The property market is, undoubtedly, closely tied to the economy.  With no economic growth, the market is struggling.  South Africans are enduring one of the harshest economic periods in decades - a contraction in GDP in the first quarter, higher oil prices, a weaker rand and a 1% VAT hike have all contributed to the “perfect storm”.  Furthermore, emerging market nations are feeling the pinch as a result of a weakening currency.  Argentina for example has just accepted a 50-billion-dollar loan from the IMF – the biggest loan in the IMF’s history. If the US increases their interest rates, we can expect even further weakening. The rand is at its lowest level sending it back to last year’s numbers.

With a weaker rand, one can expect higher inflation, and this may result in an increase in interest rates, which, considering the above will be disastrous. So, the question is where does this leave the property market?  From our perspective definitely not in good shape! However, with a difficult market comes opportunity – for the tenant. With the lack of growth in the economy and the current oversupply of office space in most areas, Landlords are bending over backwards to retain their current tenants, as well as offering huge incentives to attract new tenants. This puts tenants at the centre of the market. They are presented with an ideal opportunity to renew their lease or relocate to a newer building and take advantage of a very weak market. We have advised numerous tenants in this regard which has resulted in huge savings for them.

A market is cyclical, and we do not expect this to be the case forever. In fact, some economists are saying that there are signs that the economy could be poised to take off – household consumption expenditure may be on the up. It did decelerate by 1.5% in the first quarter; however spending surged in the 4th quarter of last year boosted by Black Friday. This may suggest that the 1.5% decline may be a temporary pull back. Borrowing is also on the increase, which could be a sign of confidence. 

If the economy does “take off” this will have an effect on vacancy levels, which should start decreasing. Landlords will then start tapering off their incentives. For this reason, tenants would do well to look at entering into negotiations on lease renewals while the oversupply remains. We are advising our clients not to delay even if their leases are not coming up for expiry just yet.