Rising rates ‘slowing sales of commercial property’
FNB’s commercial property finance division says increasing interest rates are constraining new business and business expansion and hampering demand for space and commercial property buying.
In a market that is highly credit-driven, demand for properties to purchase is directly affected by rising interest rates and a high inflationary environment.
“Further interest rate hikes, along with the lagged effects of past ones, are likely to sustain a slowing commercial property market trend into 2023,” said John Loos, a property strategist at FNB.
Last week, the Reserve Bank hiked interest rates by 75 basis points (bps), bringing the cumulative increase since November 2021 to 350 bps.
Already, there is a broad decline in commercial property building plans, indicating a slowing in business activity, said Loos. There has also been slow growth in new commercial mortgage lending, and in the near term there will be further declines in loans granted and registered due to rising interest rates.
The recent FNB Property Broker Survey points to a slowing in buying activity across the industrial, office and retail sectors, and the recent rate hike is likely to add further constraint.
Loos said tenants are under financial pressure to meet their rental obligations along with other business debt.
Vacancies, which rose slightly during the first half of 2022 in the office and retail sectors, are expected to increase as the effects of the new rate is felt.
“We expect vacancy rates in office and retail to continue to rise into 2023 while industrial’s declining vacancy rate may end and begin to move higher again in the near term too,” said Loos.
He said upward drift in capitalisation rates and a decline in real values is expected to continue in the near term, resulting in all commercial property capital value per square metre continuing to fall in real (inflationadjusted) terms.
“This decline implies very low capital growth that doesn’t keep up with general price inflation in the economy, especially in the office and retail assets.”
ALREADY, THERE IS A BROAD DECLINE IN COMMERCIAL PROPERTY BUILDING PLANS