More South African companies downsizing offices due to job cuts and working from home

Office space Source: Google Images

FNB’s Commercial Property Broker Survey for Q1 2021 shows that businesses plan to further downsize their offices due to the impacts of the Covid-19 pandemic.

The survey considers broker perceptions of buying/selling market activity by major commercial property class, with 40% of brokers surveyed seeing office-bound companies revising their office space needs and in many cases downscaling.

“The planned downscaling is not only due to greater levels of work from home, however. Office space demand is also heavily influenced by employment trends in finance,” FNB said.

“(Employment in the) Real Estate and Business Services Sector dropped by a massive -7% year-on-year in the second and third quarters of 2020, and this alone is likely to translate into a significant drop in office space required by the sector.”

Despite this drop, the survey shows rising activity ratings in all three property classes – the industrial, retail and office.

In all three markets’ cases, the activity ratings in the first quarter represented a further strengthening on the previous quarter’s readings. But in all three cases the levels have not yet recovered to the pre-lockdown levels recorded in the first quarter of 2020 survey, FNB said.

“The fact that the activity ratings are rising but not yet back to ‘fully recovered’ to pre-lockdown levels, appears more-or-less reflective of recent economic data.

“Real GDP growth remained negative in the final quarter of 2020 at -4.13% year-on-year, which is significantly better than the -17.78% 2nd quarter 2020 drop, but at the same time also not fully recovered.

FNB said that while interest rates are very low – having declined by 300 basis points last year – unlike the interest-rate-sensitive residential property, the commercial property market typically tracks the economy’s movements more closely, and this appears to again be the case.

There are some extra factors over and above the economic cycle which may explain the differences in strength between the three major commercial property sectors, FNB said.

“The brokers perceive all three sectors to have been heavily impacted by lockdown and the resultant deep recession. However, they implicitly explain their greater optimism in Industrial Property as due in part to its greater affordability compared to the other two property sectors.

“In addition, they believe that an additional source of demand for Industrial emanates from a greater move to online retail, necessitating increased warehousing and logistics space.

“They don’t, however, perceive retail property to be as challenged by technological progress and online retail as what they perceive office space to be from the lockdown-induced surge in working from home and the great success thereof.”