SANDTON ‘TO LET’
Office buildings stand empty as more companies decide not to return to the traditional way of working
f you want to see the extent to which the pandemic has disrupted commercial real estate markets, a quick drive around Sandton should do the trick.
What was until recently SA’s busiest and largest business hub has become unnervingly quiet. Clearly, the people (and cars) forced out of Sandton when companies began working remotely in late March have yet to return. In fact, the only thing that seems to have multiplied in recent months is the number of “To Let” signs affixed to Sandton’s myriad half-empty office buildings.
A similar scene is playing out across many other commercial nodes.
Data released earlier this month by the SA Property Owners Association and investment research firm MSCI confirms a noticeable rise in empty office space across major metros.
SA’s official office vacancy rate jumped from 11.6% in the first quarter of 2020 to 13.3% in the fourth quarter — the highest level in 16 years (see graph).
Though a 1.7 percentage point increase may not seem that significant, it equates to more than 350,000m² of office space becoming vacant between March and December. That’s more than double the size of a large superregional shopping centre such as Sandton City.
INiel Harmse, senior research associate at MSCI, says while office vacancies have been broadly on the up since 2013, the curve has “steepened dramatically” since March. The biggest jump in vacancies occurred in the older B- and C-grade segments of the market, which weakened to 16.1% and 16.4%.
Harmse says these segments are particularly vulnerable to economic shocks, given the proportion of SMMEs in their tenant base.
In square metre terms, Sandton has the most A-, B- and C-grade office space to let of all office nodes in SA. It’s followed by the CBDs of Joburg, Durban and Cape Town, as well as other Joburg areas such as Midrand, Bryanston, Parktown, Sunninghill and Braamfontein.
Harmse believes a return to single-digit vacancies seems “almost unimaginable” without the large-scale repurposing of space.
He cites rising financial pressure among tenants on the back of a weak economy, coupled with improved technology and the pandemicinduced adoption of the work-from-home trend, as key reasons for the increase.
The upshot is that SA Inc has been forced to rethink its physical office needs in a bid to cut overhead costs.
Results released by JSE-listed Emira Property Fund last week confirm that some companies are giving up their offices permanently, or at least reducing their footprints, when leases come up for renewal.
Emira, which owns a large number of office buildings in Joburg’s northern suburbs, among others, saw its office vacancy rate more than double in the six months to December — from 6.9% to 14.9%.
The vacancy rate at one of its Hyde Park buildings is now 43%; a building in Bryanston is at 40%.
Emira COO Ulana van Biljon ascribes the sharp rise to a few large corporate tenants vacating their premises after adopting remote working strategies. Others are reducing or consolidating space, or asking for early lease reviews.
“Most corporates are now reconsidering their office strategies but many aren’t quite sure how to take it forward,” she says.
Still, Van Biljon believes most companies want to retain a physical office — albeit perhaps smaller than before — to enable much-needed human interaction with employees.
Michael Scott, research analyst at real estate advisory firm JLL Sub-Saharan Africa, says companies have already started using office space differently. He believes the hybrid office model will become the preferred option for most corporates.
“The traditional office model as we know it is expected to gradually evolve towards one of a hybrid nature, whereby a combination of serviced office, satellite working, partner offices and home-based setups are adopted,” says Scott.
Joanne Bushell, MD of global flexible workspace provider IWG’s SA operations, agrees that hybrid working is becoming the new norm. “And in our view, it’s here to stay when life after lockdown resumes,” she adds.
Because the remote working experiment proved more successful than most people expected, Bushell says every employer, large or small, is asking themselves whether their staff will go to the office again and, if so, how often.
She expects most companies will opt for a hybrid working model, as it enables the best of both worlds: employees can work from home, but also come into the office to use communal space for camaraderie and collaboration.
This hybrid style won’t be limited to where people work, says Bushell — it will also determine how and when they work.
To compete for and retain talent in the increasingly mobile economy, businesses may need to rethink typical work schedules and allow employees to structure their work hours to fit in with the rest of their lives, instead of the other way around.
Ultimately, says Bushell, the hybrid model is about more freedom, flexibility and choice.
Who wouldn’t want that?
