For South African business owners that were already having to contend with a contracting economy, the additional pressure of COVID-19 and lockdown has left many stretched to their limit. But as tempting as it may be to offload your business’ property for liquidity purposes, now might not be the best time to sell.
This is according to Shane Padayachy, Property Investments Area Manager at Business Partners Limited (BUSINESS/PARTNERS) – one of Africa’s leading financiers for formal small and medium owner-managed businesses – who says that the South African commercial property sector has taken a significant knock in the midst of the COVID-19 crisis.
“Without a doubt, the office market has taken the biggest hit – with so many people realising during lockdown that they can work from home – followed by the retail market to a lesser extent, having been impacted by the increased uptake in online shopping. While the industrial market was affected during the initial ‘hard’ lockdown, many companies in this sector were allowed to resume operations quite early on, making this the most resilient of the commercial property subsectors.”
Despite the different sectors of commercial property being impacted to varying degrees, Padayachy says that the overall market impact has not been good – from a sellers’ perspective, at least. “The overall market, given the current socio-economic climate, is more of a buyers’ market right now. This is because pre-COVID, the South African property market was overvalued, so with the current influx of supply, sellers are now being forced to reduce their prices.
“That being said, good properties in prime locations are very hard to come by and, as a result, these properties will always be in a sellers’ market, as there will always be willing buyers,” he notes.
For business owners whose property does not fall within this sought-after market, however, Padayachy warns against selling right now, and suggests looking into alternative arrangements if possible. “This is not the right time to be selling your business property, so if possible, business owners should try and retain the property until the market turns to ensure they attain their full value.
“If the business is suffering, consider downscaling operations and moving to a smaller property, and get a tenant in to your original premises to cover the loan repayments and avoid selling,” he advises. “Whereas if the reason for selling is due to high gearing, there are a lot of financial institutions or silent investors that could get involved to reduce the gearing, while avoiding a sale. There is then always the option to buy back this share at a later point, should the business owner want to.”
While the overall market may take some time to recover – Padayachy predicts around 18 months – he says that an eventual recovery is inevitable. “Commercial property is likely to remain a buyers’ market for the majority of 2021. While the industrial market may make a full recovery before then, the office sector may only recover towards the end of 2022.
“But the market will recover, so property owners should hold off on selling until it does, unless they absolutely have to. It’s just a matter of when the economy begins to see a turnaround, which will dictate when the commercial property market recovery will come about,” Padayachy concludes.
