The next few decades are set to revolutionise the property market. You’re going to need to offer more than a nice view and easy access to attract tenants to your building.
By 2030, a minimum of 90% of new jobs will be from small and expanding firms. What does this mean for you as a commercial real estate owner? A huge opportunity to offer real estate solutions to a segment of the market that comprises 2.8 million businesses representing 52% to 57% of South Africa’s GDP.
“Landlords and tenants in South Africa are effectively placed between a knowledge-intensive economy which permits development of the smart city and the shadow or sharing economy, which is a direct result of slower economic growth and a response to neoliberal economic globalisation,” says Nadir Jeeva, CEO of Afri-Corp International Properties.
“The South African commercial real estate sector is faced with a set of challenges: On the one hand, sluggish economic growth and, on the other hand, the slow-burning and very real transmutation of physical spaces into virtual sites of economic productivity as a result of technological innovation.”– Nadir Jeeva, CEO of Afri-Corp International Properties.
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Landlords in the USA, for example, have already begun converting their low performing properties into ‘china-town’ type malls, where cheaper imported products are sold. Landlords have made significant profits by dividing their commercial retail space and selling it to owner-operators on sectional title or known as ‘condominiumised centres’.
Meanwhile, ordinary office space won’t be relevant to tenants of the future in South Africa either. In Johannesburg and Cape Town, there has been a notable rise in demand for mixed-use buildings comprising office, health and lifestyle facilities. This finding indicates the need for people to work, exercise, shop and eat out all within easy reach, and avoid traffic congestion.
According to experts, the local property sector will be heavily affected by the following as tough economic trends persist:
- More competition from popular foreign brands such as Zara and H&M is driving rental prices higher for local business, and the local retail sector is already facing mass store closures and downsizing
- The weaker rand is affecting imports and as businesses struggle to keep up, they are being left by the wayside in terms of sales and competition
- A decrease in the office market as listed companies reduce their fixed costs, including rental, meaning they are sharing office space and most likely not renewing their current leases.
Leading cities around the world have already evolved into a demanding ecosystem of fast-paced advancements in mobile computing (5G technology), cognitive, and Artificial Intelligence. In preparation for smart cities and smart mobility, you should be investigating new types of tech-supportive developments.
As the gap between changes in technology and business productivity broadens, so should your offering as a commercial property landlord.
Key areas to consider as the commercial real estate industry evolves
Businesses – whether in retail or corporate – need a space where they can perform at their optimum and deliver on customer demands. Are you prepared to tackle the upcoming trends in the sector?
1. An influx of foreign retailers stimulating the market
International retailers are increasingly expressing a desire to enter the sub-Saharan African market. This is impacting local retailers as pressure mounts to make shopping more exciting, and dynamics change and the market become more price competitive.
In recent months, major retailers in South Africa have begun to downsize and close down completely. While some are opting to move to online spaces, those who’ve stayed open have embarked on transforming their brick-and-mortar stores – and landlords have begun following suit with physical shopping malls – turning them into experiential sites. Experts, therefore predict that malls of the future will provide a more mixed-use experience.
“Industrial usage will be driven by export manufacturers and online shopping distribution centres, which are growing faster than most other sectors,” explains executive chairman of Land Equity Group, Stuart Chait. Amazon has embarked on building distribution centres in South Africa and with the weak rand stimulating the export market, the likes of Alibaba aren’t far behind.
Related: Why workplace design should be part of your business strategy
2. Increased popularity of Fintech
The Fintech onslaught cannot be ignored, says Deloitte, emphasising the need for traditional real estate companies to engage with these start-ups in different ways. “Companies can make choices based on their investing capacity, the utility of a start-up’s services, its need for financing, and so forth.”
Leveraging some of the online services and solutions for key property-related decisions and accessing capital through the innovative funding and investing platforms that real estate fintechs have to offer, are just some of the benefits of embracing this emerging sector.
“Landlords and tenants will need to approach and be more open to more flexible arrangements,” notes Jeeva. “Of course, a major challenge for landlords and facility managers is the challenge of vetting companies that are in start-up or relatively young, but yet the lifeblood of the economy and commercial real estate in the future.”
While this process may result in higher rentals, forming partnerships with or investing in real estate Fintechs means you could stand to benefit from their agility, relevance and future growth.
“Fibre has become a key element when buyers, particularly Millennials and entrepreneurs, approach a property. From a less technological perspective, but equally important, natural resources such as water availability are becoming game-changers in terms of how people source property.”– Grant Holton, a founding director and CEO of HQM Properties
3. The city is no longer the hub of business
Economists predict that for commercial real estate players in 2018, the outlook isn’t as bright as it was in 2017. A difference in perception between buyers and sellers, and landlords’ capitalisation on a good economy will result in higher prices and rental increases.
“But buyers will see rising interest rates and won’t want to adjust their offers to meet seller demands,” says Yun. “They will stare into each other’s eyes, and they will not want to blink. The result will likely be a 5% to 10% decline in unit sales.”
Related: How digital can help mall and shopping centre owners thrive
As spaces get smaller and retrenchments increase, office vacancies will be on the rise. But the positive aspect is that these vacancies can be absorbed by converting them into serviced offices or co-working spaces. The future of commercial real estate in terms of office space, according to Jeeva, will definitely borrow from centres with shared and communal resources.
This requires a new model of design and lettable space, where new or existing office developments are forged with design principles of incubation centres, start-up innovation labs and flexible work spaces in mind.
Real estate companies face myriad challenges today – from the way technology has leapfrogged into every aspect of the industry to cultural changes – which if not embraced, threaten to render companies or the service they deliver obsolete.– Deloitte