Property prices declining in real terms, after stripping away inflation which has averaged 3.3% this year. The sustainability of the current rising house prices given the negative effect of the weak economy on household finances, which could ultimately outweigh the impact of lower interest rates and lead to some forced selling, especially if interest rates start to rise again. It is very likely that rentals will come under more pressure in the near term due to high vacancies. The large and growing amount of available space is giving tenants the upper hand in lease negotiations, leading to benefits such as tenant installation allowances, cash payment, longer rent-free periods and lower rentals. There is an oversupply of office rental spaces due to a weakening demand as offices begin to utilise more ‘work from home’ programmes, while the retail sector experienced lower year-to-year sales – a 9% decrease compared with 2019.
Rising vacancies, rentals in the industrial sector remained largely stable in the second half of the year. Lamprecht suggests this is mainly due to an economic recovery from the retail and manufacturing sector in the third quarter of 2020. Rentals for a space of 500m² grew by 2% and 1% in Durban and the East Rand respectively. Meanwhile Cape Town and Central Witwatersrand saw nominal interest rates fall by 1%. Despite the recent improvement, activity levels for the year so far are down substantially compared to 2019. We expect activity to recover further in the near term, but the medium-term is not so positive due to poor property fundamentals, such as high vacancy rates and the consequent depressed rentals.