Com­mer­cial ten­ant pay­ments set to de­te­ri­o­rate

The Star Early Edition - - NEWS - Roy Cokayne

THE PER­FOR­MANCE of com­mer­cial prop­erty ten­ants could de­te­ri­o­rate fur­ther be­fore im­prov­ing, ac­cord­ing to credit bureau Ten­ant Pro­file Net­work (TPN).

Although the econ­omy should im­prove mildly in the near term, there could still be a lagged neg­a­tive im­pact on the per­for­mance of com­mer­cial ten­ants, be­cause of five years of broad eco­nomic stag­na­tion, TPN said in its lat­est quar­terly com­mer­cial sec­tor rental mon­i­tor.

How­ever, the re­port said that there were not many signs yet of any de­te­ri­o­ra­tion in the pay­ment per­for­mance of com­mer­cial prop­erty ten­ants.

It said the per­cent­age of com­mer­cial ten­ants “in good stand­ing” with their land­lords was at 82.27 per­cent in the first quar­ter of this year, which was slightly below the 83.11 per­cent in the pre­vi­ous quar­ter and the seven-year high of 83.56 per­cent achieved in the third quar­ter of 2012.

But TPN said this per­cent­age re­mained strong com­pared to the post 2008/9 re­ces­sion level of 66 per­cent in late 2010.

Ten­ants in good stand­ing com­prises ten­ants who paid in full on time, ten­ants who paid late and ten­ants who paid dur­ing the grace pe­riod.

TPN added that the 6.03 per­cent of com­mer­cial ten­ants who did not pay in the first quar­ter was marginally higher than its multi year best level of 5.39 per­cent in 2014. Dur­ing the post 2008/9 re­ces­sion, the per­cent­age of ten­ants who did not pay peaked at 16 per­cent.

TPN said the key to the mild de­te­ri­o­ra­tion in the pay­ment per­for­mance of com­mer­cial ten­ants to date was prob­a­bly the very slow pace of eco­nomic de­te­ri­o­ra­tion from 2012 to last year, which was prob­a­bly best de­scribed as a “slow punc­ture”.

The “snail’s pace” of in­ter­est rate hik­ing by the SA Re­serve Bank by only 2 per­cent­age points over slightly more than two years from early 2014 to early last year was also key to the slow pace of cycli­cal weak­en­ing.

“The com­mer­cial sec­tor has, in many in­stances there­fore, had time to ad­just and ab­sorb mount­ing fi­nan­cial pres­sure. But not ev­ery­one can do this in­def­i­nitely and we think it is likely that mild near term ten­ant per­for­mance de­te­ri­o­ra­tion could fol­low be­fore it gets bet­ter,” it said. The per­for­mance of com­mer­cial ten­ants has de­te­ri­o­rated de­spite a slow­down in ask­ing rental growth.

The lat­est SA Prop­erty Own­ers’ As­so­ci­a­tion (Sapoa) of­fice va­cancy sur­vey said the of­fice sec­tor re­cov­ery was be­com­ing in­creas­ingly frag­ile.

“While the ag­gre­gate va­cancy rate is still mov­ing broadly side­ways, signs of weak­ness are be­com­ing ap­par­ent, es­pe­cially the re­cent slow­ing in ask­ing rental growth which was neg­a­tive in in­fla­tion ad­justed terms at (first) quar­ter end,” it said.

Sapoa added that any fu­ture im­prove­ment in va­cancy rate and ask­ing rental growth would de­pend on a strength­en­ing of un­der­ly­ing de­mand driv­ers, par­tic­u­larly fi­nan­cial and busi­ness ser­vices em­ploy­ment and cap­i­tal in­vest­ment.

The na­tional of­fice va­cancy rate in­creased by 0.4 per­cent to 11.1 per­cent in the first quar­ter.

Sapoa said ask­ing rental growth had slowed sig­nif­i­cantly on a year-on-year ba­sis, which was in­dica­tive of the cur­rent low growth en­vi­ron­ment cou­pled with ex­cess sup­ply in the mar­ket.

“A sig­nif­i­cant fac­tor driv­ing the ex­cess de­mand cur­rently preva­lent in the mar­ket is the amount of space ‘left be­hind’ by large cor­po­rates con­sol­i­dat­ing their real es­tate op­er­a­tions.

“This back­fill risk has al­ready con­trib­uted to in­creased va­cancy rates in cer­tain nodes with the po­ten­tial for more as sev­eral large de­vel­op­ment projects come on line in the short term,” Sapoa said.

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