Hotel income and office property occupancy rates remain well below pre-Covid-19 levels, and although vaccination programs have opened up international travel and enabled greater mobility in both tourism As in the corporate sector, these two real estate markets will continue to underperform in 2022.
This is according to First National Bank (FNB) commercial property finance economist John Loos, who spoke at the bank’s quarterly housing market briefing on Thursday.
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Capital growth in the hotel real estate market is expected to remain in negative territory at -5%, but this will still represent a recovery compared to -14% this year. The forecast for the office sector is -3% (2021: -11%), but industrial property expects a growth of 4% (2021: -1%). Retail ownership is forecast to grow around 1%, down from -4% this year.
In terms of net operating income, the industrial property market shows strong signs of recovery to pre-pandemic levels, according to FNB.
Loos says that a large portion of daily business interactions have been permanently “expanded” and a portion of corporate business travel will not return.
He believes the hotel real estate market is expected to lag behind the top three classes of commercial properties – office, retail and industrial – in terms of recovery.
“And then there is the struggling office market. This important class is expected to see their national average vacancy rate continue to rise in 2022 as many businesses reduce their office space needs, ”says Loos.
“There’s been a lot of talk about the rise in remote work … and this is a key factor in dampening the demand for office space. As blockades ease and economic activity normalizes, many have returned to their offices. But I believe that the level of work in the office will not return to the same levels as before the closures, and as the technology continues to improve, the trend of several decades towards higher levels of remote work will continue, ”he adds.
Loos says that people often overlook two other sources of pressure on the demand for office space. The first is the normal effect of the recession, which indicates that it caused a significant drop in employment figures in sectors of the economy linked to offices.
“This means that even without any increase in remote work, there is [fewer] employees in the service sectors, which means less office space is needed. ”
Then there is the trend around “hot desking” or “hotelling” of desks.
“The trend towards better use of desk space seems to have accelerated in recent times, and occupying desk space is all the rage. Hotelling refers to a desk reservation system, something that FNB has recently implemented, which means that employees reserve a desk for a day or they don’t have one, ”he explains.
Read: FNB expects only 40% of staff to return to offices eventually
“Gone are the days when every employee had a desk reserved for them, which means that a large portion of the desks were left empty most of the time. This exchange of desk space will further reduce the need for office space in the years to come, ”he adds.
Loos highlights that the office and hotel real estate markets will continue to underperform next year and could still see a further decline in face value.
Palesa Mofokeng is a Moneyweb intern.