4th Quarter 2022 FNB Property Broker Survey – Property Brokers perceive the financial pressure-related selling motive to have been relatively stable recently. But selling in search of more reliable utilities and municipal services has become a far more important selling motive of late.

In this note, we continue with the 4th quarter 2022 results of our FNB Commercial Property Broker Survey, which surveys a sample of commercial property brokers in the 6 major metros of South Africa, i.e., City of Joburg and Ekurhuleni (Greater Johannesburg), Tshwane, eThekwini, City of Cape Town and Nelson Mandela Bay.

Focusing on key drivers of movement and sales activity in owner-serviced properties, the survey results show financial pressure to still be the biggest single driver. This driver had previously been diminishing in significance until early-2022, but has moved more-or-less sideways in recent quarters. What has noticeably changed in recent quarters, however, is a significant rise in selling to relocate in search of better utilities and municipal services, for instance electricity and water, hardly surprising as such services deteriorate at varying speeds in various areas/regions.

We ask respondents for their perception of the major drivers of ‘‘movement and sales activity’’ in the Owner-Serviced Property segment. They estimate the percentage of movement and sales that they believe would take place for a particular reason. The total percentage of all the reasons can add up to more than 100%, because businesses can be selling or relocating for more than one reason. It isn’t an exact science, therefore, but gives a broad picture, and what comes out of it is that the highest percentage of owner occupiers are still perceived to be selling or relocating influenced by financial constraints/pressures, i.e., 31.68 in the 4th quarter. This is very similar to the 32.45% recorded in the 3rd quarter 2022.

The level of financial pressure-related selling has thus not shifted noticeably in the past 3 quarters, after a very significant prior downward trend.

  • Levels of upgrade-related selling moving has run out of rising momentum

An additional potential indicator of easing or tightening financial pressures is the percentage of selling in order to relocate to “bigger and better premises”. This percentage has seen its own earlier improving (upward) trend stall, and at 22.1% in the 4th quarter of 2022 was slightly weaker than the 22.9% recorded in the prior quarter.

This percentage had dropped to a very low level of 8.2% at the start of hard lockdown in the 2nd quarter of 2020, there-after recovering as the economy recovered.
The percentages of the past 3 quarterly surveys, however, suggest a seemingly “fully recovered” level if pre-lockdown 2019 levels can be regarded as “normal”, and no further increasing progress has been made of late.

  • Relocating in search of more reliable utilities and municipal services.

A further key reason for selling, and one that has become more “elevated” in recent quarters, is selling in order to relocate in search of more reliable utilities/municipal services, for instance electricity and water.

This motive rose noticeably in prominence in 2022, and we believe varying speeds of infrastructure and services deterioration in various areas and regions is driving this. The electricity crisis might possibly be a key factor of late, given recently heightened levels of load shedding, although not the only one.

In the 2nd quarter of 2022 survey, the estimated percentage of sellers driven at least in part by this motive rose sharply from a prior 15.2% to 23.1%. In the subsequent 3rd and 4th quarter surveys, it continued to record elevated percentages of 24.2% and 23.1% respectively.

As various services provided by utilities and municipalities deteriorate in many parts of the country, we would expect to see this motive for selling and relocating remaining prominent.

  • Coastal metros continue to ‘‘outperform’’ Gauteng metros on average in terms of (lower) financial pressure-related selling.

Examining where, by region, the greatest level of financial pressure-related selling or relocation is perceived to be, Gauteng still appears on average to have higher (worse) readings due more to Tshwane region. Tshwane had the highest reading in the 4th quarter 2022 survey at 50% of sellers, while Greater Johannesburg was a significantly lower 30.2%.

Of the 3 coastal metros, the highest (worst) percentage was recorded by Nelson Mandela Bay, i.e., 32.8%, followed by eThekwini with 25.6%, and Cape Town with 19.9%.

Conclusion –Financial pressure in the owner-serviced property market appears to have been relatively stable in recent quarters, while selling in search of more  reliable utilities and municipal services has become far more prominent in recent quarters.

The 4th quarter 2022 FNB Property Broker Survey indicates a more-or-less sideways move in financial pressure amongst property owner-occupiers through much of 2022 following prior improvement (decline). The ‘‘selling due to financial pressure’’ motive had declined significantly through 2021 to early-2022 as lockdowns eased and the economy rebounded. But in the past 3 quarterly surveys, the reading has trended more-or-less sideways.

The ’’selling in order to upgrade’’ motive has also run out of improving (rising) momentum in recent quarters, moving more-or-less sideways in recent quarters.

We would expect some indication of increasing financial pressure to begin to emerge in the owner-serviced market in 2023, given that we have already had 375 basis points’ worth of interest rate hiking since late-2021, with a likely economic slowdown expected in 2023.

A part of the economic slowdown is expected to be the result of heightened disruptions from load shedding of late. And on this note, perhaps in part related to loadshedding, the past 3 quarters’ surveys have seen ‘‘elevated’’ percentages of property sellers believed to have been at least partly motivated to relocate in search of more reliable utilities and municipal services. The electricity crisis may be playing a significant role in that, although it is likely not the only role player, with other utilities and infrastructure such as water supply also under pressure.