[Hybrid working is] here to stay when life after lockdown resumes
Joanne Bushell
Global foreign direct investment (FDI) has suffered dramatically as a result of the coronavirus pandemic, and is set to decline to below $1-trillion for the first time since
2005. This represents a remarkable 40% year-on-year fall, with FDI set to dip below even the nadir of 2009 — the hangover from the global financial crisis.
This decline reflects the synchronised nature of the crisis, which has affected developed and developing markets simultaneously and unleashed real economic and financial market shocks in unison.
The consequences for the investment landscape have been far-reaching — from reduced cross-border mergers & acquisitions activity, to divestments, to delays to, or the abandonment of, new projects and a slowdown in implementing current ones. Risk aversion has emerged as the dominant theme, with companies and countries switching to firefighting mode and scaling back their international operations.
Africa has not been immune to these realities. Already facing declining FDI — a 10% drop in inflows in 2019 to $45bn — the continent has been hit by Covid-19.
FDI flows to the continent for 2020 are forecast to have contracted 25%-40% based on GDP growth projections as well as a range of investment-specific factors, according to the UN Conference on Trade & Development’s “World Investment Report 2020”.
The negative effects of slower global and regional GDP growth and softer demand for commodities have constrained flows to countries with both diversified and natural resource-orientated investment profiles, though a few countries received higher inflows from large new projects.
As the continent now attempts to recover from Covid-19, commodity declines and an increased cost of funding, what are the opportunities and challenges that must be navigated to obtain much-needed investment?
The challenges
In a context of supercharged nationalism, many traditional investors may seek to consolidate domestically rather than pursue outward investment drives. As a result, there is a risk that investment in Africa may be placed on the back burner or — more worrying — that international divestments may rise as multinationals look to insulate themselves from future shocks by shortening their supply chains.
With the vaccine rollout expected to be slower in Africa than elsewhere, this could also compromise the continent’s economic recovery.
And with the external environment potentially turning more hostile, African policymakers will need to develop home-grown solutions to safeguard themselves. Catalysing domestic investment to offset external dependency must therefore become an urgent priority.
At present, direct investment from within Africa accounts for only about 10% of the continent’s FDI, against levels of about 80% in Europe and 50% in Asia. This meagre outlay has the potential to be substantially enhanced, particularly through regional powerhouses such as SA and Morocco.
It will also be imperative to prevent protectionist
What it means:
Catalysing domestic investment to offset Africa’s external dependency must become an urgent priority
impulses from gaining traction in Africa. Already there have been flashpoints, including Nigeria-Benin and Zambia-Tanzania border disputes. Prior to the outbreak, tensions between Nigeria and SA were inflamed in late 2019 by xenophobic violence in SA.
Meanwhile, Kenya’s attempts to unilaterally negotiate a free trade agreement with the US continue to create friction with other African states.
Africa’s policymakers can ill afford these skirmishes to become more pronounced. Indeed, they need to realise that a collective approach represents the best option of
attracting investment in the current climate. To take advantage of discretionary foreign capital, African countries also need to position themselves smartly. For this, they must avoid the clumsy own goals that have characterised the policy landscape in recent years.
Take Nigeria and Tanzania’s telecommunications and mining sector bungles, for example: both placed onerous fines, taxes and ownership prescriptions on foreignowned companies — moves likely to deter new market entrants. The erratic, disproportionate and haphazard way in which punitive measures were communicated and administered not only rattled the business community within these countries, but also inflicted severe damage on investor sentiment.
Past performance suggests that countries offering higher economic growth rates, investor-friendly policies, structural reform and political stability significantly outperform their continental peers in attracting FDI.
The opportunities
Despite the obvious challenges, there are also some compelling reasons for optimism.
First, the expected recovery in commodity prices should boost growth rates. Increased commodity demand, especially from China, relaxing trade tensions and a more multilateral approach to global governance could all be tailwinds for African economies. Significantly, oil, copper and liquefied natural gas prices have already staged a strong comeback, making the investment case for African commodity-exporting countries far more compelling.
And recovering investor sentiment, along with favourable financial and monetary conditions, will act as another stimulus for external investment. Next, the African continental free trade area (AfCFTA), which took effect on
January 1, is a drawcard.
