According to the second quarter FNB Broker Survey, the commercial property market has seemingly regained stability and remains poised for significant improvement; however, challenges such as vacancies remain. The same FNB survey also noted that most commercial property brokers believe that small business growth can significantly benefit the industrial and retail sectors.
Frances Gray-Mnukwana, a commercial property specialist for Seeff False Bay, stated that there is high demand in the Cape for smaller retail spaces, especially in shopping malls with solid trading records and increased traffic. Small industrial units from around 50sqm to 100sqm remain another high-demand choice for prospective buyers.
Most buyers are in the market for rental properties, while commercial sales still pose a challenge due to limited stock, overpricing, and transactions taking longer to close. Commercial buyers are looking for investments that remain below market value with the view of reselling to make a profit. Although commercial spaces retain many lease enquiries, securing new leases remains challenging, with many landlords keeping their existing tenants on more competitive rental deals, adds Gray-Mnukwana.
In contrast, sellers do not rush to sell and refuse to budge on their asking prices. Many sellers opt to take their properties to auction to test the value against the current market standard; if the property does not sell, sellers either roll over to the next auction or withdraw from the market entirely. Office space is receiving little to no demand, particularly in Cape Town’s CBD, and many small businesses now seek properties outside the CBD, which result in a spike in price. These dismal conditions pushed prospective small business owners into popular neighbourhoods like False Bay, which offer lower rental prices. The reasons behind this trend include a decline in turnover and many employees following the WFA (work from anywhere) remote work trend.
Another challenge faced by small businesses is the lack of consistent credit histories. The unfortunate circumstances brought about by the Covid-19 lockdowns resulted in poor trading conditions for many tenants and ultimately caused their credit ratings to drop. In some scenarios, there were breaches in rental agreements, which were reflected in credit histories, causing many landlords to become blocked and unable to accept offers to lease their tenants.
Gray-Mnukwana encourages commercial landlords to consider accepting competitive rental offers and shorter lease periods. As most smaller tenants experience cash flow issues with sizable upfront payments, commercial landlords might consider doubling the monthly rental deposit fee and allowing tenants to pay it back over six months. With many entrepreneurs seeking small business opportunities, this could work in favour of commercial landlords looking to fill their spaces.
Despite these challenges, the market remains competitive, and buyers and sellers can still secure excellent deals with help from the right property practitioner.
If you enjoyed reading this blog, perhaps consider reading Seeff’s blog on why SA properties still remain good value for money.