The Public Investment Corporation (PIC), purportedly the largest individual investor in SA’s commercial property industry, continues to make significant investments in the sector despite the significant negative impact of the Covid-19 pandemic in most market segments real estate.
In July, it obtained Competition Court approval to acquire the Central Square development within the Menlyn Maine precinct in Pretoria for an undisclosed amount from Menlyn Maine Investment Holdings.
The PIC, which is the administrator of the Government Employees Pension Fund (GEPF), was a joint investor in the development of the R1.8 billion Central Plaza that was inaugurated in 2016.
Menlyn Maine Investment Holdings shareholders include African Spirit Trading 306, Kgwara Investments, architect Henk Boogertman, GEPF, and African Spirit Trading 309.
Central Square, considered a unique building consisting of business and office space, is the anchor of the Menlyn Maine campus.
This latest acquisition by the PIC to obtain the approval of the competition authorities follows the fact that PIC acquired in May of this year 100% of the lease rights of the Deloitte headquarters building in Waterfall City for R1.7 thousand millions.
The Atterbury real estate development and investment group, through Dale Creek Investments, was a 50/50 co-investor in the Deloitte building lease and was no longer concerned about the publicly traded Attacq real estate investment trust (Reit) in JSE.
While the Covid-19 pandemic has created uncertainty about the future prospects for the office property sector due to the work-from-home phenomenon, the PIC appears to be looking for good acquisition opportunities.
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PIC spokesperson Sekgoela Sekgoela said that PIC is a long-term investor and will not change its strategy just for Covid-19 in the short term.
He noted that the organization would monitor the long-term impact of the pandemic and respond accordingly “in accordance with customer mandates.”
“The pandemic has not affected all properties in the same way. The prices that have dropped substantially are for properties that are underperforming, ”he said.
Sekgoela said the two recent acquisitions are of fully leased properties, with long-term leases.
He declined to comment on the value of the Central Square transaction, adding that the financial terms of the transaction will be released as part of the PIC’s annual financial report.
“The PIC is a tenant in Central Square, occupying a building that the GEPF will own 100% after this transaction,” he said.
‘This is the time to buy’
Erwin Rode, CEO of real estate services firm Rode & Associates, said that for anyone who is confident in South Africa’s medium-term future, “this is the time to buy without question.”
“When everyone else is selling, that’s the time to buy.”
“It doesn’t surprise me at all that the PIC is buying. The implication is that they [the PIC] they are probably more confident in the economic future of South Africa than the average real estate investor, ”added Rode.
He believes that the value of commercial properties in South Africa has decreased by 10% in the last two years, but admits that in some cases this decrease could be much greater.
Rode said it is difficult to determine the drop in the value of the real estate sector because the market is still trying to “find a price level” and very few sales have been made.
“We know that it has decreased, it is just a question of how much. The reason for saying this is because we all know that vacancies have increased for office buildings, especially the old Grade B and Grade C offices, and we also know that rents are under great pressure, even in shopping centers, ”he noted. .
Rode added that when a lease comes up to renew, landlords face one of two things: Chances are the tenant will take up less space, or the tenant will negotiate hard for a lower rent.
Working from home in perspective
Rode said there are reports that some large US corporations will force their employees to return to their offices, but he believes the impact on the commercial property sector of employees working from home is likely being overestimated.
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“It’s not that 50% of people will go to work from home in the future. I assume that no more than 20% of people who previously worked in the office will continue to work from home after the pandemic.
“But smaller companies, especially, will be more inclined to allow employees to work from home,” he said.
Rode questioned the sustainability of companies that allow their employees to work from home.
“It is great to work from home as long as you get to know your staff and they know you and your company culture, but as people resign and you appoint new people and start working from home, it is more difficult to create a new one. company culture and educating people, “he said.
Rode believes that retail real estate will be the hardest hit in commercial real estate over the next few years because there was already an oversupply of commercial space in 2019 that “is going to last for quite some time.”
He said the poor anticipated performance of the economy in the coming years will mean that retail property vacancies will be higher than they would have been otherwise and that turnover per square meter from retailers will decline, putting pressure on rents. From the market.
Rode said typical average vacancy rates at good office nodes, like Sandton, are now more than 20%.
“If 20% of workers are going to work from home in the future, imagine what that will happen to vacancies,” he said.
Rode anticipates that office tenants will reduce the amount of space they rent.
“The office market will be in deep trouble for a long time, as a generalization, unless you have a AAA tenant with a long lease.
“But even they [AAA tenants] they will put pressure on their owners, ”he said.