'Better rent deals don't equate to tenants market'
Category Advice
Business property leases coming up for renewal under current circumstances have a good chance of being renegotiated in favour of the tenant but Gerrie van Biljon, executive director of Business Partners Limited, cautions against referring to 'a tenants' market'.
This is because the lacklustre economy tends to spread its misery to landlord and tenant alike.
Predicting that the current anaemic conditions will most likely dominate the property market for the rest of the year and beyond, he says, Even if the economy picks up, the usual slight lag will have to play out before spring returns to the property industry.
'The best advice for landlord and tenant alike is to grit your teeth. It may even pass as a smile.'
But he assures that things have not entirely ground to a halt. 'Property owners are tending to channel their energy into improving their existing businesses in the hope of increasing value.
'They are holding on to their assets so property prices are stable and there is still a deepseated belief in property as a long term safe investment.'
Business Partners oversees a property portfolio of nearly R1 billion and Van Biljon remains optimistic about the property market as an investment haven, despite the possible risks.
'The South African property market is less exposed to shocks in the global economy as, for example, the stock markets. Any of the imminent setbacks to the global economy, such as the raising of the close-to-0 percent interest rates of the developed world, or the tapering off of America's policy of quantitative easing will reflect immediately in the JSE indices, but not necessarily in property values.'
The fact that there are very few bargains to be found in South Africa's commercial property sector - particularly manufacturing and retail space - proves the market's status as a solid investment in difficult times.
On a micro level, the tenant market is experiencing a healthy adjustment. He elaborates, 'Many rentals paid by businesses have been well above market levels.
'They have been held there by multi-year leases, signed when the landlord-tenant power balance was quite different. As those leases come up for renewal many are negotiated down.'
With a general over-supply of retail, industrial and especially office space on the market, tenants have much more choice than in the past.
The result is that landlords are more flexible about rental escalations or the odd rental delay, and are willing to listen to requests for improvements and the installation of features such as security gates.
He is, however, quick to add 'If the over-supply of business premises were only the result of overreaching property developers, then tenants would have had a reason to smile, but unfortunately, the main cause is the pain that those very tenants are feeling in tight economic conditions.
'An increase in rental defaults shows that businesses are generally under a lot of pressure and struggle to meet their commitments, including paying the rent.
'That is why, when a lease comes up for renewal, it is often not just a lower rental that tenants are asking for, but shorter lease periods or reduced space.'
The traditional five-year lease with an option to renew for another five is no longer the norm. 'Nowadays, tenants want a year lease with the option of another year.
'It gives a business owner, who is uncertain in these circumstances, the flexibility to move to a smaller place - or perhaps even to bigger premises - when conditions change,' Van Biljon explains.
Landlords have it from both sides.
'Reliable, financially sound tenants are increasingly difficult to find. When a good tenant starts asking for all sorts of concessions, including a lower rental, it becomes increasingly difficult to pass on rising property costs to the tenants.
'The landlord therefore feels the squeeze of the rising costs of maintenance, insurance, power installation, and communal utilities such as water and electricity.'
Business Report
Author: Business Report
