Just a few years ago, our cities were littered with construction rubble indicating that yet another mall was going up. And if it wasn’t a mall, it was new Grade A corporate headquarters for an expanding business. But momentum seems to have slowed, prompting Marna van der Walt, CEO of Cushman & Wakefield Excellerate, to ask: where are we now?

The answer isn’t very heartening. It takes just one look at listed sector results to see that the property industry is under pressure. We’re seeing higher vacancies, and with this comes decreased nett income.
Why is this happening? From a general perspective, we’re seeing pressure across all sectors (retail, corporate and industrial) to drop lease escalation rates so that they are more in line with CPI.

If we hone in on the retail sector, it’s evident that developing dynamics are changing the sector’s landscape, with significant implications for its performance. One of the most critical changes is the rise of the ‘phygical’ space: a hybrid of the physical and digital markets which sees malls moving to create an online presence while online retailers take space in shopping centres. This trend is set to grow as online shopping becomes more prevalent in South Africa: a 2017 report by Nielsen shows that only 3% of respondents were regular online shoppers, compared to around 42% of American consumers who have searched for and bought products online, according to statista.com.

At the same time, we’re witnessing a real difference in the trading performance of dominant, mid-tier and quality convenience retailers, and this is impacting on the ability of newly established malls to perform. Against this backdrop, the collapse of box tenants is taking a major toll. The news that Stuttafords was closing its doors was bad news for landlords; now, we’re seeing another major retailer preparing to reduce its footprint - and the industry’s resulting angst is understanding. Somehow, from somewhere, landlords will have to find new tenants to take these now empty spaces. Many are looking overseas for a solution, to brands that are investigating the viability of establishing an African footprint: Turkish retailer LC Waikiki seems a good bet, as do extensions of brands that are currently represented in the local market, like Zara Home and H&M Home. Other potential targets include Hamley’s, which recently entered the South African market; construction supply giants Leroy Merlin, and sporting goods specialists Decathlon. On the local front, Dis-Chem is seen as the one to woo, with the brand having announced its intention to expand. So the opportunities are there – but this doesn’t negate the fact that the retail landscape is becoming more complex, especially as changing consumer interests create greater demand for dining and entertainment outlets in malls.

In the corporate sphere, meanwhile, landlords need to be prepared for a drop in demand. One of the key contributing factors here is the fact that the space required for every employee has halved, leading to densification of the workplace: the rule-of-thumb was that 12m² to 15m² per employee and now new office supply has seen that number halve to 4m² to 9m². Some global occupiers require 0.75 desks per employee, and about 5m² per desk. This means that even an economic upswing would bring little positive news. It also places added pressure on vacancies, as few occupiers are looking for large spaces.

Other noteworthy trends in this space include the growing interest in collaborative workspaces, with a number of co-working hubs opening in Johannesburg and Cape Town. While these initially appealed to freelance workers and employees who prefer to work remotely, more and more space is being taken up by corporate teams as companies seek to reduce the rent they pay; all part of their efforts to cut overheads.

At the opposite end of the spectrum, many companies are looking for office space that offers far more than a simple place to work. Increasingly, the workplace is about lifestyle. Look at the headquarters of companies like Discovery, for example, where the premises include facilities ranging from retail to gym, as well as chill zones, pause areas and breakout areas.

Obviously, maintaining such premises is a full-time occupation. Perhaps this is why we are seeing more landlords implementing professional workplace management and facilities management services.
What does this all mean for landlords? Often, actual rental received is lower than quoted rental (especially once increasingly generous rent-free periods are taken into account); moreover, the value of certain offices may be overstated.
Obviously, in this milieu, players’ reaction is to look for a way to work conditions to their advantage. This is why more and more landlords are outsourcing their needs to professional firms. The benefit here is that they have access to a higher level of diverse skills.

A number of landlords are also seeing the value in partnering with international companies which can expose them to new markets, or help them access new tenants. These companies also have an outstanding understanding of capital flow, while their adherence to global best practice provides peace of mind for clients.

Global companies are, obviously, also well placed to assist companies looking to expand into new territories overseas; a trend which is growing but which may be complicated by the fact that global occupiers often require more service lines. An international partner can help here by cutting through clutter, easing the process and helping to reduce costs.

The offerings of professional services are attractive for other reasons, too. The cutting-edge technology at their disposal facilitates resource planning and KPI management, while their integrated services make it easier for occupiers and landlords to take up new opportunities. What’s more, they continue to grow and offer ever more diverse services to the industry; for example, we have recently identified the value of adding industrial engineers to our team, and our clients have gained considerably from this move.

I believe that the complexities of the property industry are set to increase, rather than reduce. Yes, it’s a tricky time – but the challenges can be overcome.

Issued by:
Cushman & Wakefield Excellerate
Marna van der Walt, CEO
Tel: 011 911 8000
www.cwexcellerate.com