Industrial property, affordable housing, malls buck the trend
SA’s commercial property sector has had a challenging year, with rising interest rates pushing up borrowing costs and hindering acquisitions for many companies.
Despite this, sectors such as industrial property, neighbourhood malls and affordable housing continue to see rising demand, and banks have appetite to fund investors buying these assets.
Nedbank and Standard Bank told Business Day that they are open to lending to all sectors. However, they apply property fundamentals to each asset or portfolio relative to the longterm performance and sustainability of the asset. They also look at the locality and tenant profile to determine whether the asset will offer the best return.
“We are seeing strong continued demand for non-metro retail, convenience retail and logistics warehousing,” said Vanessa Murray, divisional executive for property finance at Nedbank Corporate and Investment Banking.
Marlene Pillay, head of real estate finance at Standard Bank Group, said that although the environment is tough, there is a general optimism that there will be an improvement. “There are still pockets of opportunities in key nodes, and we see investors snapping these up.”
Preggie Pillay, CEO of FNB commercial property finance, said: “Industrial property by far remains an area we would like to highly participate in, and neighbourhood/community retail has also been an area we would like to be in from a lend
ing perspective.”
Murray said quality affordable housing in good localities is performing well, with strong occupancies and rental escalations seen for the first time in a few years.
Good rental products close to places of work and transport nodes are good investments.
“Given high interest rates, we have seen a shift from developing to sell to developing for rental purposes.”
She said there is strong demand for healthcare facilities, including day clinics and ancillary medical centres which cater to a wide range of healthcare practitioners.
In its investor update in November, Growthpoint Properties said Growthpoint Healthcare Reit, one of the three funds of unlisted Growthpoint Investment Partners, is finalising the R106.4m acquisition of the Johannesburg Eye Hospital in Northcliff.
Murray said the office sector is showing green shoots, with vacancy reductions and rental reversions tapering off. The SA Property Owners Association (Sapoa) Office Vacancy Survey for the third quarter showed vacancies reducing from a 16.7% peak in 2022 to 15.5%.
Nedbank has an overall market share of about 37%.
FNB with a market share of about 22%, said its loan book continues to perform well, with growth in the mid-single digits over the past three years. Pillay said that due to its solid loan origination strategy, the loan book has very little to no arrears as customers have prepaid their loan facilities more than the bank anticipated.
“We are seeing some stress on loans below R10m. Overall, arrears remain within our expectation,” said Pillay.
Standard Bank’s Pillay said that a challenging economic environment, coupled with high interest rates, has resulted in customers right-sizing their debt. She said that since the Covid-19 pandemic in 2020, listed real estate investment trusts (Reits) have cut their debt levels, resulting in healthy balance sheets and liquid funds. But she said interest rate cover ratios have come under pressure due to high rates, while debt hedging has been challenging given the elevated yield curve.
THERE ARE POCKETS OF OPPORTUNITIES IN KEY NODES AND WE SEE INVESTORS SNAPPING THESE UP