Bay Area in San Francisco.
5. Flex space operators
The growth in recent years of WeWork as a provider of flexible office and co-working spaces has thrown a spotlight on the overall provision of such facilities. This varies materially across European cities, but it remains an important factor to monitor given the likelihood of operator consolidation as this sub-sector matures.