To the extent the AfCFTA reduces and eliminates tariffs, integrates markets and economies, adequately addresses nontariff barriers to trade and enhances trade and investment policy certainty, FDI will increase. Foreign investors are increasingly attracted by the sheer size and scale of the African market. With a population of 1.3-billion and an economy that has the potential to reach $3.4-trillion, this makes it a bigger market than India.
Regardless of reservations about fragmented politics, economic instability and opaque regulatory and legal environments, any investor worth their salt will see the opportunity Africa offers.
Indeed, for multinationals and foreign entrants the AfCFTA promises a virtuous circle of greater market opportunities, triggering more trade and investment and allowing greater value addition and productivity growth — leading to more and better jobs with social inclusion, and thus further enlarged markets.
To be sure, the AfCFTA is far from a silver bullet, but measures to reduce red tape and friction costs, streamline regulatory and investment policies and foster greater regional integration can only enhance the continent’s investment attractiveness.
Last, Africa has become a theatre of competition for states expanding their global reach and relevance. This is increasingly reflected in the numbers, with some surprising trends in the investment landscape.
Despite the fanfare and controversy surrounding Chinese investment, that country’s investment activities continue to lag; with an estimated $46bn of inflows in 2019, it was only the fifth-largest investor in Africa.
Capital inflows to Africa remain heavily skewed towards the natural resources sector. The Netherlands ($79bn) and France ($53bn) remain Africa’s largest investors by stock value.
With Brexit now concluded and with aspirations to become a “global Britain”, the UK has been actively courting African partners. With inflows of $49bn, it has passed the US ($48bn) to become the third-largest investor in Africa.
Meanwhile, the administration of US President Joe Biden is expected to pursue a more holistic approach to Africa than its predecessor, which prioritised security and (belatedly) commercial aspirations, and neglected diplomatic and political considerations. The Biden administration would do well to build on existing investment initiatives such as Prosper Africa, which have laid a foundation to enhance US investment activity on the continent.
In light of the US’s ongoing strategic rivalry with China and Russia, and enhanced International Monetary Fund engagement, the prospects for US investment are expected to grow.
At the same time, Russia, Japan and India have all increased their investment exposure in Africa in recent years, funding projects for electricity generation, mineral extraction, infrastructure, manufacturing and telecommunications.
Russia has aggressively pushed nuclear energy on the continent — both to offset the impact of US sanctions and to bring home much-needed foreign currency. Meanwhile, India and Japan continue to scour the continent for new trading ties that will buoy domestic growth.
Gulf states are also increasingly seeking to extend their reach and influence with Saudi Arabia, the United Arab Emirates, Bahrain and Qatar looking to deepen their strategic ties with Africa.
All of this is reflective of an increasingly diverse and expanding investor universe. With the right acumen and awareness, Africa can leverage this interest to its advantage.
Simply put, African countries should follow the money. Djibouti, for example, has exploited its strategic location along oil trade routes to obtain cash, infrastructure and investment from the US, China, France, Italy and Japan. These countries invest in the tiny state to maintain the military presence required to protect strategic shipping lanes.
Through streetwise diplomacy and negotiation,
Djibouti has achieved disproportionate commercial and strategic benefits.
Africa remains the battleground upon which global powers seek to stamp their presence, expand their reach and claim strategic geopolitical dominance in increasingly divided political landscapes. This is presenting new funding opportunities.
The problem is that African countries’ efforts to attract foreign investment to boost development and industrialisation have not had much success. The continent is still marginalised in the global political economy, with barely 5% of global FDI flows. In all likelihood, the economic fallout from the pandemic will continue to act as a drag on investment in the short term.
However, to mitigate these adverse effects, Africa must do three things.
First, it should ensure greater policy consistency and stop scoring own goals.
Second, a strong regional integration agenda under the auspices of the AfCFTA must become a priority.
And third, through savvy economic diplomacy, countries should exploit the changing geopolitical and investment landscape for commercial and political benefits in line with their strategic objectives
Through the combination of these measures, the continent may just surprise on the upside.
With a population of 1.3-billion and an economy that has the potential to reach $3.4-trillion, Africa is a bigger market than India
Dramatic evidence at the commission of inquiry into state capture, chaired by deputy chief justice Raymond Zondo, has focused public attention on covert meetings and brown bags of cash. But as sober academic evidence given late last week makes clear, it’s time to ensure this never happens again.
