A bold move by Cape Town to ‘break free’ from Eskom will have a great impact on its property values.
Following President Cyril Ramaphosa’s announcement to ‘fix the fundamentals’ at last week’s SONA address, the breakaway from Eskom through alternate energy sources and the speeding up of licences to generate more than 1MW of power, shows clear signs of hope for the Commercial Real Estate industry.
The property sector has been at the mercy of Eskom and new measures being put in place will see growth in real estate values in the long-run. Welcoming both local and global independent sustainable power producers into the market will boost market confidence and see significant investments into South Africa. The question is, how fast can this happen, and can we afford to wait?
Uninterrupted power supply to Cape Town through the creation of its own power generation will see small businesses relocating from Johannesburg to Cape Town, while larger Johannesburg-based businesses would have already put plans in place to generate their own power”. Based on this, the prediction is a land price increase towards areas like Atlantis as a commercial hub.
The Real Price of Power Cuts
The replacement of equipment and increased maintenance due to power cuts is costing the industry. Increasingly, landlords are moving towards being sustainable and self-sufficient. If you are not making your portfolio sustainable then you are behind the curve. Today, tenants want to know if a property is equipped with a generator, solar power etc. and this has become a key selling point.
In addition, the news of Moody’s growth forecast down from 1 percent to 0.7 percent has once again placed a negative sentiment on South Africa. There is a lot pressure on the market and there isn’t a lot of growth to drive the market. We are seeing upward pressure on interest rates and a reduction of 25 basis points has very little impact on the industry.
Landlords want to see a clear decrease in interest rates. 100 points, for instance, will have a big impact on the industry. Landlords still have debt to service – regardless of whether they have a tenant or not.
Signs of Hope post-SONA
There are two additional key take-outs from President Cyril Ramaphosa’s SONA address to consider:
Land Expropriation: To a large degree, land expropriation has no impact on large commercial property owners, nor does it concern them. Where there is plans to develop land, we do not foresee it being taken away and don’t believe that there is any reason to panic”.
Infrastructure Investments: Talk of a smart city, a new university and a major dam to name a few will provide a much-needed boost for both the construction sectors.
That said this has been in the pipeline for years at Lanseria and is 'nothing new' he said.
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