In the 1st quarter of 2024, the percentage of respondents experiencing conditions as satisfactory was lower than the previous quarter, declining from the prior quarter’s 44% to 35%.

This decline follows on 2 prior quarters of increase, reflecting a lack of any clear direction in the property market recently, a feature that probably mirrors an economy also lacking any clear direction. This most recent level of broker business confidence remains very weak, implying that a majority 65% of respondents still perceive business conditions as unsatisfactory. While we had thought it possible that the SARB’s shift in monetary policy direction from interest rate hiking up until May 2023 (475 basis points’ worth of interest rate hikes starting late in 2021), to sideways movement thereafter, could lift property investor confidence mildly, perhaps such an expectation was premature.

Perhaps 2024 holds some additional uncertainty, with a crucial general election that is widely expected to usher in an era of uncertain coalition politics at national and major provincial government levels. This may add to concerns regarding future policy direction, and there may be something of a “wait-and-see” approach by some investors at least until after the May election.

Real GDP growth was a slow 1,21% year-on-year in the final quarter of 2023, after the previous quarter’s contraction, with a very low growth rate of only 0,6% being registered for 2023 as a whole. This reflects a growth rate that has settled back into the anaemic pre-Covid 19 rates, constrained by the economy’s myriad of structural challenges.

The brokers remain most optimistic about the Industrial and Warehouse Property Market, and this is the only market where the activity rating strengthened slightly. This market’s 1st quarter 2024 Activity Rating rose from 5,81 in the previous quarter to 5,44, and remains the strongest rating of the 3 property classes.

Cape Town remains perceived as the strongest market sales activity-wise recently, while Gauteng’s metros are at the weak end of the spectrum.

When viewing the sales activity ratings on a major metro regional basis, we are mindful of the fact that survey sample size is smaller, and results are more volatile. We therefore use a 2-quarter average to evaluate the sales activity ratings by region.

Not surprisingly, we see that the average sales activity rating for the 2 summer quarter surveys was highest of the major metro regions in the City of Cape Town in all 3 major commercial property markets, 5,96 in the Retail Market, 5,32 in the Office Market, and a solid 6,3 in its Industrial Market.

”Outperformance” of the City of Cape Town has been in play for a while, with the Western Cape region benefiting from higher levels of investor confidence in it due to a widespread perception that its provincial and many of its local governments are better functioning than many other parts of the country. At the weak end of the spectrum was Greater Johannesburg, with the lowest Retail Activity Rating of 4,03, the lowest Office Rating of 3,1, but a fairly solid 2nd highest Industrial Rating of 5,64. Tshwane, the other Gauteng Province metro region also returned relatively weak activity ratings, i.e., a 2nd lowest 4,14 for Retail, a 2nd lowest 3,9 for Office, and a lowest reading of 4,92 for Industrial.

Conclusion – Lack of strong direction in the 1st quarter, but the overall picture appears to be one slightly tilted towards weakening.

In the 1st quarter 2024 broker survey, the combined results regarding broker business confidence as well as broker sales activity perceptions show a lack of any strong direction, but on balance hint at a slightly weaker market early in 2024. 2 of the 3 major commercial property markets, i.e. Office and Retail, saw a weakening in their sales activity ratings compared to the previous quarter (the Industrial Market being the exception), but 2 out of 3 were perceived to have strengthened compared to 6 months prior (the Retail Market being the exception here), by the most recent broker sample surveyed.

Satisfaction with business conditions weakened quarter-on-quarter, and remains at a very weak level not far out of kilter with weak broader economy-wide business confidence. In short, therefore, survey responses relating to sales activity and broker confidence were a “mixed bag”, moving in divergent directions.

This lack of clear direction appears to reflect the broader economy in many ways. Interest rates have been unchanged and moving sideways since May 2023, after a prior 475 basis points worth of hiking. In addition to relatively high interest rates, national and provincial government elections are scheduled towards mid-year, with a high expectation of coalition governments at national and major provincial levels potentially creating policy uncertainty at least in the minds of investors.

These factors might well be promoting a “wait-and-see” approach amongst a certain portion of the market. Higher interest rates, accompanied by numerous structural economic constraints and very little economic growth, therefore make these recent survey results “not too surprising”. We may have to wait for the 2nd half of 2024 for more convincing signs of sales activity strengthening. FNB expects the SARB to commence with mild interest rate cutting shortly after mid-year. And by that time the elections will have come and gone.