According to Lao Tzu, the ancient Chinese philosopher and father of Taoism, the simple fact of the matter is that if you do not change direction, you may end up where you are heading which is often not where you want to go. And, by the end of a rollercoaster 2017, all indications were that South Africa was heading straight for an iceberg of Titanic proportions with little chance of avoiding the collision.
And the impact of the accelerating instability on an increasingly edgy investor market was perhaps most clearly evidenced in the auction sector because, although the industry is one of the most resilient during economic downturns, it is also one of the most reflective of the prevailing economic climate.
As a result, 2017 proved to be not only a bumper year for The High Street Auction Company and the real estate auction industry as a whole, but also one of the most interesting. We saw numerous market shifts precipitated by a spike in private sellers diversifying their investments, REITS making significant portfolio adjustments, and corporates disposing of assets.
And, contrary to what many would expect from such responsive market activity, the consequences were far from doom and gloom. The unprecedented volume of high-yield regional and suburban shopping centres that came onto the market last year galvanised a subdued retail sector and the mass reshuffling also provided smaller, emerging funds with exceptional investment opportunities that were previously unavailable to them.
However, the dramatic turn of events in the political arena at the 11th hour with the election of a new ANC leader appears to have initiated the chain of changes required to set the country on a promising new course. Not only have we entered 2018 on an unexpected positive note, we do so with a stronger rand, renewed investor interest and promising signs of movement in local markets.
So the question is: where will the smart money go this year?
And the short answer is that, for the most part, it will stay where it has always been – in commercial real estate in the major metros. Although we have noticed an upsurge in offshore investment, especially in overseas retail markets, we will definitely see increased commercial development, especially in Cape Town and Gauteng’s central business nodes.
One of the market driving forces is the growing appetite for modern office and retail space in the key hubs where vacancy levels are considerably lower than in B-grade properties – especially older buildings in outlying suburbs – and these investors are likely to come under increasing pressure.
We also expect to see increasingly competitive bidding for pre-zoned land which has now segued from an emergent to an established trend and auction lots we offer with zoning redevelopment processes already complete are now snapped up quickly.
Although many investors were deterred by the Western Capes water crisis last year when stringent restrictions were imposed, the impact on the market is likely to abate this year. Both residents and corporates are quickly adapting to a new way of life by accessing alternative water sources and installing water saving features and, with Day Zero already pushed back to the July when rainfall is expected, investor interest will resume and life will go on.
The general rule of thumb for making sound commercial real estate investments this year is to buy in close proximity to CBD’s, airports and main transport routes.
If President Ramaphosa is able to maintain his momentum by kickstarting immediate delivery on some of his promises, we are likely to start seeing market recovery in the major metros within a matter of months but the turnaround will be slower in smaller towns and rural areas as the trickle-down will take some time.
The expression “may you live in interesting times” is purported to be an old Chinese curse and, although it is undeniably apropos to South Africa right now, it is a blessing in many ways as significant growth and progress are seldom achieved without the impetus of challenge.
Joff van Reenen is a Founding Director and Lead Auctioneer of High Street Auctions.