It’s an ironic place to be, given that the overwhelming impulse during the shaping of the present constitution was almost exactly the same: how to ensure that parliament would never again become
“the lapdog of the executive”.
At that time, of course, the reference was to parliament’s complicit behaviour under apartheid; this time it’s to parliament’s inability or unwillingness to acknowledge and act against corruption.
The “lapdog” image comes from retired University of Cape Town law professor Hugh Corder, who gave evidence to the commission last week. But the “never again” sentiment was widely shared during the drafting of the constitution.
So what went wrong, and how can SA make quite certain this time that parliament does its job of holding the executive accountable?
Corder believes SA’s electoral and party list system is “a major part of the problem”, as it gives “enormous power to the bosses of every political party”. This, in turn, results in many MPs apparently not feeling empowered to challenge the party line or its decisions.
The constitution puts multiple obligations on parliament to maintain oversight, and, while parliament should have enacted ways to ensure this, it has not done so.
Some of the hundreds of bodies that should report to parliament actually do so. However, when conducting research for a 1999 report, Corder discovered “there are very few records or indices of written reports submitted to parliamentary committees”.
Instead, these pile up and become an impenetrable mass of data. This makes investigation, fact-finding or cross-checking with previous reports virtually impossible.
That has to change. A central receiving office for all reports should be set up to record what happens to each report, and what action was taken. There should also be research staff, tasked with ensuring that these reports are safe, properly indexed and usable.
In a brief but significant aside, Corder and Zondo discussed how to ensure the independence and effectiveness of parliamentary committees — the bodies that should help spot looting and corruption. Which, Zondo asked, is more important: the personality of the committee chair, or that the chair is not necessarily a member of the dominant party?
Corder’s view is that both count. The role of committee chair is crucial, he says. Perhaps the job should be shared out proportionally between the major parties, maybe even on a rotational basis.
It’s a change that could easily be made, as it would require tweaking rules rather than making new law.
“Fundamentally, it comes down to personality and the prevailing political culture,” he says.
A culture of accountability
If the pervasive culture in parliamentary and political life is one of openness, accountability and other constitutional values, MPs across the board will feel obliged to ask questions and pursue answers until there is a proper explanation.
However, “law alone cannot achieve this”. There has to be a constitutionally compliant political culture and good investigative journalism, and new MPs should, as a strong part of their induction, be introduced to their role in ensuring oversight and accountability.
In Corder’s view, parliament’s failure to fulfil either its oversight role or its task of ensuring accountability has forced the courts to take up the slack, leaving the judiciary in an often inappropriate and dangerous place.
More than 20 years ago, Corder proposed laws to ensure that parliament carried out its role in oversight and accountability, and which set standards for public servants. Nothing came of these proposals.
Now would be a good time to try again.
SA’s electoral and party list system gives ‘enormous power to the bosses of every political party’
ý Unexpected as it was, 2020 was a spectacularly good year for commodity prices, precious metals in particular.
This week’s results have put the magnitude of the rally into perspective. AngloGold Ashanti’s profit increased 160% to $946m in 2020, from $364m in 2019. Gold Fields’ normalised profit was $878m this year, from $343m in 2019. Harmony Gold this week reported a net interim profit of R5.8bn compared to R1.3bn for the comparative period in 2019. Anglo American
Platinum’s (Amplats’) profit nearly doubled to R30.4bn in 2020, from R18.5bn in 2019 — itself one of the best years for platinum group metals (PGM) producers. Impala Platinum (Implats) expects to produce a fourfold rise in earnings, to R14.8bn. And PGM and gold producer SibanyeStillwater moved from earnings of just R62m this time last year to a truly staggering R29.3bn profit for the six months to end-December 2020.
With eye-popping performances like these and healthy shareholder returns to boot, can anything break up the precious metals party?
On the PGM side, the consensus is no. At least, not yet.
“You think these [Sibanye’s] results to December are good?” says Bruce Williamson, chief investment officer at Integral Asset Management. “The PGM prices were up another big chunk since then; we’ve had almost two months of wonderful price rises again.”
Rhodium prices this week, for example, hit a record high of $23,400 an ounce, up 37.6% from end-December.
It means that platinum miners are really primarily rhodium producers at the moment, says